Chapter 13 (2024)

Much of the value of ESS is found in their flexibility. These systems put data and tools inthe hands of executives without addressing specific problems or imposing solutions.Executives are free to shape the problems as necessary, using the system as an extension oftheir own thinking processes.

The most visible benefit of ESS is their ability to analyze, compare, and highlighttrends. The easy use of graphics enables the user to look at more data in less time withgreater clarity and insight than paper-based systems can provide. In the past, executivesobtained the same information by taking up days and weeks of their staffs’ valuable time.By using ESS, those staffs and the executives themselves are freed for the more creativeanalysis and decision making in their jobs. ESS capabilities for drilling down and highlightingtrends also may enhance the quality of such analysis and can speed decision making(Leidner and Elam, 1993–1994).

Executives are using ESS to monitor performancemore successfully in their own areas ofresponsibility. Some companies are using these systems to monitor key performance indicatorsfor the entire firm and to measure firm performance against changes in the externalenvironment. The timeliness and availability of the data result in needed actions beingidentified and carried out earlier than previously could have been done. Problems can behandled before they become too damaging; opportunities can also be identified earlier.These systems can thus help businesses move toward a “sense-and-respond” strategy.

A well-designed ESS could dramatically improve management performance andincrease upper management’s span of control. Immediate access to so much data enablesexecutives to better monitor activities of lower units reporting to them. That very monitoringability could enable decision making to be decentralized and to take place at loweroperating levels. Executives are often willing to push decision making further down intothe organization as long as they can be assured that all is going well.Alternatively, executivesupport systems based on enterprise-wide data could potentially increase managementcentralization, enabling senior executives to monitor the performance of subordinatesacross the company and direct them to take appropriate action when conditions change.

To illustrate the different ways in which an ESS can enhance management decision making,we now describe important types of ESS applications for gathering business intelligenceand monitoring corporate performance, including ESS based on enterprise systems.

FOUR STAR DISTRIBUTION: ESS FOR COMPETITIVEINTELLIGENCE

Today, customer expectations, Internet technology, and new business models can alter thecompetitive landscape so rapidly that managers need special capabilities for competitiveintelligence gathering. ESS can help managers identify changing market conditions, formulateresponses, track implementation efforts, and learn from feedback.

Four Star Distribution, a designer and distributor of innovative snowboarding andskateboarding equipment based in San Clemente, California, is considered a leader in newtechnologies and innovative products. It sells a wide variety of brands, including ForumJeenyus Snowboards, C1 apparel, Special Blend and Foursquare Outerwear, and C1RVCAfootwear. Four Star needs to stay abreast of the latest global buying trends in a volatileindustry catering to teenagers and young adults. It relies on a hosted Oracle E-Businesssuite with Oracle 9iAS Discoverer ad hoc query, reporting, and analysis software to provide the most accurate, up-to-date information on the performance of Four Star’s businessand global buying trends. For instance, one report tracks C1RVCA footwear, showingwhich shoes are the most popular and where in the world they are selling the best. FourStar can immediately share this information with its manufacturers, distributors, andsales representatives to get the latest products to the customer before the new selling seasonbegins (Joch, 2003).

VERIZON COMMUNICATIONS AND PHARMACIACORPORATION: MONITORING CORPORATEPERFORMANCE WITH DIGITAL DASHBOARDSAND BALANCED SCORECARD SYSTEMS

ESS can be configured to summarize and report on key performance indicators for seniormanagement in the form of a digital dashboard or “executive dashboard.” The dashboarddisplays on a single screen all of the critical measurements for piloting a company, similarto the co*ckpit of an airplane or an automobile dashboard. The dashboard presents keyperformance indicators as graphs and charts in a Web browser format, providing a onepageoverview of all the critical measurements necessary to make key executive decisions(Few, 2004).

