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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.