Business Analytics and the art of cycling

Road biking is a big passion of mine. The other day I was out on a long training ride with a good friend. One of the nice things about biking is that you can talk a lot on those rides. Since we were talking about different aspects of our work, my friend finally wanted to know what was so special about this “Business Analytics stuff”. How do you best explain that to somebody who is only remotely connected to IT, Finance and management? Luckily, I had a great story to tell him. And it’s not just a regular story. It is actually my personal success story in cycling.

HIGH TECH

About a decade ago, modern technology entered the world of professional cycling. Smart technology became available to measure not only the typical parameters of cycling like speed, distance etc.. This new piece of technology was called a “Powermeter”. This high-tech gadget allowed cyclists to measure advanced data such as power output, pedal torque, cadence etc.. Today some of these devices even measure aerodynamic drag.  Powermeters help athletes like myself to learn about themselves and to perform better. Needless to say, I invested in this technology about five years ago. It is a CycleOps Powertap with Bluetooth technology.

THE ERP OF CYCLING

Ok. But what does that have to do with Business Analytics. Very easy. The Powermeter is my transactional system. It records my ‘business’ on the bike. Second by second. Mile by mile. While I am riding, I can check my speed, power output, cadence and many other things. Just like a good solid ERP system. The gadget allows me to manage the operational aspects of my ‘cycling business’, i.e. I can lower my power output, increase cadence etc..

ENTER ANALYTICS

After each ride, I can then download the ride data. There is an extremely awesome piece of software called WKO+. It was created by two smart cycling professionals that have conducted ground-breaking research. This application helps athletes analyze their ride data. The objective is to become smarter (think knowledge about your own body) and to make better decisions about your training. This is basically Business Analytics for cyclists. Let’s take a look at how this works.

THE DASHBOARD

After each ride, I can analyze a Dashboard. This dashboard provides me with an overview of my most important metrics such as power output, mileage, cadence, time in training zones, etc.. There is a daily and a monthly dashboard. This helps me identify potential issues and to check my overall performance and progress. In Business Analytics, we implement dashboards for our executives and managers. The only difference is that they look at different metrics like sales, margins, profits.

WKO+ dashboard
The cycling dashboard from WKO+

ANALYSIS

If I spot something curious, e.g. an unexpected poor performance on a ride, I can immediately drill down to analyze the detailed data from my ride. This analysis contains a detailed report of some metrics and I can visually analyze the ride second by second. Going through the data, I can spot interesting things like power spikes, rest periods etc.. This helps me put the overall picture together of why I performed in a certain way. The analysis also helps me learn more about myself: what are my boundaries, what are my strengths etc.. The same thing is true for Business Analytics. If we spot some problems or opportunities, we perform analysis using our rich transactional data. This helps us identify critical business insight.

WKO+ detailed ride analysis
The detailed analysis of the ride: power, altitude and more

LOOKING AHEAD

Now that I have understood how and why I performed on my bike I can start using this information to plan and adjust my upcoming training plan. There are some smart algorithms in the software that help predict future performance based on past power-output and training load. Using this inside, I can then fine-tune my training plan and hopefully scare my riding friends by outperforming. Many companies leverage Predictive Analytics to make sense of data and to look ahead. They want to identify customers that might be more profitable in the future. They might want to spot opportunities for cost savings. And they use the insights to formulate and update their business plans.

Planning ahead

THE ROI

My friend now understands clearly what Business Analytics is all about. Since I was able to seriously drop him on a climb he was curious about the ROI of this. Well, the technology has enabled me to learn a ton about myself. I know my boundaries and I am able to push myself much further than I ever have. I was able to survive a grueling 7 day stage race across the Alps and all that with a minimum of preparation. All that by being smart about my racing tactics and most importantly about my training approaches. The same thing is true for businesses. I have worked with companies that have literally transformed the way they do business using the insights offered by modern Business Analytics software. This software now represents the central nervous system of these organizations. Why don’t you try that yourself?

If you are interested in learning more about how I use a powermeter during training, please read my personal blog:

An interview about Performance Management

IBM Switzerland conducted an interview with me a while ago. For some reason, a friend of mine stumbled upon this last week. The interview was conducted in German, but I have attached the English transcript produced by IBM. The Podcast appeared on the Swiss IBM website.

Welcome to the podcast on the subject of optimized performance management. In the discussion is Christoph Papenfuss, director of the IBM Cognos Innovation Center. The interview was conducted by Christian Achermann.

Christian Achermann: „Mr Papenfuss, could you provide us with some information about yourself and your function at IBM?“

Christoph Papenfuss: „Gladly. My name is Christoph Papenfuss. I have been at IBM Cognos for six years. I began my career at Cognos in the USA, in San Francisco, where I managed the consultancy business for our customers on the West coast for many years. In this function, I worked actively together with the customers to implement performance management solutions. Two years ago I returned to Europe with my family to set up the Cognos Innovation Center.”

