Executive Information Systems come in may guises and to realise the technology's potential requires a re-think of a business from first principles. Jane Bird.
To fly a jumbo jet is a task of such complexity that today's airline pilots rely on electronic control panels in order to do their jobs. But running a business can be just as difficult, which is why the earth-bound executives at Caledonian Airways (CA) are also using computer consoles to keep in control. By touching a button, Clare Hollingsworth, CA's managing director can instantly check how the company is matching up to each of its targets. When goals are not met, or potential business hazards spotted, the red lights flash. 'Its greatest value is in providing more time to concentrate on critical issues rather than the company's ongoing activity,' she says.
The power behind Hollingsworth's console is provided by an Executive Information System (EIS). This is an ingenious suite of computer instructions that filters information for busy senior managers, extracting that which is relevant, accurate and timely and delivering it to their desk-top screens in colourful easy-to-understand graphics and numbers. The executive can then zoom in on areas of interest by touching the relevant portion of the screen, exploding layer after layer of dazzling graphical analysis as he experiments with any number of what-if? hypotheses. Items of interest can then be annotated and dispatched electronically to the relevant manager. No typing is necessary. A series of standard pull-down memos can be used to say, for example, 'Have you seen this?' or 'I think we should meet to discuss the overspend.'
EIS appeared in the UK a decade ago, but at first it was widely viewed as a gimmicky executive toy. Analysts now expect it to be one of the biggest growth markets of the 1990s. According to Romtec, the UK-based market research company, EIS sales have doubled each year for the last four years. European sales will reach £75 million by 1992 according to London-based Business Intelligence, which publishes an EIS newsletter. Worldwide spending on the technology is forecast by IDC, the US consultancy, to be £230 million over the next five years.
As is often the case in computing, EIS comes in many guises. A basic system can be constructed by bolting standard software on to a company's existing accounting programs. But to realise the technology"s true potential requires a total re-think of the business from first principles. This demands a huge amount of senior management commitment. Jon Morgan, managing director of Executive Information Solutions, an EIS consultancy, outlines the task. 'First you have to establish the corporate strategy. Then you can begin to determine what the underlying architecture of the EIS should be. The next procedure is to determine the company's key objectives - what are the critical success factors that have to be got right? Finally you can determine the key performance indicators that enable you to measure how well you are meeting the goals.' A complete information audit is also necessary-what does each individual in the organisation need to know in order for him to perform his job?
Tedious though it seems, many companies consider this process the single most valuable contribution of EIS. Morgan says: 'It all sounds very mechanistic and authoritarian, but I've seen EIS being very much an agent of change throughout an organisation. It also highlights discrepancies between different parts of the company. For example, you'd be amazed how many different interpretations there can be of a word like capacity.'
Conducting such a review at Caledonian Airways, 31-year-old Hollingsworth identified the critical success factors on which the company would be judged by its parent British Airways as: bottom line profit; departure punctuality; in-flight duty-free sales; flight hours per aircraft; return on assets; and customer service. Having set criteria in these areas, the EIS enables her to track progress highlighting where the company is forging ahead or falling behind. 'It's all about measurement and keeping on top. If I'm to meet the criteria, I need to have information on how I'm doing against them. Using the EIS we can easily identify from a statistical and visual standpoint, which areas need to be attacked,' she says.
Take profits for instance. At a keystroke the latest monthly results will be displayed in colour-coding. Green signifies figures within budget, and amber is for those with an acceptable variance. Results that have plunged below forecasts are highlighted in red for instant recognition.
Hollingsworth may want to know more. If profits are too low, which area of the business is responsible - revenue, aircraft operating costs or departmental overheads? If operating costs is the culprit, she can, with a click of her pointing device, 'drill down' another level to view the costs for each individual component - fuel, engineering, landing fees, passenger catering or aircraft handling. Another click will reveal whether the cause was price, rate of exchange or volume of flying. Had the overspend occurred elsewhere, she could quickly identify which department was to blame, and then look at the cost breakdown in terms of, for example, pay, pensions, and insurance. If pay came out in red, she could then establish whether basic pay or overtime was involved. 'At this stage I, or any of my executives using the system, could discuss the overspend with the relevant manager,' she says. She can even look at qualitative information, like the results of customer service questionnaires. For example, what percentage of passengers thought the cabin crew was good, enjoyed the meal, or felt that the captain provided adequate flight information?
CA's EIS was installed in December 1990, and is currently used by 12 of the company's top executives.
Most of its data is updated monthly, but daily information on punctuality and customer service will soon be on-line. With just 10 aircraft and annual sales of £120 million, CA is a relatively small EIS user. Even so, the system has drastically reduced the huge volumes of paper and monthly reports that previously bombarded Hollingsworth's office. It has also introduced common accounting procedures - previously the separate divisions all used slightly different methods. Now everyone works with the same information.
Another company boss who has used EIS to slash his paperwork is Scott Davidson, managing director of ICI Fibres, Europe's largest nylon producer which has 7,000 staff and annual sales of £650 million. It was the excessive time and manpower involved in obtaining information that prompted Davidson to investigate the possibilities of the technology. 'Every time I wanted to know something, up to five of my support staff would be needed to track the information down. It was frustrating having to ask other people and often, once I got the information, I would decide it was irrelevant.'Now, by tapping a few keys on his computer keyboard, Davidson can check in seconds how well demand for nylon from the ladies hosiery industry is matching his forecasts. Another few keystrokes let him examine every individual order for delivery within the next two months. 'It means that when I do have to ask my staff questions, I can be sure they are the right ones.' His EIS, installed in mid-1990, saved up to £7 million during its first year of operation. It has so improved management efficiency that he was able to cut the number of staff in his head office from 400 to 20 when he relocated from Harrogate to Brussels last September, releasing around 160 to be redeployed in sales offices and manufacturing plants. 'The EIS was a vital part of the move because it enabled me to keep in control without physically needing to be near people,' he says.
