The role of information technology (IT) includes supporting corporate strategy. However, for many enterprises, connecting IT initiatives to corporate strategy has proven to be a challenge. Enterprise software vendor Intentia offers a tool that links the two, by way of key performance indicators and best practices.
For better understanding of the connection between corporate strategy and business systems, a structured approach is suggested. To understand the process, we will explore a recent case study that leveraged a decision support tool.
Tom Stokes, chief executive officer (CEO) of Tree Top, Inc., was clear on their corporate objectives:
- ongoing improvement to customer service
- revenue growth
- growth in return on equity
Tree Top had decided it was time to replace their existing software. The software had served the company well for years. But the evolution of the business, the need to upgrade business processes, and their desire to meet the demands of their customers suggested that their software was no longer adequate for the future.
Tree Top's Background
Established as a grower-owned apple processor in 1960, Tree Top has 1,460 grower-owners in Washington, Oregon, and Idaho (US). Its corporate headquarters and two processing facilities are located in Selah, Washington. There are three additional Tree Top processing facilities in Washington State, one in Oregon, and a bottling facility in Rialto, California (US).
Tree Top provides consumer products and ingredients to other food companies. Apple juice and cider remain the backbone of Tree Top's retail sales. The cooperative also markets other consumer-packaged goods, such as Flat Fruit, Apple Slices, blended fruit juices, and applesauce. Tree Top also produces, and sells in bulk, an extensive array of dried and frozen fruit products, as well as juice concentrates.
Tree Top management saw an opportunity to advance corporate objectives by closely aligning the new software initiative with their objectives. They expected to replace most of their existing systems. However, which applications were most important to meeting the objectives? Since they planned a phased implementation, how could they ensure that they would get the most important results, relative to objectives, as fast as possible? They also wanted to understand how the new system could help them measure their progress towards the objectives.
Tree Top decided that Intentia was the leading contender for their needs. They saw an excellent fit between Intentia's Application Suite product and their business requirements. Intentia introduced Tree Top to their Opportunity Analyzer (OA) tool. OA is designed with the key objective of alignment of IT with corporate goals.
A team comprised of both Tree Top and Intentia people began a project, using OA. This core team had a series of meetings for each business function, and worked with management and key representatives from each function.
The first step was to map Tree Top's business onto the tool. This included product groups, markets, locations, and financial data—for example, the allocation of labor to various business processes (meaning how many person-days or person-hours went into the creation of the monthly forecast).
Taking as a starting point the statement of corporate objectives delivered by Tom Stokes, the tool suggested potential operational and financial key performance indicators that would measure the effort of achieving the objectives. For example, it suggested that customer service be measured by "perfect order" key performance indicators (KPIs). Using these suggestions, the team and management selected the measurements they thought best reflected Tree Top's needs, and added some KPIs that were unique to Tree Top's business. The result was a list of nine KPIs critical to meeting the corporate objectives.
OA suggested business process activities that influenced the KPIs. For example, the tool suggested that improved order entry/maintenance activities could improve the perfect order metric. It also suggested that improvements in maintenance scheduling might improve Tree Top's return on equity. Management within the various business functions (sales, production, etc.), with the help of the team, selected the appropriate best practices that they felt would improve the relevant process activities. The result was a list of thirty-five best practices.
However, the idea of having thirty-five best practices across most business functions and business processes made for a challenging implementation process. Tree Top wanted a phased implementation, and therefore needed to prioritize the business processes.
Using the facilities of OA, management reviewed each KPI, and the associated business processes and best practices. On this basis they estimated how much they thought each KPI could be improved. For example, how much would the new system improve their percentage of prompt and complete shipments? For input, management reviewed industry metrics, for example the return on equity, or days sales outstanding of competitive companies.
Improvement estimates were made by the executives and associated team members who owned each business process. They estimated improvement goals at three levels: an optimistic goal; what they really expected to happen; and a conservative goal. Using the mapping data, OA converted the improvement of the specific KPI into financial impact. It considered the impact to revenue, costs, and working capital. For example, if they improved the "number of customer-facing days per year" KPI, revenue would increase, but so would production and inventory costs, resulting in an increase in costs and working capital.
The tool sorted the KPIs, best practices, and business processes (based on the resulting financial impact), and presented the team with a clear picture of priorities. They saw big financial impacts from some applications (for example, order entry or planning), and minor impacts from others (for example, accounts payable.)
The team used the tool to document why certain KPIs and best practices were important, and how they arrived at the selected improvement goals.
Impact of Results
The team presented their findings to top management. Their analysis was the basis for organizing the implementation effort into the approach that had the biggest impact on Tree Top's strategic objectives, at the earliest possible point. In addition, top management reviewed and approved the list of KPIs generated by OA and the team. These KPIs would be monitored by the resulting implementation.
According to Kent Draney, "Opportunity Analyzer has allowed us to align our IT projects and industry best practices with [the] strategic business goals that will increase productivity and efficiencies inside our organizations. OA is a tool that integrates real financial figures and process improvement ideas to create key performance indicators that will help drive the business."
In addition to aligning Tree Top's IT projects with its strategic business goals, other benefits were observed. Different levels within the organization participated in the project, and gained a much better understanding of the connection between their jobs and corporate objectives, and of how their job affected other areas of the business. By concentrating on KPIs and best practices, and by estimating KPI improvements, various management personnel improved their buy-in for the project. Finally, top management got confirmation that moving ahead with their project was not only a requirement for the health of the business, but that it could be expected to provide specific financial returns.
Aligning IT with corporate strategy is key to maximizing the business impact of IT investments. All proposed IT investments should be reviewed, relative to the highest-level objectives of the business. With or without a decision support tool like Intentia's Opportunity Analyzer, the structured process followed by Tree Top will allow an enterprise to understand the connections, and prioritize investments.
About the Author
Olin Thompson is a principal of Process ERP Partners. He has over twenty-five years of experience as an executive in the software industry. Olin has been called the "father of process ERP." He is a frequent author, and an award-winning speaker, on topics such as SCP, gaining value from ERP, e-commerce, and the impact of technology on industry. He can be reached at Olin@ProcessERP.com.