Bruno Khan is a business leader with 15+ years’ experience in strategy/operations consulting and industry. He sold and delivered multi-million GBP engagements for global multinationals, launched Big Data initiatives to generate sales, and is a Thought Leader on the impact of new technologies in Procurement and Supply Chain. He recently wrote about the importance of bringing diverse skill sets from both Business and Science & Technology to deliver sustainable value.
In the last post, we discussed how better use of data can improve business performance, gave Internal Benchmarking as an example of using readily available data, and mentioned 3 ‘CAT’ skills required nowadays: Consulting, Analytics and Technology. Today we dive deeper into some of these points, provide specific project examples of how Internal Benchmarking helped improve business performance, and identify ways to get started. As internal data is readily available and easier to understand, we use Internal Benchmarking for various examples. However the ideas discussed apply to different types of data.
1. Consultants and Engineers
Management consultants are skilled at turning ‘data’ into ‘insight’: for instance, they can interview clients, employees or suppliers on a particular topic and synthetise recommendations to leadership, find market trends or perform an analysis combining multiple spreadsheets in different formats. When I transitioned from a technical background where complex modelling using specific tools was common place (like MATLAB or CATIA) , and joined management consulting, I was surprised at how much consultants relied on Microsoft Excel. That’s because most business problems, unlike technical ones, didn’t necessarily require complex analyses such as multi-dimensional optimisation or non-linear equations. Instead, a structured mind could perform a Pareto analysis and focus on what mattered most, almost always resulting in some kind of improvement.
This is slowly changing as firms seek optimisation rather than improvement, and statistical tools are becoming more common place. While ‘Big Data’ is still often a buzz word, it has become a reality for many B2C firms, due to the availability of downstream data from customers, compared for instance to upstream data in the supply chain. This too will change thanks to the accelerated technological disruptions from 5G technology and the Internet of Things.
2. Data as the new gold for decision-making
Additional data flows lead to an increased demand for analytics and new technologies. That’s where the consulting skill set can help – combined with strong analytics, which aren’t possible without technology nowadays.
Both Consulting and Technology firms have a role to play in order to have greater impact. While the former are typically able to engage in strategic conversations with business leaders and excel at problem-solving, they tend to lack the technology, making their services too often a one-off support rather than bring sustainable business advantage. The latter, often led by engineers, develop helpful software, but often have neither the functional knowledge nor the people skills to bring clients along a transformation journey: their clients end up buying promising technology, but don’t use it well.
As with many technology implementations, this business / technical language divide can lead to issues such as implementation delays and slow adoption, which are widely known. One issue that’s much less spoken about however, is the fact that most firms don’t use their own internal data well. Consequently, they lack relevant insights, can’t make informed decisions, and in turn don’t generate sustainable business value. Doing something slowly or not effectively may be acceptable, but taking no decision or bad ones shouldn’t.
3. Internal Benchmarking for growth
One example where analytics can be of great help, but is unfortunately seldom mentioned in business meetings or strategies, is ‘internal best-in-class’: while many companies aspire to be ‘best-in-class’ without clearly knowing neither what it means, nor what the class is, most of them have large amounts of data, but don’t know how to use it.
A Forrester study found that between 60% and 73% of all enterprise data isn’t used for analytics 1. Furthermore, while up to 40% may be used, it is certainly not used well, since many data sources remain in silos and are of poor quality (hence not trusted by employees). PwC also estimated that 20%-35% more revenue could be generated through better data analysis.
Internal data, and Internal Benchmarking, however, are a great source of growth – here’s why:
– Looking at a firm ‘vertically’, one can compare the performance of various Business Units (BUs) or teams. For instance, the Project Management function of a Professional Services firm can establish goals and metrics, measure team performance, identify internal best practices, and deploy them for everyone’s benefit. How many times have you seen Project Management ‘best practices’ shared internally?
– Looking at a firm ‘horizontally’, and focusing on the most important value chains that cut across business functions, a decision taken by one function shouldn’t impact another negatively. Instead, such decisions should be part of a corporate strategy and governance, backed by relevant data, with few KPIs and reviewed regularly by multi-functional decision-makers, to increase overall corporate value.
The same holds true within specific business functions. From my personal experience on past projects, examples include:
– In Manufacturing, Internal Benchmarking can help increase effectiveness, reduce downtime, or increase quality by comparing production sites or lines.
Example: A UK FTSE 100 player saw its OEE increase by over 20% by improving productivity on select production lines and applying lessons learnt to less efficient ones.
– In Quality (whether of physical or digital products), it can help identify the reject rate and the root causes of defects across product lines. Decreasing it reduces the number of complaints, and allows the Customer Service department to focus on value-adding activities such as pro-active ‘check-ins’ with strategic customers to offer them extra services, which in turn increases customer satisfaction drastically. How often have you seen ‘rework’ measured as waste?