Davidson set up his EIS to deal with retrospective, internal company data, but he soon wanted more. To be really useful the system needed to look forward and out. As Morgan puts it: 'You can't drive a car looking through the back window. But an EIS can act like a ship's radar, searching ahead, picking up signals, however weak, to pass on to you. It might simply calculate the level of profits and warn that, if current performance is sustained, you'll be out of business by month eight. Or it might scan a barrage of incoming databases and wire-services to warn you of your competitor's position or identify companies ripe for acquisition.'
To build such a system is complex, and although Davidson had a high regard for his data processing department, he reckoned that only an independent team would be able to provide the level of expertise and objectivity required, so he hired a team of consultants. It was not an exercise for the faint-hearted. All his secrets were bared to the outsiders. 'We had to be completely honest in away that would make many chief executives cringe. But I don't regret it. We got quicker and better results than we would have done if we'd been sparing with the truth. It was fascinating how the EIS installation crystallised and catalysed all my thinking about the business,' Davidson says. The result, he reckons, is more of an 'Enterprise Information System' which aims at helping the company meet its key business objectives: cost-reduction; decentralisation; flattening the management hierarchy; customer satisfaction; and bottom-line profit.
Implementing EIS requires skilful diplomacy - it frequently renders entire tiers of managers redundant. Those remaining are exposed to far greater scrutiny than with paper-based systems. Davidson admits he was too high-handed. 'I had to make sure that everyone would know it was my baby and I wanted it delivered. But I imposed it on everyone in a somewhat dictatorial fashion. After four months, I got them together to explain what we were doing, but if I were to go through the exercise again, I'd share it with my managers much earlier.
Hollingsworth reckons the biggest pitfall is agreeing the specification and deciding what you want the EIS to show. 'Too much information is no use. Getting swamped with data is no use to anyone. It slows down the system and ceases to be meaningful.' She also warns of getting carried away by the technology. 'Once people have had their appetites whetted their enthusiasm grows like Topsy. They see the potential, they want to do lots more.
For many heads of companies, computers have been a huge disappointment, swallowing vast quantities of capital investment without improving profitability.
Instead of simplifying business, they often seem to have made it more difficult. Bosses can be drowning in information yet starved of knowledge. The London-based EIS specialist Accounting Systems and Consultancy (ASC), recently conducted a survey of 240 top companies to find out what information chief executives could obtain within 10 minutes of making a request. More than half of those questioned could not get sales orders taken against forecast and 36% were unable to obtain the status of uninvoiced orders or expense accounts currently over budget. However, 17% planned an EIS as part of their next major IT investment. 'This makes EIS almost as popular as accounting systems, and represents a huge increase on the situation a year ago. Companies have realised they cannot survive without immediate access to this information,' says Peter Middleton, ASC's managing director.
Nor need an EIS be confined to top management. When the technology was first introduced in the early 1980s systems were typically based on expensive mainframe computers and cost up to £250,000. But in the past few years PC-based versions have been introduced and prices have plunged to around one tenth of this price for a dozen or so users. These systems are more than capable of gathering diverse information and providing an intuitive way of navigating through it.
Prices will continue to fall so all managers with budgeting responsibility should be able to enjoy the advantages of EIS, says Mike Harris, EIS marketing manager at ICL. 'At the moment the executive sees what is going on but the manager below him may not have access to the same information even though that manager has his own critical success factors or performance indicators to monitor. It makes sense to provide a similar information service right down the chain. Otherwise EIS will become known as Exclusive Information Systems.' The use of EIS has also spread beyond the private sector to health authorities, utilities, central and local government. 'These organisations have different problems but they still have to deliver services and control costs - areas where EIS can help,' says Harris. However, new users who expect immediate quantifiable cost- savings may be disappointed. 'Few users can quickly evaluate the impact of EIS in cash terms. IT is still an act of faith and a question of what value you put on knowledge. The end result might just be that the user feels he has a clearer understanding of how his company is performing.'
Finally, Harris reckons, it is not necessary to embark on the ultimate EIS from the outset - a simple system based on historical data may be the best starting point. 'If you can turn on your screen once a week or month and see an array of green lights that shows the ongoing business is healthy, that is wonderful. It saves ploughing through paper reports at weekly or monthly meetings and frees up far more management time to look into the future and be creative.'
He advises against going for broke with a megaproject that might be inappropriate by the time it is implemented because your business parameters have changed. 'It is better to work to a shorter timescale and let the managers see what the system can do. Often they will be able to suggest the best way of evolving it.' And if you do plan major structural changes or a new IT implementation during the next three years, that is no reason for not pressing ahead on EIS, says Harris.
If you are one of the vast majority of chief executives who gets a panic attack at the thought of having a computer terminal on your desk, take heart. EIS is designed to seduce. Its fabulous colour graphics and touch sensitive screen can make work feel more like playing a computer game. For ICI's Davidson, who has kept one-step ahead of computers in his career up through the organisation, the EIS has been a 'change of religion'. 'Computers have finally caught up with me, and I've become evangelical. I strongly believe that if you are to become a modern manager in the 1990s and beyond, you have got to become au fait with the power of information systems.' Although in the past senior managers have been able to get away without using them, there is now no way they can be avoided, he says. 'The clearest signal you can transmit to the organisation,' he reckons, 'is to use them yourself.'
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