I am not a fan of business jargon, but I came across this term some years ago, not sure where. Whilst I am not even sure of the original meaning it has stuck with me as a possible name for an area of business analysis that experience would show, many organisations ignore or at least don’t do very well.
There are very few if any businesses that do not have some sort of performance measures and targets, though these are often pretty simplistic, such as turnover, net or gross profit, EBITDA etc. We may employ financial and management accountants to analyse the business and produce forecasts and budgets for the future but a problem here is that often these are done in isolation. Quality standards such as ISO9001 encourage businesses to establish ‘quality objectives’ as well as normal business measures, but again these can become fairly one dimensional.
In my definition of Business Informatics I would suggest a more holistic view of the business should be taken, asking such questions as:-
- What activity/product is driving our financial success (or failure)?
- What processes are essential to success (or failure)?
- Where we have series of inter-related processes where are the pinch points, and where is there slack?
- If we make stuff, of the ingredients which is the most expensive but also which is the one liable to the greatest variation, either in terms of cost, availability or quality?
- What are the barriers to performance in terms of staff? Is it just the number of bums on seats or is there an issue with finding the right staff?
The list goes on but I have become convinced that to optimise potential, businesses must identify these key elements, the ones that are actually driving their performance. This will then allow them to properly evaluate the risks, develop informed strategies that are much more far reaching than those that are driven by simple financial targets. It will also allow ongoing measurement of these key metrics.
Finally an example: Blogs Engineering make a market leading widget in a very price sensitive market. For years they have focused on two key areas; the cost of the largest and most expensive stainless-steel component and staffing the production team, fairly typical performance measures as both surely influence profitability. There are two problems with this approach, firstly the stainless-steel component price is largely driven by the global cost of stainless steel over which Blogs Engineering has no influence and in any case, will similarly affect the selling price of competitor products. In the past they have sourced from suppliers offering lower prices but have either had quality issues or supply chain delays, as it is virtually impossible for any supplier to genuinely reduce the material cost. Both of these consequences has affected the availability of the product in the market and the reputation of the company, but also driven in additional (unseen) costs within the sourcing team, who are constantly looking for new suppliers and the customer service team dealing with an increase in complaints and out of stocks.
The second issue is that whilst the product is fairly simple to make, it is reliant on key pieces of machinery. HR have historically looked to employ experienced machinists as it is assumed that this will lead to better product, however staff turnover is high due to the fact that the work is repetitive and not challenging for experienced machinists. The added consequence of employing experienced staff is higher cost, which has been mitigated by cutting back in other areas such as maintenance which is now outsourced. Taking a step back it is clear that as the process is largely automated, use of properly trained lower skilled workers will not affect the quality of the product but more significantly the single factor that was limiting production was actually machine down time. The out-sourcing of equipment maintenance had resulted in significant delays in getting the equipment operational due to call out delays. Whilst the two areas of focus are not completely worthless, there is a danger that Blogs Engineering are missing the opportunity to significantly improve performance, whilst actually driving in more cost than is necessary.