Benefits of an Executive Dashboard

By Gary Rinehart

Introduction

This white paper draws on the authors experience with over 20 years leading corporations and over 15 years of consulting and development efforts in the area of Executive Information Systems (EIS) to explain how many of these companies have created EISes that are of great value to individual executives, groups of managers and the companies they serve.

Simply, an EIS is a reporting system. And like all reporting systems, its benefits are often difficult to quantify. This paper will attempt to explain what some companies have actually done with EIS and why the results were valuable.

Where’s the Beef?

There are many perceived benefits of Executive Information Systems. Above all, however, the use of an EIS as an instrument of change stands out as having had the greatest impact. The process is simple:

1. Identify a small number of key business issues.
2. Create EIS reports that track progress on these issues.
3. Get the EIS into the hands of the people who can make change happen.

Despite the straightforwardness and simplicity of this process, many EISs do not start out being used in this manner. Rather, they start out as an alternate (and superior) vehicle for delivering existing management reports, providing a “reference library” of financial reports and other standard reports.

This approach to EIS also has considerable merit since companies have a great deal invested in existing reporting systems and yet many do not present information in an easy-to-use and relevant form. The EIS usually represents a small incremental cost, yet it can leverage and multiply the value of existing data and systems for managers and executives. Exactly how an EIS can add value to existing data will be covered in detail later in this paper.

Figure 2: Information Flow

The benefits of using an EIS to deliver existing standard reports include:

• Improved understanding of the business
• Time saved in reviewing information
• Greater access to supporting details
• More timely delivery of data
• Improved management coordination and control.

Nevertheless, there are enough EISs in use today that anyone studying the installed base will come to the conclusion that the value of an EIS is closely tied to its degree of focus on key business issues. In other words, if the organization perceives a need to change some aspect of the business, and the EIS is used to monitor the progress of that change, then the EIS itself becomes a catalyst and instrument of change and takes on a large and important role in the organization.

EIS in the Context of Traditional IT Technology

Until recently, information systems have been dedicated to the automation of well-defined tasks such as order processing, payroll, materials management, patient demographics, billing, etc. These systems are concerned not with what people do, but how they do it -- how they manufacture and test a product, how they enter and ship an order, and how they respond to the patient’s need for service. The benefits of these “foundation systems” are often quite visible. For instance, there are obviously competitive advantages to being the low-cost provider, or the company with the fastest delivery, or the company with the best customer service. These results have been achieved (and widely reported) through the application of IS technology. Examples include shop floor automation, airlines reservation systems, direct electronic ordering and billing, and computer-based testing and QA.

An EIS, on the other hand, addresses the issue of what people do. If a company has a problem in some area, people must direct their energies toward solving the problem rather than continuing with business as usual. The job of the EIS is to provide management with enough information to suggest that something has to change, and secondly to provide feedback on whether the new tactics are working.

Figure 3: Tying EIS to Business Strategy

Justifying the Cost of EIS

Not surprisingly, the cost justification of an EIS is not as obvious as with foundation systems. The mission of an EIS is not to reduce operating costs. Trying to cost-justify an EIS is like trying to cost-justify management itself.

The job of traditional computer-based systems is to make the business that exists today more efficient. The most important job of an EIS should be to act as a beacon that guides the organization from where it is today to where is wants to be tomorrow.

“This is what we want to achieve . . .”

“Management wants the organization to focus on these issues . . .”

“If these measures improve, you have succeeded . . .”

EIS Focuses Effort on Corporate Issues

No one has yet developed a convincing way to quantify the value of this mission. However, the rapid growth of EIS suggests that many executives understand instinctively that the use of EIS may in the long run determine their ability to manage change and ultimately to compete and survive.

In this sense, EISs are now being regarded as “strategic” by many companies in that they allow the company to manage change that might otherwise be unmanageable. Just as a computerized order entry system is a tool that helps clerks do their job faster and better, so the EIS is a tool that lets executives and managers deal with the complex process of change by greatly extending their capability to monitor and control organizational efforts and direction.

Even though it is quite possible that no one will ever be able to point to a single dollar “saved” by an EIS, executives themselves will and have testified that their EISs have become an indispensable part of the way they run their business.

