Faced with intense competition and accelerating business cycles, firms must end their reliance on backward-looking measures to run their business. According to a new Report from Forrester Research, Inc. (Nasdaq: FORR), the majority of firms depend primarily on the financial closing cycle and general ledger for management information, limiting executives from anticipating and reacting to market trends. To succeed, companies must look beyond financial management by assembling leading business performance indicators targeting supply, demand, and customer satisfaction to successfully manage business direction and speed.
“Companies must move beyond financial management to embrace business velocity management,” said Laurie M. Orlov, research director at Forrester Research. “To manage business velocity, Forrester recommends that executives pour energy into developing a customized scorecard that taps internal, external, operational, and fiscal sources of business performance.”
The first step toward developing a scorecard is selecting leading indicators by drawing from internal operations across the firm and from external sources. The second step is modeling expected performance by extracting historical data to learn what typical performance looks like and when to raise issues. The final step is monitoring indicators against the model by continuously weighing them against the performance model to trigger any action and regularly refine the model.
Business velocity management allows executives to gain operational visibility across the organization by assembling and adjusting supply, demand, and customer satisfaction indicators. Executives also gain valuable insights from outside the firm by linking velocity indicators from suppliers, customers, and market watchers. These forward-looking indicators allow the CEO and CFO of an organization to better understand their company’s position in time to adjust strategy. Creating time to react to warning indicators is the critical difference between managing business velocity and merely reporting on quarterly financial performance.
“Firms should give up on the balanced scorecard prevalent in today’s world of basic financial reporting,” added Orlov. “While financial reporting is a critical management tool, even a daily look at the closing of books does not provide the level of insight required to make critical changes midcourse. Firms that are the most in touch with what’s going on inside and outside will have the insight to quickly change gears and seize a new business opportunity or tackle a looming crisis.”
According to Forrester, firms must assemble a new internal team with a mission to collect data from across company departments and from outside partners and providers using enterprise resource planning (ERP) and analytic applications. After modeling the company’s processes and mining historical data for predictive benchmarks, real-time data can be fed into the model to monitor the company’s business velocity. Automated alerts and real-time analysis can then be used to convert insight into competitive advantage.
For the “Managing Business Velocity” Report, Forrester interviewed 22 executives from companies in the consulting, financial, computing, electronics, and Internet industries.