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Specifying Boardroom BI: Helping Directors Find Problems for Executives to Solve? November 19, 2006

Posted by Cyril Brookes in BI Requirements Definition, Boardroom BI, General.
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I believe there’s a lack of focus on Boardroom BI which reduces corporate performance.  In my experience, the phrase Boardroom BI has no obvious connotations to most business analysts.  It doesn’t show up on the BI project radar.  Everyone knows that executive BI reporting includes performance monitoring, CRM, ERP analysis, and financial benchmarks.  But they rarely have any awareness of what comprises effective information reporting for non-executive directors.   

If you’ve read my last post, you’ll know I believe that key concerns for the independent board member range from assessing risk to proposing new ideas and executive performance analysis.  Apart from a necessary awareness of enterprise status, their BI emphasis is on finding and assessing potential problems that may impact shareholder value. 

When creating any BI specification, I always try to understand the mental models used by the target executives (or directors in this case) to make their decisions.  In turn this requires an understanding of the business processes; or, more accurately, an understanding of the business processes as they are envisaged and employed by the targets.

The optimal information reporting of the target executives ought to service these mental business process models; Chris Argyris called them “Theories-in-Use”.  Presumably in contrast to the “Theories-not-in-Use” held by others in the business that don’t make decisions (but wish they did?). 

It’s obvious, at least I think it is, that independent directors don’t have detailed mental understandings of the enterprise business processes.  Executives should have this detailed mental model, but not part-time advisors.  The directors’ focus is normally on representing shareholders’ interests, protecting the enterprise from excessive risk, and monitoring the performance of senior executives. 

It follows, if you’re still with me, that loads of numeric facts that may be useful to a divisional vice-president are not high on the list of required information for independent directors. What they need, to feed their mental models, are combinations of fact plus commentary that focus on their principal concerns.  

My approach to BI report specification distinguishes between information required to give the recipients: 

  • Awareness of current status; i.e. comfort that they know what is happening in the business, enterprise wide 
  • Ability to find problems; i.e. situations that need a response, and 
  • Capability to solve the problems when they are found. 

Now, non-executive directors don’t have to solve problems, or they shouldn’t.   But they do need to be aware of significant enterprise-wide issues, their significance, and especially any issues that pose significant risk.  Specifying BI for the boardroom, therefore, requires an approach like the following: 

Comfort and Awareness information – routine report formats: 

Directors do not have the same detailed understanding of the business processes as executives.  They will, therefore, have difficulty with absolute numeric data, e.g. Sales were $450,000, Inventory is 568,000 units. 

Instead, their summary reports (Stafford Beer’s “Attenuation”) should emphasize relativities, e.g. Sales were above plan by 10% at $450,000; Inventory fell below plan by 15% to 568,000 units. Further, numbers like these mean little without the accompanying commentary soft information that qualifies them, and places them in context, for example:   

“Sales were above plan by 10%, due mainly to there being 5 Fridays in the month, and several customers place orders on a Friday”; or 

“Inventories are lower due to production downtime caused by routine plant maintenance” 

The objective clearly is to give the directors enough information so that they understand adequately where the enterprise is in terms of current and likely future performance.   The actual requirements for routinely presented “Comfort” information to non-executive directors is ideally determined following structured interviews or workshops that canvas the available KPIs – such as those I outline as part of the BI Pathfinder methodology.   

I don’t think it’s worth your time, Dear Reader, my expanding on this.  Either you accept that not enough thought currently goes into Boardroom BI, or you don’t.  If you do accept my premise, then really the solutions are simple, just avoid the mass of detail, and concentrate on comparative data and include many comments from subject experts. 

Problem Finding and Risk Identification – the directors’ main game   

If enabling independent directors to be aware of enterprise status is important, and it is, then facilitating their problem and risk identification is critical. Of course, some CEOs and Executive Chairmen may not want this latter capability to exist!  But, I jest; I don’t believe this is the prevalent attitude, and if it is, then you should quit. 

Obviously, variations from benchmarks are indicative of potential performance issues, depending on the implications apparent in the accompanying commentary.  Finding a problem is therefore a corollary of becoming aware of status.  But there’s more to it than this. 

In addition to benchmark relativities, independent directors will usually find benefit in enterprise wide exception, trend and time-series analyses.  This is because their limited understanding of the business does not normally allow them to project future performance issues from current data in the same way as executives can.  

What independent directors do have, or should, is a wide range of experience with business situations generally.  Therefore, they are often able to spot potential generic problems or opportunities long before the enterprise data will show up the specifics.  In many cases, this is their principal reason for appointment. 

Hence, my emphasis on the importance of exception reporting based on trend and time-series analyses.  Creativity on the BI designer’s part is the key to success here.  Beyond highlighting the value of these types of data mining, I won’t indulge in specifics, since every corporation is different, but the objective is the same: to identify situations that diverge, or are diverging, from planned or acceptable performance. 

Nevertheless, the most fruitful source of problem and risk identification for directors is, in my view, soft information about corporation events and important issues, industry trends, government regulatory compliance, plus major customer and competitor trends.  It is in this context that the wider experiences of directors will enable discovery of potential issues.    Therefore, any BI specification for directors ought to include ensuring that they are fully informed about happenings in the company; compliance issues, the industry, its dynamics and milestones; relevant and significant blogs; plus analyst commentary and forecasts.    

Diagnosis Support   

Conventional BI reporting specifications will include problem solving support, as discussed in my blog post of August 27.    But directors aren’t normally hired to solve problems, they exist to represent shareholders, and protect shareholder value. 