Focusing on Key Business Issues

Issues and Answers

An EIS is most effective for dealing with issues that have a time horizon of a few months to a few years. Shorter term issues are best handled verbally or with E-mail. Longer term issues can certainly be addressed by an EIS, but need to be broken down into shorter term objectives in order to be a guiding and motivating influence on the organization. A survey conducted in 1991 by Management Analysis Company (MAC)1 indicated that organizations have difficulty relating to business issues that extend too far into the future.

Most executives can tick off a list of five or ten current business issues without hesitation. Each of these business issues suggest tasks or new activities and corresponding measures of progress. Each task in turn suggests subtasks with their own measures. Here are two examples:

ISSUES: Inventory tying up too much capital

EIS MEASURES:

Aggregate inventory by type vs. objective

• Finished goods
• Work in Process
• Raw materials
• Accessory

Actual Production vs. Scheduled Production

• In house
• Jobbed out

Shipments vs. objectives & last year

• By product
• By product line

ISSUE: Sales off from targets

EIS MEASURES:

Order Entry vs. Objectives vs. last year

• Total
• By Region
• By District
• Top 100 accounts

Shipments and Backlog

• Same as above

Most “management reports” are the by-products of systems that have principle purposes other than management information, for example, running a factory, reporting to the IRS or SEC, producing a payroll, etc. By contrast, an EIS exists for the sole purpose of helping executives to meet their goals and objectives. So rather than allowing accounting and production systems to determine what data is available to managers, it is possible with EIS to let the business problems define what is measured and how it is presented.

In most cases, EISs are installed because existing information systems fail to provide the data needed to address current business issues. Here are a few examples drawn from the survey:

• At a major insurance company, controlling headcount became one of the most important issues in running the business. A simple question like “How many people work for this company today?” produced three different answers: one from Human Resources, one from Finance, and one from Administration. None agreed.The President of the company chose a method for determining headcount for the company, its divisions, and down to the departmental level. These numbers are now tracked on the EIS that now contains the “official” numbers.With the President watching these numbers on a daily basis, department heads are very wary of adding personnel without thorough justification. Thus, with one stroke, the President has changed long-standing habits and corporate culture and solved a thorny business problem.
• At a leading pharmaceutical company, the executives use their EIS’s exception reports to keep track of the sales of hundreds of different products in markets world-wide. Anytime a product outperforms expectations by a significant margin, the exception reporting system flags the event and brings it up on the EIS. This helps major opportunities from being “buried” and provides visibility high in the company for early signs of product success.
• At a consumer products manufacturer, the EIS provides marketing managers with daily information on the prices of competitive products around the country. By accelerating the delivery and analysis of this information, the company can respond with promotions, prices adjustments, and advertising to quickly combat moves by competitors.
• A manufacturer of heavy equipment uses their EIS to get quality reports to the top executives. The company had determined that it was losing old customers because of product defects. management wanted to promote product quality as the number one business issue. The new EIS with its focus on product quality statistics allowed senior management to ask very specific and well-informed questions. The message got through to the organization that management was dead serious about this campaign. Soon new and innovative quality improvement programs emerged at the plant level.
• At an international bank, executives became concerned about their ability to spot emerging problems in their Latin American loan portfolio. So an EIS application was put in place to monitor not only the results of various foreign operations, but also a great deal of “soft” data about the political climate, nature of the businesses who are the bank’s customers, and staff capabilities in each of the bank’s foreign branches.
• The concerns of the management team at an international chemical company focus more on mergers and acquisitions. Their EIS maintains a database of companies that are potential acquisition candidates, complete with breakdowns by lines of business and geography. Executives can “merge” any of these entities into the company and immediately get a rough cut on how the merger would change the complexion of the business. This information helps them identify companies that would achieve the mix of products and distribution that they seek for their company.
• An electric power utility uses an EIS to immediately alert managers to any emergencies, such as an “event” at their nuclear power plant, major power outages or service interruptions, and dangerous overload conditions. The system continuously monitors the availability of alternative sources of power so that decisions can be made quickly if necessary.

