Faced with intense competition and accelerating business cycles, companies must move beyond financial management to embrace business velocity management, says Forrester Research.
“To manage business velocity, executives must pour energy into developing a customized scorecard that taps internal, external, operational, and fiscal sources of business performance,” said Laurie Orlov, research director at Forrester.
According to a new report, most firms depend primarily on the financial closing cycle and general ledger for information, limiting executives from anticipating market trends. To succeed, companies must target supply, demand, and customer satisfaction to successfully manage business direction.
• First, select leading indicators by drawing from internal operations across the firm and from external sources.
• Second, extract historical data to learn what typical performance looks like and when to raise issues.
• Finally, monitor indicators against the model to trigger any action and regularly refine the model.
“Firms should give up on the balanced scorecard prevalent in today’s world of basic financial reporting,” added Orlov. “While financial reporting is a critical management tool, even a daily look at the closing of books does not provide the level of insight required to make critical changes mid-course. Firms that are the most in touch with what’s going on inside and outside will have the insight to quickly change gears and seize a new business opportunity or tackle a looming crisis.”
Business velocity management allows executives to gain operational visibility across the organization by assembling and adjusting supply, demand, and customer satisfaction indicators. They also gain insights from outside the firm by linking velocity indicators from suppliers, customers, and market watchers.
These indicators allow the CEO and CFO to understand their company’s position in time to adjust strategy. Creating time to react to warning indicators is the critical difference between managing business velocity and merely reporting on quarterly financial performance.
According to Forrester, firms must assemble a new internal team to collect data from across company departments and from outside partners and providers using enterprise resource planning and analytic applications. After modeling the company’s processes and mining historical data for predictive benchmarks, real-time data can be fed into the model to monitor the company’s business velocity.
For the ‘Managing Business Velocity’ report, Forrester interviewed 22 executives from companies in the consulting, financial, computing, electronics, and Internet industries.
Established in 1983, Forrester is headquartered in Cambridge, Massachusetts. Its European research center is in Amsterdam, the Netherlands, and its UK research centre is in London.