So what do non-executive directors think about when they believe they’ve identified a problem, or substantial issue?  The executive would reach for the Drilldown button.  Normally, the non-executive director will reach for the phone, and call the CEO or other nominated contact person, and ask. 

But if solving the problem isn’t a role for directors, diagnosis is.  Will this HR dispute affect shareholder value?  What is the worst thing that can happen with this union dispute?  Can we live with that?  What data do I need to compare this competitive situation with what happened last year in the automobile parts business? 

Once again, I stress that the commentaries of subject experts and industry analysts are a major part of the directors’ diagnosis process.  It’s inescapable.  They want to know: What happened last time?  How was a similar issue resolved in another industry? Who is the guru on this compliance matter?  These are immensely valuable insights that can enable a director to save the company from huge consequences. 

BI for the boardroom is much more important than many companies treat it. 


Boardroom BI – It’s Different from Executives’ Corporate Performance Reporting November 7, 2006

Posted by Cyril Brookes in BI Requirements Definition, General.

A colleague has asked me to comment on the issues in building business intelligence systems to support the independent directors on a company board.  He sits on three boards, and is disappointed with the information he is routinely given to support his role.  These are companies with quite advanced executive BI systems.  Specifically, he says the reporting he receives has too narrow a focus, and is all numeric – mostly divisional rather than corporation wide.  He finds it difficult to assess risk, and to determine implications for shareholder value.

Any review of the available papers (I hesitate to call it literature!) on BI shows that information requirements definition for the boardroom is a much neglected area of Business Intelligence theory and practice.  Specifying these needs is complex because the independent directors do not have the same set of objectives and concerns as their executive colleagues.  Boardroom BI often is simply a regurgitated subset of routine profit center executive reports.

The usual excuse is lack of time to meet board meeting deadlines, but in my experience the hassle of a difficult board meeting caused by lack of adequate information warrants a large amount of effort in preparing appropriate information reports.  In this area there is no substitute for quality. There are usually three main players to this equation, the independent director(s), CEO, and Chairman plus the BI analyst/consultant charged with providing the synthesis. 

It is a non-trivial task to manage the competing interests, and create what is best for the business (however that’s defined!).   Although each situation is different, there are some consistent themes that may be used to build a useful specification.   

I’ll offer my prescription later, but first want to discuss the cultural and business issues that drive the reporting needs.  Obviously it is the independent directors’ reporting requirements that are the subject of this discussion.  The CEO and an Executive Chairman will normally be served by a conventional BI specification – my posts of August 27 and July 28 summarize my approach to specifying executive reporting. 

The CEO and other executives have a focus on KPIs, performance metrics, and progress against plans or other benchmarks.  Their needs are the main driving force behind data warehouse design, data modeling, cube specification, metadata documentation, etc.  This is the mainstream of corporate BI and is certainly over-serviced by software marketing, research and the plethora of white papers. 

Independent directors’ information needs are obviously related to their perceived role on the board. They are not executives, they don’t make corporate decisions individually, and their knowledge of the business process models is imprecise.  They always want to contribute where they can to the enterprise, but their shareholder responsibilities often drive them to have a risk assessment fixation, especially since the Enrons and Sarbanes-Oxley.   

These different objectives are the source of the conflict between optimal executive and boardroom BI specifications, and the need for boardroom BI to be considered a special project.

Independent directors’ concerns often include: 

Overall corporate performance relativities  

It is extremely difficult to judge absolute values when you don’t fully understand the business process.  So comparisons, and relativities, are essential guides to performance assessment.  Benchmarks of value to the independent director will often be different from conventional CPM actual versus budget and last period.  They include industry best practice, competitor comparisons, and changes in target plans. Trends and forecasts are more valuable than historical analyses.  This type of reporting is usually unavailable. 

Pre-digested assessments 

Probably the biggest BI related complaint I hear from independent directors is the lack of commentary on the numeric performance figures.  They clearly look to the executives for guidance on implications for the business from the metrics.  Numbers that look bad can really be good if special circumstances are considered, and vice-versa.  To the director, the executives are the subject experts and they should advise on implications along with the supplied numbers.  All too often, however, the numbers are provided without any commentary.   

Identifying and monitoring potential risk of downside for the enterprise 

Risk identification takes up much of the independent director’s mind-space.  Downside protection for the enterprise, and its shareholders, is a major preoccupation.  Regular readers will know that I believe soft information sources are the critical resource for identifying potential problems, be it competitive intelligence, customer relationships or almost any form of risk.  Any complete boardroom BI specification will focus heavily on risk, and this must include marshalling the soft (tacit) information resources.   

Corporate image and community positioning  

Independent directors are often more conscious of, and influenced by, community attitudes than corporate executives.  They are also likely to have a wider personal network that is the source of sensitivities and inter-relationships unknown to professional managers.  They will want to be aware of events, issues, and plans that have had an impact the corporate image, or have such potential, to a greater extent than their executive colleagues.    

Human factor analysis  

Directors are always concerned about the human factors that influence the business.  The relationship between the CEO and Chairman is the most important by far in any enterprise.  However, the quality of the interaction and mutual cooperation between and among all senior executives will be of great significance – since these factors are often the source, or an indication of presence, of risk and potential loss of shareholder value. 

Shareholder value preservation 

At the end of the day, as they say, the independent director is responsible for enhancing and protecting shareholder value.   There is no BI report that can address this specifically, but the directors’ task will be made much easier if we can satisfy the other concerns through intelligent, effective, information reporting. 

 In my next post I’ll summarize how I approach boardroom BI specification, taking the above as guidelines.