In each of these examples, the information provided by the EIS was not easily obtainable from existing systems, at least not in a form that served the purposes of the executives. Note, for instance, that none of these systems rely on traditional financial reports.
From the executive’s perspective, the unique value of the EIS is that it can track any information, regardless of where it comes from, without impacting the operation of existing systems. The executive finds out what (s)he needs to know, when (s)he needs to know it. And the fact that the executives are watching certain information causes the organization to focus on the improvement of that information.

The flip side of this “EIS as a catalyst for change” is that executives can explore information with anonymity. One executive told us how he used to think twice before asking for things as innocuous as the advertising budget. Simply by asking an innocent question, subordinates went into a tizzy trying to anticipate why the executive asked the question and where the ax was going to fall. This executive appreciates the ability to use his EIS to satisfy his curiosity on various subjects without sending his troops scurrying.

Key Performance Indicators

The concept of Key Performance Indicators (KPIs) came out of MIT’s Sloane School in the late 70s. KPIs are an element of a methodology called Critical Success Factors (CSF). This methodology has three basic steps:

1. Overall corporate goals are broken down into appropriate goals for each division and department.
2. Each business unit identifies a number of critical activities (CSFs) that must be done well in order to achieve its goals. These activities must correspond to people or departments who are responsible for doing them.
3. Each business unit must establish a means for quantifying their successes. These measures are the Key Performance Indicators.

For example, suppose a company decides that one of its corporate objectives is to improve customer satisfaction. At the corporate level, a periodic survey of customers would be a key performance indicator since corporate managers are responsible for the overall effort. Activities that contribute to improvements might be:

• Improved product quality
• Improved customer service and support
• Improved delivery times
• More customer-suggested product enhancements

Each of these activities suggest their own set of key performance indicators.

The most important part of this process is that the key performance indicators are measures that the persons involved can actually take responsibility for and control. By definition, these KPIs will never be boring or irrelevant to their associated managers. They will never seem like excess or unnecessary data. And the EIS that tracks and reports these KPIs will become an indispensable tool for running the business and achieving results.

It is important to remember that KPIs relate to the activities of specific management levels or groups. A KPI that is very important to one level of management may be irrelevant to another. For instance, a KPI for the CEO might be return on equity. This KPI might seem completely irrelevant to the sales manager whose KPIs are specifically focused on revenue generation.

Daily Operating Reports

One obvious advantage of an EIS is the speed with which new information is distributed. The moment the central EIS database is updated, all users can see the newest information.

Consequently, the distribution of highly time-sensitive data is an obvious application for an EIS. Even though many top managers are not concerned with daily operating numbers, they are often interested in daily stock prices, fluctuations in currency and commodity markets, world and business events that will impact the company, and important internal events and developments.

Further down in the organization, however, we quickly encounter a layer of management that is typically very concerned with daily results. These managers have roughly twenty-one business days each month to meet their objectives, and every day counts. Daily sales results, competitive moves, production results, machine downtime, business interruptions, injuries, staffing, and materials costs are among the kinds of daily operating data that require rapid distribution and analysis. Many EISs find their greatest value when applied at this level rather than at just the pinnacle of the corporation.

Competitive Intelligence

All businesses are concerned with competition. The ability to size up a competitor’s strengths and weaknesses and the ability to react quickly to competitive moves are often critical to success. One EIS at a multi-national company uses competitive intelligence to identify takeover targets. At another company, the EIS has speeded up the delivery of competitive pricing information. And nearly every EIS has at least financial data available on major competitors.
An EIS, with automated hooks into various on-line public databases, can scan the contents of every major newspaper, business periodical, trade publication, and securities analysis for any mention of your competitors or product areas. The “one-column-inch” about a competitor’s new product will not be overlooked. And as soon as one of your competitors submits financial results to the SEC, they will be on the EIS for your immediate review and analysis.

Some companies have internal competitive intelligence departments. But frequently the information generated by these groups is not coordinated and distributed to key executives in a useful way. An EIS can be used to store and disseminate internally generated competitive intelligence and leverage the value of your existing investment in these activities.

Internal Narrative

Most people think of a computer-based system in terms of numeric data. Yet, for executives, the most important information may be in text form rather than numbers. For instance, a report explaining problems and delays with a new production line may be far more important than the quantitative measures of the delay.

Unlike other computer systems, an EIS is designed to store, sort, and retrieve text as easily as it handles numerical data. For example, at one company the EIS is used to track the progress of several hundred legal cases. Each case is categorized on its potential financial impact, publicity impact, affected products or business units, and likelihood of winning. Each case contains a summary of the complaint and the monthly update on progress by the legal department. So, for instance, an executive could quickly identify all product liability cases that might have a large dollar impact on the company and have a high likelihood of the company loosing. And more importantly, the executive could get a sense from the narratives of how each case is progressing. All of this is prefaced by an “executive highlights” narrative written by the head of the legal department.

At another company, narrative reports are submitted each week concerning the progress of roughly 125 new products under development. A color coded top menu lists the projects in red, yellow, or green letters to highlight underlying reports that contain highly adverse developments, cautionary developments, or favorable progress.

Another typical application of text retrieval is the dissemination of monthly operating reports written by heads of business units, divisions, or departments. it is often the case that these narrative reports must accompany or precede the distribution of numerical reports since they contain explanations for the numerical results. An EIS usually saves old reports so that an executive can look back and review what various managers had said in the past.

Getting More Value from Existing Data

Most organizations are already spending vast sums collecting operating and financial data. The value of this data to the executive depends on its accessibility in a useful form. Once we are freed from the severe constraints of a paper-based reporting system, considerable improvements are possible.

Just as a PC spreadsheet have all but replaced paper spreadsheets, so EIS will largely replace traditional paper reports. EIS has appeal because the executive gets more insight and information in less time. It is simply a more powerful and effective media for communicating existing data.

Navigation and Analysis

Why is an EIS a better reporting system? Two factors:

1. Navigation: Navigation refers to how you find your way through the data. indexes, tables of contents, and footnote references are the traditional ways of navigating through paper documents. They help you locate the information you are interested in and they lead you to related information or supporting details. The use of EIS offers greatly improved navigation methods.
2. Analysis: Analysis refers to the ability to relate disparate pieces of information in order to answer a business question. Example: Sales of our shampoo have been increasing in the Chicago market. But how does this compare with competition? Are we gaining or losing market share? Was there a change in the trend when we switched agencies? To answer these questions requires relating monthly historical data for our product and competitive products.

Computers have permitted major advances in both navigation and analysis. In the following sections, I will look at the navigational and analytic capabilities of an EIS as it deals with various kinds of information.

Hierarchically Organized Financial Data

One kind of data that every organization already has is financial data -- income statements, balance sheets, cash flow statements, and so forth. Usually such financial data is organized in a hierarchical structure. Example: Consolidated sales breaks down into sales by region. Sales for each region breaks down into sales by product group which in turn break down by individual product, etc.

Consolidated Sales............................................................. 1 item
Sales by Region...................................................... 10 items
Sales by Region by Product Line.................. 100 items
Sales by Region by Individual Product 1,000 items

If there are 10 regions, 10 product lines, and 10 products per product line, then a report that shows sales by region by individual product would have 1000 line items. In actual practice, this 10:1 explosion of data volume for each successive level of detail is quite typical. Consequently, in a large company with thousands of products, hundreds of markets, and multiple corporate entities, the paper reporting system becomes enormous, as we all know.

The irony is that the executive only needs perhaps 1% of this information. But, since you can never tell in advance which 1% will be needed, you must print it all. So a paper report is like a reference library -- it is only useful if 100% of what you need is available, even though 99% of what’s available is of no interest.

The bigger the reference library, the bigger the card catalog, the more rows of shelves to search, and the harder it is to locate information. So with paper reports. The larger the reports, the harder it is to navigate through the data, and the longer it takes to get the information. An the Analysis of information is of course slower as well. Paradoxically, the larger and more comprehensive the system, the less useful it becomes.

As the range of information contained in a reporting system increases, the system should become more useful and powerful, not less. With paper-based systems, the increased complexity of navigation outweighs the added value of the information.

The survey1 of executives revealed these perceived problems with existing reporting systems:

• Too much irrelevant data
• Much data not timely
• No ability to see trends or directions
• Can’t easily see key ratios
• Numbers not adequately explained
• Getting new or modified reports requires IS support and usually takes too long

An EIS addresses many of the shortcomings of paper-based reporting. The following lists just a few options that may be programmed within a particular EIS.

1. Pointing to line item name takes you directly to supporting detail.
2. Pointing to any number on the screen produces a graphic analysis of trends
3. Exception report automatically finds line items that vary significantly from budget
4. Any screen can be annotated and “mailed” to another user
5. Explanatory text narratives can be attached to every screen of numbers
6. Whatever is on the screen can be downloaded to a spreadsheet (Excel, Lotus 123, Quatro Pro, etc.)
7. Any screen can be printed on demand

The most important feature of an EIS is the intuitive navigation path through the data. If you want more details behind a line item, you literally point to the line item and the details appear.
These capabilities are only some of the facilities offered by an EIS hierarchical reporting system. The result for the executive is less data to manually review, faster answers to questions, more insight into problems and opportunities, and more timely delivery of the data.

The Relational Data View

Although hierarchically organized data is the traditional way to create management reports (because it adapts well to a paper-based system), there is a more powerful way to look at data that cannot be adapted to paper -- the so-called “relational” view of data.

Figure 4: Relational Data Cube

The relational data view allows you to “cut and slice” your data any way you want. For example, you could look at sales data by region, by product line, by salesman, by customer type, by customer size, by order size, by order frequency, etc. There are nearly an unlimited number of ways to look at any given database. That’s why a relational view of data does not lend itself to paper -- you would have to generate a nearly infinite number of reports.

But a relational view is no problem for a computer. You simply select how you want to slice your data, and the computer retrieves and displays the data the way you want to see it. In fact, many companies use relational databases on their mainframe as well as their PC. But since the reporting medium is usually paper, it is only practical to print out a small number of possible views of the data. And the user therefore does not fully benefit from the relational database technology that already exists.

Learning to use the “relational query” facilities of an EIS requires only a few minutes of practice. Once the concept is mastered, it can be the most powerful new tool for helping managers and executives understand what is really going on in their businesses.

Other Ways that EIS Adds Value

There are three other benefits of an Executive Information System that were identified in the survey: 1) an improved mental model of the business, 2) improved consensus building and communications, and 3) the traditional office automation benefits of efficiency, timeliness, and accuracy.

Enhancing the “Mental Model”

Today, the notion of a “mental model” is widely accepted in business academics. A person’s mental model explains their behavior in terms of their perceptions of the world and their experiences. For example, former President Reagan ran U.S. economic and foreign policy very differently from former President Carter. Both men presumably share the same goal of prosperity and individual fulfillment for all citizens, yet their different mental models of the way the world worked dictated that they adopt very different strategies to achieve the desired results.

Similarly in business, all CEOs share the same desire to maximize the return to the shareholders, but their strategies for achieving that result will be as varied as the CEOs’ mental models of the business. Mental models affect decision makers throughout the organization. For instance, further down in the organization, judgments such as how the public will respond to a certain advertising message are a function of the mental model of the marketing manager.
What happens when the mental model is defective? To some extent, all our mental models have defects. If they did not, we would never make mistakes. Like most statistical effects, however, mental models tend to cluster around the generally accepted view of reality. Those whose mental models are outside of these norms are generally considered either innovative, perceptive, and brilliant, or eccentric, “out to lunch,” and peculiar, depending of course on the outcome of their decisions.

Defects in the mental models can have disastrous effects. Suppose your mental model says that 1) Japanese make cheap, me-too, products, 2) that Americans only want big comfortable cars, and 3) that quality is not so important because Americans want to trade in their cars every three years anyway. Result: the U.S. automobile industry. Or suppose your model says that nobody will want to listen to a cheap little transistor radio with a 2 inch speaker. Result: the U.S. consumer electronics industry.

A business executive’s day is filled with processes that enhance his or her mental model -- meetings, phone conversations, first-hand observations, reading reports of results. These activities are “windows into reality” where executives can test hypotheses and theories against fact or consensus. Group decision making and consensus building are techniques that people use to smoke out defects in their mental models. If everyone disagrees with your judgment on some matter, then chances are that your mental model needs further testing and refinement. The more decisions you make and the greater the magnitude of those decisions, the more important it becomes to constantly refine and test the mental model. Therefore executives are heavy consumers of information and spend much of their time in meetings.

