ACCOUNTING

Virtual Manager: Beyond Data

A CIO explains how he has transformed his company's data into a powerful information tool.
Advertisement

Flooded with facts? Drowning in data? If you begin with the right questions, you can transform a data dump into a powerful information tool

Imagine that you're the managing director of a major corporation. A staffer, eager to dazzle you with his industriousness, plunks a two-inch printout on your desk with all the past week's orders sorted by product type and salesperson. You had asked how th ings were going, and this report, you are proudly told, contains all the answers.

But will that encyclopedia help you understand what's going on in your company? Is there good news? Bad news? Action you need to take? Where? How? If you're like most of us, you won't know, given the mountain of data, and you probably won't use the report to improve your decision making.

We're all spending huge sums of money buying and programming computers to collect and process facts, producing reams of reports with what I call a "data focus." Collecting facts -- the numeric representation of some external event -- and turning them into data -- the first level of processing -- is just step one. Unfortunately, it's where most people stop. To be useful, the data must be analyzed to create reports with an "information focus."

An example of a report with an information focus is the "VeriFone PBT [profit before tax] Flash," which I produce each day in my role as VeriFone's chief information officer and distribute to VeriFone managers throughout the world. At midnight each night California time, all VeriFone global transactions from the previous day (bookings, shipments, adjustments, and so on) -- the "facts" -- are automatically transferred to one of our computer centers, where they are processed into a series of reports on what we did yesterday and what we've done month to date, quarter to date, and year to date. The several hundred reports are our data-focus reports for the corporation -- and the fodder for a variety of information analyses.

Early each morning, I put the data from the nightly run through a series of analytic programs that compare how we're doing against historical-trend data and that make projections about where we'll end up based on factors we've found to be good predictors of business. I use the output from those analyses to write a two-page report that highlights how we're doing compared with our plan, where we're heading, and what we need to do to reach our goals. Rather than emphasizing numbers, the report shows at a glance how each business unit is doing.

To understand what I mean, compare the following data-focus and information-focus reports:

* * *

Data-Focus Report
September Total Demand as of 9/8/95

Division A $3,896,212

Division B $5,263,111

Division C $1,049,048

* * *

Information-Focus Report
Total Demand as Percentage of September's Plan

25% of month should be booked already

Division C 28%

Division A 15%

Division B 7%

* * *

Which report better tells the story of how the divisions are doing? When we look at the data-focus report, we see that Division B has the largest dollar total. However, the information-focus report shows that Division B is behind the power curve and has the weakest showing.

Numbers should never be shown in iso- lation: they need to be evaluated against some standard or against the past to be meaningful. The information-focus report transforms the data -- converting dollars into a percentage of target performance -- so that the different divisions can be com-pared. What's more, the information-focus report presents the information graphically. Graphic information is al- most always easier to understand than numeric information. Notice also that I used ASCII graphics here, not some fancy graphics program. A fancy program -- one that uses color, for example -- could make the information-focus example even more effective. Imagine the same report with Division C's row printed in green and the other rows in red. The red would emphasize that Divisions A and B are behind the power curve.

In the "VeriFone PBT Flash," I add a qualitative summary to put the numbers in perspective. In other words, I use prose and a few key graphics to present the in- formation in different ways. And because I can upload that short report to our global network in seconds, a large number of VeriFone managers instantly get a snapshot of where we are as a company, where the divisions are, and where we're headed. That keeps us all marching in the same direction, whether we're in the same city or halfway around the world.

All too often that type of information focus gets lost in the barrage of data we generate every day. A profit-and-loss statement for a single accounting period, for example, is data-focused, not information-focused. Our job as managers is to ensure that our organizations focus on information. Here are some ways to turn that ubiquitous profit-and-loss statement (simplified here) from data to information:

* * *

Data Focus
ABC Inc.
For the period Q1-95

(x $1,000)

Revenues $47.875

Cost of Goods 32.625

Gross Margin 15.250

Operating Expense 12.125

Profit Before Tax$ 3.125

* * *

Even if we compare those numbers against an industry standard, we would learn very little from the data-focus report. We could improve the report somewhat by adding a column showing the percentage of revenues each item represents, but the report would still be mostly data, not information. For real information, we could look at how the company performed compared with its internal plan:

* * *

Information Focus
ABC Inc.
For the period Q1-95 Amount Deviation

(x $1,000) from Plan

Revenues $47.875 10% unfavorable

Cost of Goods 32.625 10% favorable

Gross Margin 15.250 on target

Operating Expense 12.125 10% unfavorable

Profit Before Tax $3.125 5% unfavorable

* * *

Using the information focus, we now know that though revenues are running behind the plan, the cost of goods is lower than planned (a good thing), which brings gross margin right in on target. An unfavorable operating-expense picture, however, means that profitability is less than planned.

We also might look at a company's growth rate (velocity) or the rate of change in the growth rate (acceleration). Knowing that a company had $2.1 million in revenues in 1994 is one thing. Knowing that the figures show a 24% growth rate over 1993 tells you something more. And knowing that the company's growth rate is decelerating 10% a year tells you even more.

We need to work diligently to make reports relevant to management decisions. I like to start any information-generation process by first asking what decision I want to make. Then I ask what information I need to make that decision. Finally, I determine the data I need to provide the information -- and the facts I need to create the data.

Too often people start with the facts and see what kind of report they can generate, unconnected to the decision they want to make. If, for example, you want to determine where to locate new salespeople, you might begin with the location of current offices to generate a report of vacant spaces in those offices. But a better way to proceed would be first to plot on a map the location of each customer (represented by a circle showing the customer's dollar volume) and then to plot existing sales locations with the number of vacant office spaces. A report that correlates customers with vacant office space is a more powerful tool for making staffing decisions than one that leaves customers out.

A great way to check whether you have reports that are information-focused rather than data-focused is to ask "So what?" and "What do I do now that I know this?" If your reports can explain why it was important to create them in the first place, you have what you need to take action.

* * *

William R. Pape (will_p@verifone.com) is senior vice-president and chief information officer of VeriFone Inc., headquartered in Redwood City, Calif.

Last updated: Sep 15, 1995




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: