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Data driven strategy execution is the key to building value for all stakeholders in a business over time. Measurable key performance indicators (KPIs) are essential to value creation. Value creation for capital providers is the ultimate mission of every business.
There are certain financial metrics/ratios common to all businesses that can be gleaned from basic accounting and financial statement analysis. In order to define strategy and the accompanying plans for execution, executives must understand the common financial metrics of the peer group. A deeper-dive analysis reveals the operating drivers of those metrics. Operating drivers are broad-based.
Examples range from distribution channels, the number of sales reps, the mix of outside reps vs. inside reps, and web-based go-to-market plans, to sourcing options, financing needs, the cost of capital, whether to use internal data management systems vs. cloud-based providers, and a host of others. KPIs should ultimately be tied to operating cash flow. Armed with this data, management can then adjust strategy and plans as necessary to bring its operating performance more in line with or above peer group companies.
A Holistic Data-Driven Approach to Operational KPIs
Execution, not strategy creates value. Execution is not possible without measurable KPIs. And good quality data provide the context behind KPIs.
Newer data analytics tools can act as a facilitator for strategy implementation. This mandates a holistic approach to data. Ideally, you’d like to break down the divisional/departmental – and even individual – silos that people cling to in order to improve information flow and decision-making.
Data strategy execution should be in the fabric of every organization. It is what drives financial performance and stakeholder value. The CEO and each functional head (finance, marketing, sales, production, supply chain, IT) needs to be a part of that fabric. They should consistently be thinking about how to leverage better quality data across the enterprise to hone operational KPIs and performance.
Strategy is devised at the top of the company and ultimately owned by the CEO. It is implemented at the strategic business unit (SBU), divisional and departmental level with clearly defined processes and responsibilities for all employees. The motivation for those implementing strategy throughout the organization must be consistent and truly aligned with the arbiters of capital in creating value. And the strategy’s successful implementation is evaluated by adherence to or deviation from KPIs discussed earlier.
Strategy is an exercise in resource allocation and return on investment (ROI) with a time horizon that cannot be quarter-to-quarter. Good data drives strategy execution and value. If value is not created for the owners or capital providers of the company, then either the strategy was wrong, the execution of it failed, or both.
Data is a double-edged sword. If the right data is delivered to the right people in a timely fashion, decisions outcomes improve and the company meets or exceeds its KPIs. This outperformance manifests in market share, revenue, profits and valuation. Bad data, regardless of the speed at which it is delivered, will put even the smartest decision makers at a disadvantage. KPIs will be flawed and the resulting operating performance will be disappointing to customers, partners and investors.
It is the responsibility to senior management to align data strategy with corporate strategy. It is also the responsibility of senior management to reconcile the company’s two critical assets: its people and its data. The most successful businesses – and investments – over time, are those where the human capital goals are aligned with the data strategy and thereby, with value creation.
How is your company doing on data driven strategy execution? Drop us a line about the challenges and opportunities facing your organization.