Information systems are one of the executive’s most important windows into reality. However, since most information systems are not designed primarily for executive use, they do not offer a particularly good window. Information needed by the executive is frequently not current, is hard to access, is couched in massive amounts of irrelevant data, and is often inconsistent with other data sources. Frequently there is more emphasis on numerical data than on knowledge interpretation of the data, i.e., lots of numbers, but few words.

Consequently, the executive’s view of IS is not always flattering. Most executives share the perception that information technology is best applied at the clerical or middle management level. They have seen little evidence that IS can be relevant to the problems of senior managers. This is a view of IS that an EIS can change.

An EIS improves the executive’s mental model by improving access to information that can be used to test assumptions. And to the extent that management turnover is a fact of life, the EIS can help new managers gain a quick understanding of their new domain.

Consensus Building

An EIS can be shared by all members of a decision making group, thereby providing a consistent and reliable set of data for all to reference. It gets everyone on the same page of the playbook. With each member of the decision making group better informed on the facts, the consensus building task of the executive can be faster and more productive -- instead of spending time trying to figure out whose numbers are right and how they are defined, the time can be spent discussing the various interpretations and analyses of the numbers.

There is also a communications aspect to an EIS that promotes speedy problem resolution and consensus building. If an executive sees information that requires explanation or consideration by others, (s)he can electronically send the information (s)he is looking at to others, along with his/her questions or comments. If a phone conversation is needed, then participants can all look at the same information on their screens.

Efficiency, Timeliness, and Accuracy

An Executive Information System ought to reduce the executive’s burden, not increase it. A truly efficient information system will be used less, not more, relative to the amount of information accessed. A system that raises more questions than it answers, presents the executive with more data to review rather than less, or is slower or less convenient than other methods of accessing data will fail.

Information that is distributed electronically through an Executive Information System saves time for both the user and the provider. “Saving time” means not only more current information for the user, but less time spent in accessing the information. These are two separate issues.
Most importantly, an EIS can filter and compress a broad range of data into a much more manageable set of reports. Techniques such as “compression grids” and “exception reports” can focus management attention on areas of the company that are not producing the expected results. Areas of the company that are performing either much better or much worse than expected surface automatically. Reports that contain “hot” issues are collected separately from the rest of the data so that they can be accessed quickly.

The information provider’s task is also simplified. Since an EIS provides facilities for the user to customize his/her own reports and do much of his/her own ad hoc analysis, there may be considerably less of this type of activity by the data provider. The process of updating, reviewing, and releasing new information is accelerated because there is no printing and paper distribution cycle to wait for.

An EIS also offers a wide degree of control over accuracy and timeliness. Generally, there is a tradeoff between accuracy and timeliness. In accounting systems, accuracy generally takes precedence over timeliness. Since most traditional management reports are spin-offs of the accounting system, they are subject to at least the same delays that are required by the accounting system. However, for management purposes, it may be far more important to get preliminary “flash” reports that have a degree of uncertainty than to get accounting quality numbers days or weeks later. Since the EIS will not be used to compute taxes or report to the SEC, it can be set up to provide information in the way that is most useful to the executives.

Conclusion

The two most important benefits of an EIS are:

1. a better set of tools for reviewing and analyzing existing information, and
2. the availability of key information that cannot be obtained using existing systems.

In addition to these two benefits, it is important to recognize that an information system can be a catalyst for change, refocusing the organization on new activities and goals. The EIS can be instrumental in extending a manager’s “reach”, putting the manager in closer contact with key individuals up and down the organization, and perhaps allow the company to reduce unnecessary layers of reporting management. And it can be a beacon guiding the rest of the organization towards corporate goals.

Once managers get accustomed to having an EIS, the limitations of a strictly paper-based reporting system seem intolerable. Simple facilities that are taken for granted in an EIS, yet are extremely difficult with traditional reporting systems, offer the first substantive opportunity for organizations to apply information technology to the business of management.

1 1993 Management Analysis Survey administered by the author. 800 surveys were sent to Fortune 500 executives. 190 responded representing 107 companies