Example: In a US software company, a client had been complaining for 6 months about high severity bugs 1-2 times a week, damaging the software company’s brand and allocating many resources to try to fix issues reactively. A multifunctional task force with support from other product teams was put in place for the account: they developed a dashboard, identified the issues, the potential root causes and solutions. Within a month, there were fewer bugs, they were solved quicker, and client satisfaction was much higher.
– In Logistics, Internal Benchmarking can help spot the most effective carrier modes / routes / partners and apply lessons learnt to the less performing ones.
Example: In a large EMEA FMCG firm, a weekly performance review using a simple dashboard showed that the best carrier was on average 4 times more efficient than the worst. Once the carriers in the lower quartile had only doubled their performance, most distribution issues had disappeared and overall revenue had increased drastically.
– In Procurement, Internal Benchmarking can help find spend reduction opportunities, adequate savings targets or contractual improvements.
Example: An Internal Benchmarking effort at a large European bank found that risks decreased and savings increased in the multi-millions by applying useful clauses from existing contracts to new contracts.
– In Finance, locations with the highest cash flows can be identified for instance, while the burn rate of newly established entities is monitored, to then improve budgeting and reduce budget variance over time.
Example: A new site of a global Chemicals player acquired through a merger was often in a fire-fighting mode, and the small local team was overwhelmed. A Finance representative was added globally to support local sites. Together, they started monitoring various aspects, from finances to manufacturing and supply chain issues. Once it became clear that several new sites were burning cash, budgeting was revisited globally to ensure that small / new sites had adequate support in transition. This forced larger, well-performing sites to operate with smaller budgets. Finance Directors who tended to outperform their peers brought best practices to other sites. In turn, budgets were reduced and met, savings millions.
– In IT, an Internal Benchmarking exercise can identify the most effective technologies used across countries and functions, in terms of benefits and costs. In turn, this can help remove outdated legacy systems along with their inherent costs, and introduce more agile software.
Example: A large bank launched a global IT programme to embed newer technologies, reduce costs, increase compliance and user satisfaction. It started with an inventory of all software and licenses used, launched surveys and interviews, and found that over 30% of software wasn’t used well, with many passive licenses. This was followed by a consolidation and renegotiation programme with existing and potential vendors which led to multi-million savings and a drastic increase in user satisfaction.
4. The Internal Benchmarking team
As with other types of business performance improvement initiatives, Internal Benchmarking has many benefits. However, not much will happen without the right leadership, vision, and teamwork. Below are a few important points for the central project team:
– Information and accountability: depending on the firm’s culture and goals, one should consider dashboards with relevant KPIs to compare business performance across BUs, functions, plants, countries etc (as in the Logistics example above). This can act as a powerful incentive to reward the best and/or improve the worst, be reviewed monthly and acted upon.
– Understanding root causes: as in the Quality example above, it is necessary to have a clear understanding of the underlying root causes of performance discrepancies, as they may be due to people, process, technology etc. Otherwise some decisions may lead to unwanted consequences.
– Minimising risks: sometimes, like in the Procurement example above, it may just be about reducing cases of poor performance, rather than ensuring that every case is closer to ‘internal best-in-class’. This reduces the spread, which in turn reduces the risks too.
Last but not least, nothing happens without people. Individuals driving key improvement initiatives should be supported, coached, and given incentives to succeed. Training programmes should include ‘CAT’ skill sets. Recruiting should look at bringing the right candidates in, e.g. by hiring consultants with engineering backgrounds.
5. Making it happen – and golf
To increase chances of success and before embarking on an Internal Benchmarking journey, one should consider four key points:
– Put the right team in place: Which individuals have ‘CAT’ skills, can identify insights from large data sets, bring people together across the organisation, and communicate best practices to improve performance? Which others can be trained?
– Use the right goals and measures: What are the key metrics and data sources to focus on, how well are they aligned to corporate strategy, and how much will they ‘speak’ to business leaders? Too often, when asked simple questions like ‘is there greater focus on revenue or profit?’, business leaders respond ‘both’, which in practice mean they understand goals differently.
– Ensure that the data can be trusted: Is the right technology in place to ensure visibility, and are there mechanisms in place to check and improve data accuracy regularly? Unfortunately, dashboards often end up not being used.
– Start small: Are there known pain points in certain functions that could serve as pilots? With more support comes greater chances of success.
As mentioned previously, Internal Benchmarking is just one example of how firms can improve business performance through the powerful mix of Consulting, Analytics, and Technology. While (external) benchmarking remains obviously very relevant, efforts shouldn’t be limited to that. Tesla doesn’t really care how good the competition is; however, it constantly focuses on improving itself, much like a golfer.
As a first step, corporations may want to launch Internal Benchmarking programmes to make the best use of the data that they have and can control, starting with a central project team running a pilot. Consulting and Technology firms should define how they can help, and bring diverse skill sets from both Business and Science & Technology to deliver sustainable value.
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