Christian Achermann: „With which difficulties are finance managers currently primarily confronted?”

Christoph Papenfuss: „We are certainly living in turbulent times, there’s no doubt about that. With the collapse of Lehmann Brothers on 15th September 2008 our world changed, and our finance departments were thrown into turmoil. The year 2009 is of central importance with regard to the finance department. If you look around at how companies are reacting to the crisis, you very often see cost management, active cost management, focus on cash-flow management, profitability of various products etc. and of course risk management. When examining the various areas in which companies are currently active, the finance department emerges as the expert in these sectors.“

Christian Achermann: „At the moment, access to the capital market is rather limited. Despite this, financial resources are urgently required. Which demands does a company need to fulfil to acquire financial resources in such uncertain times?“

Christoph Papenfuss: „It is in fact true, that at the moment, it is extremely difficult for certain companies to obtain new capital. A few months ago, I had the opportunity to meet with the CFOs of large German banks. The general tone at this event was that, in the future, banks want to receive completely reliable and sound information from the companies in which they are considering investing. This information must be provided rapidly, and the banks want to be sure that they are investing in a company that is being capably managed. As I said before, companies today must be in a position to provide the figures very quickly in order to fulfil this requirement. The figures must be available for various scenarios, and the investors of course want the figures to be reliable, i.e. so that as far as possible, there are no surprises. This requires very sound reporting and analysis processes; however, the forecasting processes are also highly important, and it is precisely here that performance management is applied.“

Christian Achermann: „A volatile market environment on the one hand conceals risks which need to be identified and managed, and on the other hand also hides chances which should be exploited. In addition, finance and business managers are under great pressure to take better decisions faster. Isn’t there a contradiction here? How do performance management solutions support the creation of well-founded decision principles and the measures defined on this basis?“

Christoph Papenfuss: „The volatile environment does hide risks, but as has been said, it also hides chances. This fact is unfortunately sometimes forgotten. Let’s take the example of options. The greater the volatility, the more valuable they are. It is precisely this current volatile environment that offers very many opportunities to companies. They can strengthen their position in the branch and generally position themselves better, i.e. implement new measures to strengthen the company in the long term. Let’s take a look at the effect of performance management. At IBM Cognos, we assume that the performance management focuses on three critical questions. What do we accomplish and how are we currently doing? Second question: Why is this so? And the third question is: what should we be doing? Should we stay on the same track or should we change something?“

Christian Achermann: „The IBM Cognos software serves to automate and reorganize financial and operational performance management processes. Could you explain this statement by means of an example?“

Christoph Papenfuss: „One of our very good customers approached us. He was confronted with a succession of negative events, and felt compelled to issue a forecast relatively quickly. The process took the following course. The event was registered. The management team developed a forecast: a global forecast for all finance data. This involved the creation of 150 Excel templates, the manual input of current data from the ERP system into the templates, the processing and sending of these 150 templates to the various business units. The finance departments had to sit down together with all the 150 departments and explain to them how these templates worked. Errors in formulae occurred relatively frequently. The 150 templates therefore had to be collected again to correct the errors, and then be resent. Only then did the actual process begin: the time-consuming collection of data as well as the consolidation of the spreadsheets. This can last hours, or even days. Moreover, specific parameters had to be changed as „what-if analyses“ were necessary. The process is extremely time-consuming. With performance management processes, this is a whole new ball game. Here I can manage my models and templates centrally, i.e. I need only change a formula in one place and I can send it automatically and selectively to specific business units. The business units can then process the templates further, and we as the finance department, support them. The data is then automatically consolidated. In this way I can create my analyses very quickly, or examine scenarios etc.; and all this in real time.“

Christian Achermann: „Which innovative solutions can be expected in the future in the area of performance management?“

Christoph Papenfuss: „Generally, I think we will see a significantly greater focus on the end user. It is a fact: today’s end users are highly qualified. They want and need to create analyses and reports very quickly. Today it is neither possible nor desirable to wait days or weeks for the IT department or other departments to create certain reports, carry out analyses for us or develop databases for us. This means, as an end user, I now need to be in a position to create my analyses personally, independently and fast. For this reason, the focus will increasingly be to provide the end user with an increasing number of and more efficient tools in order to fulfill this need. Naturally, you don’t have to look far for the integration of new technologies such as Web 2.0, mobile technologies and others. Over the coming years, many changes are in the offing.“

The useful budget?

Fall of 2010. Many people across the world are engaged in a process that has polarized generations of business managers. Some love it. Most hate it. Yet, almost every company invests endless numbers of hours into the process. We are talking about the annual budget.

