Performance Management in the Retail Industry. Achieving Superior Corporate Performance

Transcription

1 Performance Management in the Retail Industry Achieving Superior Corporate Performance

2 AUTHORS: Christine Mullie, Russ Hill CONTRIBUTORS: Bob Bunzey, Cortney Claiborne, Sagarika Jaganathan, Dorit Shackleton, Derek Stobbart, David Townley AUDIENCE: Retail Professionals

3 Section Executive Heading Summary On a daily basis, retailer managers are confronted with a variety of high-impact decisions that must be made as quickly as possible in response to a variety of problems including fraud, out-of-stocks, ad misprints, employee scheduling crises, and customer service issues. At the same time, dwindling margins have resulted in the reallocation or reduction of labor. Managers cannot possibly respond to everything, so priorities must be established. Over the last few decades, a variety of systems and technologies such as human resource, point of sale, and inventory control systems have become available to help retailers set priorities and make tough decisions. Unfortunately, retailers now rely on multiple systems that often operate on a standalone basis. Information is abundant but resides in disparate silos making it difficult for employees to access and share as well as for executives to use in decision making. For example, marketing managers, merchants, and operations managers in a given organization are often making decisions based solely on their individual roles and the limited information available to them and may not necessarily be acting collaboratively. In the worst cases, one manager may be working from information that conflicts with that presented to another manager, such as a report that has not been updated to reflect the most recent transactions. This can lead to individual functional areas of the company acting independently of one another, and possibly even in direct conflict with each other. What still remains elusive in the retail industry today is the ability to integrate both technically and functionally. By integrating their technologies and processes, retailers can optimize their most valuable resources the time and efforts of their employees across all functional business areas. A major step in this direction is for retailers to provide the right people with the right information structured in such a way that they can easily see when there is a need to take action. An integrated performance management system can help accomplish this. PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY 1

4 Performance Management Systems Simply put, a performance management system is the process of using information to achieve superior corporate performance. For retailers it means having the information to monitor corporate and store performance, quickly take action, and improve operational efficiency. There are a variety of other terms in use today such as Enterprise Performance Management (EPM), Corporate Performance Management (CPM), Business Performance Management (BPM), Strategic Performance Management (SPM), Business Performance Calibration (BPC), and Business Performance Intelligence (BPI) that all basically refer to this same process. A key performance indicator (KPI) is critical to any performance management system. A KPI is the measure of performance of an activity that is critical to the success of an organization. KPI s will differ depending on the nature and objective of an organization, so you must carefully select which ones to use. Unfortunately, some organizations may identify hundreds of KPI's, making the key description essentially false. Another problem is when retailers fail to implement consistent KPI s among various functions. For example, a retailer may have sales volume as a key indicator for operations, while one of its key merchants is focused on gross margin percent. This leads to conflict, as the operations team may want to reduce price as one method of driving sales volume, but this price reduction will by definition reduce the gross margin percent of the sale. It is also critical that the KPI s for each functional business area support the achievement of the overall corporate objectives. 2 PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY

5 Fully-Integrated System Offers Significant Benefits Role-Based Access to the Right Information Role-based access to information is the ability to customize the information employees are able to see based on their functional role in the organization. For example, the sales associates on the floor in a store may be able to view their own sales results versus objective, whereas the store manager has the ability to access the sales performance for all sales associates in the store. In most retail operations today, the managers across various functional areas and within various levels of the operation have a limited view of the information actually available within the organization. This often makes it difficult for them to access critical information that might help them improve their job performance. For example, it is common in many retail organizations today for store managers not to have access to real-time sales information. This point is driven home by an IBM study conducted in the summer of IBM conducted six retailer-specific workshops to gain an understanding of the business capabilities a store management team would want from new technology. Although the retailers participating in the study spanned different retail sub-segments and included retailers from both North America and Europe the store management teams in these organizations consistently identified access to information as the number one challenge inhibiting stores from carrying out their objectives of maximizing sales and controlling variable expenses. With an integrated performance management system, retailers have increased role-based access to consistent information across functional business areas, so that employees including store managers have the information they need to perform their job effectively. Ability to Link Metrics and Objectives through the Depth and Breadth of an Organization Cross-organizational integration is the toughest and most fundamental requirement of a performance management system. Because managers scattered across departments and within varying levels of an organization may be working from personalized scorecards, dashboards, and reports, it is necessary to have a system in place that can integrate all of this to ensure all departmental and regional objectives are in synch with the overall corporate objectives. By enabling managers to see the breadth and totality of company operations, and by allowing the linkage of top-level business metrics down through to the employees in the stores, and to site-specific operations, an integrated performance management system can help retailers accomplish this monumental task. 1 For example, by choosing receivables less than 30 days as a KPI for an accounts receivable clerk, a retail manager is ensuring the clerk s objectives fit with the corporate objective of increasing profitability. By selecting mispicks in store distribution routines as a KPI for a distribution associate, the manager is ensuring the distribution clerk is working towards the corporate goals of maximizing efficiency and increasing customer satisfaction, both of which also serve to maximize profitability. 1 Dr. Robert Kaplan and Doctor David Norton, Putting the Balanced Scorecard to Work, Harvard Business Review, September-October, PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY 3

6 FULLY-INTEGRATED PERFORMANCE Timely, Actionable Metrics Performance management does not equate to a post mortem of the previous month s performance. The metrics must be delivered in a timely fashion, and in a way that makes it simple for managers to act upon them in near real time. Giving a store manager overtime reporting after the close of the period does not allow him/her to make changes to improve operational performance in that period, although staffing and scheduling processes may be revisited to improve performance in subsequent periods. Overtime reporting that is timely and actionable, such as reporting weekly, or a report showing associates with over 30 hours midweek, could allow the same manager to shift the current week schedule and avoid overtime expense. Ensuring timeliness of information is the critical difference between performance management and performance reporting. Finally, in addition to having access to timely information, employees must also be provided with the processes for taking action, initiated by the performance management and supporting systems. Meaningful Information As margins narrow and budgets tighten, retailers are continually being pressured to do more with less. A relatively small number of people must manage valuable resources. This means there is limited time available for managers to analyze information, relevant or not. And this is where a well-executed performance management system can offer a competitive edge. While many retail managers are overwhelmed by vast amounts of data that must be analyzed before they can take action, a performance management system presents its users with only those metrics that truly impact the business. There may be 50 performance metrics that could be managed at a store, but 10 drive 80% of the store profitability. This holds true for most retail functions. If telephone expenses are less than 1% of store expenses, they should not be reported as a KPI for the stores. Surprisingly, reports like this are often found and prove distracting to managers, keeping them from focusing on more important factors. In marketing, if only a small percentage of cost is driven by postage, and there is little action that can be taken to impact postage once a catalog delivery decision is made, then postage should not be a marketing KPI. Performance management systems also address a retail manager s limited time for reviewing and analyzing data by capturing and summarizing critical information in reports which are graphically presented in the form of dashboards, scorecards, graphs and charts. At a glance, managers can assess a situation and take action. A store manager wishing to compare holiday season sales results for the current year over previous years might have to manually pull information from different reports and databases to make the comparisons. But with an integrated performance management system, the manager could quickly see from a bar chart that sales are abnormally low and consider promotional strategies to boost sales for the current year. Time spent reviewing and analyzing data can also be reduced by reporting or alerting users to exceptions, instead of making them review a report to find the exceptions. This is a benefit many performance management system vendors stress with traffic lighting or ranking features. These features have now been taken a step further, and performance management systems today can proactively alert users of issues, preventing them from even having to log in to the system unless there is a discrepancy that requires action. 4 PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY

7 FULLY-INTEGRATED PERFORMANCE In the overtime situation described above, if the store manager knows an alert will be generated and sent to his handheld when there is any deviation from the plan in this case if associates have worked over 30 hours for the period he/she need not bother to log in to check on overtime. Ability to Research Online While it is true that information should be limited to what s important and presented on an exception basis, background information should be readily available to managers whenever they need to delve deeper into a particular situation. If an HR department finds through an exception on one of its KPI s that organizational turnover has increased dramatically, it needs to be able to drill down into the associated data to determine which regions or departments have caused the increase. It may also need to review which associates were terminated from which departments, as well as the causes for termination in order to better assess the situation and take action. In many cases, performance management tools will stop at the exception point forcing the user to spend time accessing other systems to identify root causes of issues. Ideally, the supporting detail should be available through an integrated performance management system, for viewing at the user s discretion. Ability to Benchmark Whether merchants are comparing product profitability by channel, or district managers are comparing store performance, or executives are evaluating profitability of similar business units, functional managers need to be able to view performance comparatively. This enables various parts of an organization to share best practices. A district manager may wish to compare the labor cost-versus-planned exception report for the individual departments within a given store, but with an integrated system can also now determine which store in the district, is the most productive. Upon further investigation, the manager may be able to pinpoint certain operational practices, such as accurate forecasting and workload balancing, that have helped this store keep labor costs to a minimum. The manager may then choose to implement these practices throughout the other stores in his district, significantly reducing overall labor costs. The ability to compare across stores, departments or product lines also allows managers to better profile or segment their customers. This in turn allows them to anticipate and meet customer needs more efficiently. By comparing sales of, for example, Hispanic foods in a region, a manager can get a better understanding of which stores should try expanding their product offerings in this category and which stores should consider cutting these product offerings altogether. By making similar comparisons of gourmet foods sales, specialty foods, or even specific cuts of beef, retail managers can understand who the customers are in specific geographic regions and what they re likely to buy. This type of comparative information can help managers make effective decisions regarding product sourcing and selection, stocking, as well as advertising and promotional decisions. PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY 5

8 Attributes of a Successful Performance Management System A successful performance management system requires several key technological components. Ability to Integrate Architecturally The reporting product must be able to integrate with a variety of systems, including relational and multidimensional databases. Although most retailers would like to have a central data warehouse with all relevant transactional data summarized into pertinent metrics, the reality is that most retailers do not. As a result, the technology used for performance management should have the ability to connect to various types of systems and enable integration on the front end. Users will not see the underlying disparate systems. In this way the goal of an all-embracing data warehouse can be achieved over time, and reports can be transitioned from operational systems over to the data warehouse as this evolves. The metrics delivered through the initial reporting system can also act as a guide to the data warehouse designers to help them prioritize areas of development. Easy Access and Use The performance management tool must be extremely user friendly and intuitive. For a truly integrated solution, it must be accessible and usable for everyone from the CEO to the department managers in each store, since each and every employee should be working toward the company objectives. While many software vendors like to demonstrate a flashylooking front end with lots of bells and whistles, what is most critical is providing intuitive navigation for the end users to gain insight into the situation and to take action. Flexibility The performance management tool must be flexible. The metrics and various perspectives for each user group must be able to be customized. As one moves down the chain of command from the VP of Store Operations, to the regional, district, store and departmental managers, each level will have its own set of KPI s it is working towards, as well as access to only that information which is relevant to the responsibilities involved at that level. Each manager will see dashboards or reports relative to the objectives he is assigned such as daily sales, contribution of profit, sales versus plan, by district or region, sales for this year versus last year, this week versus last week. Also, the method for calculating various KPI s such as the calculation for the cost of a product to determine its contribution to profit might be different across product categories, and the performance management system must be able to incorporate these differences. For security purposes, the performance management tool must enable unique views based on login identification. Finally, the interface must be user-developed to prevent the need for IT involvement each time the business needs change. 6 PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY

9 Building A Successful System Identify and Document Current Measurements The first step in creating a successful performance management system is to identify the purpose and metrics of each report and alert. This activity typically requires a task force, or an external consultant (if there are insufficient internal resources) who thoroughly understands the retail industry. Often end users are not forthcoming in presenting all of their current reporting practices, and this might require the consultant to use advanced investigative techniques to get everything out in the open. In either case, each and every report must be documented. This initial catalog of reports is a good starting point in the necessary process of reviewing as a group, the metrics currently in use today. This helps you determine which ones are relevant and should be included under the new performance management system and which ones are not and should be eliminated. Identify and Agree Upon Corporate Objectives The next step is to get executive agreement on corporate objectives. There are a number of approaches that can be used for this phase, but the key is to have management buy in on company goals. Link Functional Metrics to Corporate Objectives Retailers often percieved to be independent thinkers and entrepreneurs find it difficult to link functional metrics to corporate objectives. Field operations personnel may tend to distrust corporate managers, percieving them to be far-removed from the real world happenings in the stores, and merchants sometimes distrust store operations because their objectives do not match. Retail functional managers must work together in situations where store operations, field operations, corporate, and functional business units overlap, to ensure that KPI s do not conflict. For example, marketing, merchandising, and operations must all work together to achieve a successful product promotion. A promotion will most likely fail when: Marketing s goal is to increase sales volume Merchandising is focused on gross margin and wants to stock only limited quantities of the advertised product because of its low margin Operations is trying to save on labor by reducing the time spent on tagging the promotional product, thereby not appropriately signing the promoted merchandise PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY 7

10 BUILDING A SUCCESSFULL SYSTEM The KPIs for each group must be in complete alignment with the company s operations. In the above example, the merchant s KPI may be restated to gross margin return on investment (GMROI) instead of straight margin, making the promotional item more appealing because it will turn faster. The operator s labor budget needs to include promotional readiness time, and the operator needs to somehow be credited for the related sales to encourage participation in the corporate programs. Scenarios like this are all too common in retail where it is vital that functional areas work together as a whole, but where conflicting objectives prevent them from doing so. A truly integrated performance management system will encourage this behavior, provide invaluable insight across departments, and reward managers for cooperative efforts. Revisit Performance Metrics Periodically Business priorities will shift over time to reflect changing market conditions and customer needs. These shifts will inevitably change the focus of a company, so corporate metrics should be revisited at least annually during strategy discussions. In addition, the constant monitoring of performance results against metrics should identify situations where a local metric is driving behavior that is counterproductive to the corporation. 8 PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY

11 A System from IBM and Business Objects IBM On Demand Workplace with Business Objects Retail Performance Management Business Objects and IBM have teamed up to develop a solution that integrates performance management software from Business Objects with IBM s On Demand Workplace for Retail solution. The joint solution provides stakeholders within the various functions, levels, and operations of a retail organization with immediate access to key information, so they can monitor store performance and improve operational efficiency. IBM s On Demand Workplace for Retail is a comprehensive suite of software and hardware services that creates an environment where employees dynamically interact with business processes, other employees, partners, suppliers, and customers to more efficiently get their work done. Through an integrated portal, it provides a common interface to a variety of back-end systems, simplifying employee access to content, applications, people, and processes. The On Demand Workplace solution, using Business Objects for Retail Performance Management, provides a framework for making performance information actionable. It dynamically assembles supporting applications in response to alerts and reports provided by the performance management software. It also supports access to systems from a variety of devices, including POS, PC s, handhelds, Cell, and IP telephony devices so teams can have access anytime, anyplace. Business Objects, the first business intelligence vendor to be certified for IBM On Demand Workplace, provides role-based key performance indicators, reports, and analytics across an enterprise, including sales, inventory, workforce management, HR, and financial systems. The data in the back-end systems is transformed into graphically rich information and delivered into the On Demand Workplace portal via executive dashboards, scorecards, graphs, charts, and alerts. The result is immediate access to vital store performance metrics, and the ability to drill down into the data to understand the underlying factors driving the business, to make better decisions. PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY 9

12 Conclusion Retailers are facing unprecedented budget and performance pressures. The key to survival is staying ahead of competition. And that means ensuring each and every employee has the ability and the incentive to make good decisions in line with the overall corporate direction. This can be extremely difficult in a large organization that has multiple departments, levels, districts and regions, and where information resides in a variety of discrete information systems. By implementing an integrated performance management system, retailers can ensure the managers across the various functional business units have real-time access to the information they need, to make effective decisions. An integrated performance management system can also help senior executives ensure that functional, departmental, and employee objectives are in alignment, and that corporate priorities are continually reflected throughout the organization. 10 PERFORMANCE MANAGEMENT IN THE RETAIL INDUSTRY

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