For example, Paul Lacouture, president of network services for Verizon Communications,constantly reviews screens with live feeds of key performance statistics such as the numberof customer complaints or the number or repairs needed. When he spots an unusuallyhigh number of line outages in a particular location, he can immediately contact the areamanager to discuss the quickest way to solve the problem. Before this dashboard systemwas in place Lacouture could obtain information about problems only by going throughseveral layers of managers, and the managers would rely on months-old data stored inthick binders (Latour, 2004).

Companies have traditionally measured value using financial metrics, such as returnon investment (ROI), which we describe in Chapter 15. Many firms are now implementinga balanced scorecard model that supplements traditional financial measures withmeasurements from additional perspectives, such as customers, internal businessprocesses, and learning and growth. Managers can use balanced scorecard systems to seehow well the firm is meeting its strategic goals. The goals and measures for the balancedscorecard vary from company to company. Companies are setting up information systemsto populate the scorecard for management.

Pharmacia Corporation, a subsidiary of Pfizer Inc., uses Oracle’s Balanced Scorecardsoftware and a data warehouse to ensure the entire organization is operating in a coordinatedmanner. Pharmacia develops and delivers innovative medicines and has 43,000employees and more than $16 billion in annual revenues. Pharmacia’s over-the-countermedications include Rogaine and Nicotrol, and its prescription medications include Celebrex for arthritis relief. Pharmacia spends about $2 billion annually on research anddevelopment, and the company wanted to make more effective use of the funds allocated forresearch. The balanced scorecard reports show, for example, how Pharmacia’s U.S. orEuropean clinical operations are performing in relation to corporate objectives and otherparts of the company. Pharmacia can use the scorecard system to track the attrition rate ofnew compounds under study, to monitor the number of patents in clinical trials, and to seehow funds allocated for research are being spent (Oracle, 2003).

Informatica PowerAnalyzer is arobust data visualization solutiondesigned for the rapid deploymentof corporate data in realtime through dashboards andcustom applications. The digitaldashboard helps transform datainto immediate, accurate, andunderstandable information.

Enterprise application vendors are now providing capabilities to extend the usefulness ofdata captured in operational systems to give management a picture of the overall performanceof the firm. Some provide reporting of metrics for balanced scorecard analysis aswell as more traditional financial and operating metrics. For example, SAP offers a Web enabledmySAP Strategic Enterprise Management module featuring corporate performancemetrics, simulation, and planning tools. Managers can model and communicatekey performance indicators for a balanced scorecard. Another measurement tool calledthe Management co*ckpit can be used to monitor strategic performance indicators usinginternal and external benchmarks.

Companies can use these new enterprise-reporting capabilities to create measures offirm performance that were not previously available, including activity-based costing.Activity-based costing is a budgeting and analysis model that identifies all the resources,processes, and costs, including overhead and operating expenses, required to produce aspecific product or service. It focuses on determining firmactivities that create costs ratherthan on merely tracking what has been spent. It enables managers to ascertain which productsor services—or customers—are profitable and those that are not profitable so theycan determine the changes required to maximize firmprofitability. Instead of reporting interms of product and income, the system can focus on contribution margins and customeraccounts, with the ability to calculate the current and lifetime value of each account.

Roadway Express, headquartered in Akron, Ohio, uses activity-based costing to analyzeevery step in the process of serving a customer. The company specializes in less-than-truckloadfreight hauling in North America, handling 50,000 to 60,000 shipments per day. Laborconstitutes 60 percent of its operating expenses and average profit margins for the industry areonly 2.5 percent. In 1997, Roadway built an Oracle data warehouse and installed BusinessObjects data analysis software to analyze information about the size, content, number of shipments,and the time and cost for each step in moving goods from source to destination. Thesystem also captures time and cost data for activities associated with settling claims for damagedfreight. This system calculates exactly how much each activity costs and even the actualcosts of specific activities for a particular customer. It can identify which customer and whichshipment types are the most and least profitable and which are associated with the most damageclaims. Better understanding its costs helps Roadway reduce fixed costs, identify profitablecustomers, and price its services to maximize operating margins (Cone and Carr, 2002).