BEGINNINGS

The annual budget is a management tool that was invented to help managers guide their undereducated employees. It had its origin in the public sector. The annual budget provided workers with guidance and predefined resource allocation throughout a fiscal year. It helped managers control their employees. That was back in the 1920s and 1930s. A lot has changed since then. Volatility has increased, employees are highly educated and the speed of business has accelerated. But we are still using the same tool. Every year. Is that the right approach?

WASTED TIME?

Jack Welch famously called the budget a serious waste of time & resources. And indeed, I have worked with many companies over my career where the budget consumes an enormous amount of resources. One particular Fortune 100 company I met with, spends around 9 months per year working out their budget. 9 months! But the reality is that about 75% of all budgets loose their validity after only 2-3 months of a fiscal year. We spend so much time and get such little return?

DYSFUNCTIONAL BEHAVIOR

Many companies use the budget as the main pillar of their variable compensation scheme. As a cost center manager I get a bonus if I stay within my budget. As a sales manager, I get a bonus if I make my sales numbers. Unfortunately, experience has shown that this type of compensation leads to dysfunctional behavior. The cost center manager won’t invest in a useful activity only to stay within budget. The sales manager might cut some bad deals towards the end of year to make his number. And then there is sandbagging: people will do anything to protect their budgets. The cost center manager will try to spend his budget to avoid any potential cutbacks in the following year. And the story goes on and on.

A BETTER BUDGET?

We could spend all day arguing about the budget. But truth of the matter is that most companies are not ready to get ride of the process…yet. Clearly there must be some value given the enormous amount of time and resources? Personally, I do think that the budget can add value, but it has to be done in the right way. Without going into any details, every company should consider a few things:

  • Less detail: Reduce the detail in the budgets. This speeds up the process tremendously.
  • Change compensation: Move away from the budget compensation to include more important metrics.
  • Update the budget more frequently: Once a year does not cut it, anymore.
  • Automate the process: Throw those spreadsheets away and speed up the process by using proper technology.

Over the next few weeks, I will drill down on some ideas. There are some great stories from my clients. Until then….Happy Budgeting!

The new normal?

Over the last 24 months I had the honor of meeting with 100s of customers in over 35 different countries. Many of our discussions evolved around the economic crisis. No matter which country, companies across the globe felt or are still feeling the crisis. Granted: you can’t really compare the Ukraine that was forecast to post a 20% GDP contraction for 2009 with say a Qatar that even during the crisis still managed to grow at over 8 %.  The interesting thing, however, is the fact that almost all companies are struggling with the same basic issues.  And these issues have started building up over the past ten or so years:

  • Increased speed: The speed of business has increased tremendously. Customers require ever more innovation at a faster pace. The Internet has opened up new channels and we need to keep our business open almost 24*7. There is no quiet period anymore.
  • Increased volatility: With speed typically comes volatility. Indeed, reports show that global market volatility has increased tremendously. Just look at the oil price! Further there seem to be a great number of major events that impact certain economies (e.g. SARS, Tsunamis, Swine Flu, Lehman crisis).
  • Increased risk & opportunity: Anybody who is familiar with options pricing understands that volatility creates tremendous risk & opportunity. Companies often come and go these days.

A recent example reminded me of this: The GPS market. Since the early 2000s innovative companies like Garmin, TomTom etc. have grown to multi billion USD businesses within just a few years. One could debate whether these businesses could have grown that quickly 20-30 years ago. In mid-October of 2009 Google announced the availability of GPS like services on their Android-powered smartphones. Indeed, the demos Google revealed showed that consumers can indeed potentially drop their separate GPS unit and rely on their mobile in the future. The effect on the stock price of the GPS manufacturers was dramatic: An average drop of 20% during that particular week. Investors were worried that more and more customers will rely on their smartphones in the future. Speed, volatility – risk, opportunity.

The implications for companies are clear: faster and smarter decision making is required. No longer can we afford to wait for a few weeks to get our sales numbers or to close our books. 6-months planning cycles will leave you behind the competition. 4-6 week forecast cycles will not allow you to react quickly enough to mitigate that risk or to seize that unique opportunity.

Time to upgrade our Performance Management processes & systems!

Hello world and welcome to Performance Management Insights

Thanks much for reading this blog. My intention is to share experiences and ideas for better performance management.

Performance Management helps companies make smarter business decisions. It is basically a cycle of three questions:

  • How is my business performing?
  • Why is that so?
  • What should I be doing moving forward?

Questions 1 and 2 evolve around reporting, monitoring & analysis. The third question touches the area of business planning and predictive analytics.

Over the years, I have turned into an advocate for simple communication and simple approaches. My aim is to transport ideas in a simple way via this blog. Let me know what you think!