New software lets you troubleshoot your company at a glance
From his office window overlooking the main floor of the Harvard Cooperative Society, CEO Jerry Murphy can glance down and see customers shopping. They make their way through the narrow aisles of the crowded department store, picking up a sweatshirt here, trying on a baseball cap there, checking out the endless array of merchandise that bears the Harvard University insignia.
Watching Murphy, you can well imagine the Coop's founders, who started the store in 1882, peering through the tiny windowpanes to keep an eye on the shop floor. Was the Harvard Square store attracting steady traffic? Were the college students buying enough books and supplies for the Coop to make a profit? Back then, it was tough to answer those questions precisely. The owners had to watch and wait, relying only on their gut feelings to know how things were going from minute to minute.
Now, more than a hundred years later, Murphy can tell you, down to the last stockkeeping unit, how he's doing at any given moment. His window on the business is the Packard Bell PC that sits on his desk. All day long it delivers up-to-the-minute, easy-to-read electronic reports on what's selling and what's not, which items are running low in inventory and which have fallen short of forecast. In a matter of seconds the computer can report gross margins for any product or supplier, and Murphy can decide whether the margins are fat enough to justify keeping the supplier or product on board. "We were in the 1800s, and we had to move ahead," he says of the $55-million business.
To do so, Murphy installed an executive information system (EIS). An EIS is a sophisticated software program that analyzes the data an executive deems critical to his or her business and delivers the analyses to a computer screen as easy-to-read graphics and text reports. An EIS can, for instance, spot a potential cash-flow problem before it happens, enabling a CEO to avert a crisis. Or it can show that seasonal inventory is not moving as fast as it was last year, which might prompt a company president to reduce prices to avoid getting stuck with extra goods. Its ultimate purpose is to give executives the detailed information they need to assess the state of their company and make informed decisions.
Executive information systems are not new: they hit the market in 1984, and large corporations have been using them for years. What's changed is how much more available they are to small and growing businesses. Cheaper, easier-to-use desktop computers and software have brought the price of entry -- including hardware, software, and technical help -- down from an average of about $100,000 to about $20,000. Most of the costs come not from the hardware or software but from the people hours needed to organize the information so the software can read and analyze it.
Do you need an EIS? There's no clear-cut way to decide. The factors to consider are your company's size, the complexity of your business, how quickly your data change, the volume of detail you record -- and how determined you are to stay on top of ebbs and flows on a daily, or even an hourly, basis. "At some point you can no longer keep your company in your head," says David Friend, chairman emeritus and founder of Pilot Software, an EIS vendor in Cambridge, Mass. If your sales are more than $10 million and you provide an elaborate service, such as consulting, you're probably ready to start EIS shopping. If your sales are at $2 million and you sell a straightforward product, like bicycles, you might want to wait a few years.
Even when you're ready to take the plunge, setting up an EIS is no simple feat. Sophisticated programming is needed to feed the information already in your existing databases into the EIS in a way that will allow the EIS to answer your questions. If your data are still in your file-cabinet drawers or in the minds of your managers, you'll have to create databases from scratch. "Virtually every company, large and small, struggles with getting its data in order," says Jeffrey Stamen, president of IRI Software, an EIS vendor in Waltham, Mass.
Your most important role in setting up an EIS will be determining what kind of information is critical to measuring your company's progress. You'll have to tell the system what you want it to analyze and report -- say, overall sales for this year compared with sales for last year or, if you've built your company on customer service, the number of complaints in a given week and how each situation was resolved. "Most crucial," says Friend, "is that you answer the question, What's the single most important aspect of my business?"
A veteran of three start-ups, 71-year-old Mitch Mohr has always had a keen sense of what's key to running his businesses. Well before the CEO of Celluphone Inc., a cellular-phone activation service in Los Angeles, ever touched a keyboard, he was keeping careful watch over the highly specific factors that measure success in the cellular-phone business.
What he hadn't been following was the computerization of the industry. So it fell to his son, Mike, executive vice-president of the $25-million company, to convince his father that an EIS could give him a clearer, more detailed picture of the business than the paper reports he'd been scrutinizing for years. "I've worked for 45 years without using computers," Mitch would tell Mike again and again. "Why do I have to use them now? We're in the cellular-phone business, not the computer business." Then he'd proceed to yell out the door to his assistant to bring him another paper report.
What Mitch didn't realize was that some of the reports he was shouting for took more than 180 hours of senior staff time to prepare on the firm's rudimentary computer system, a solitary 386 that ran R-base database-management software.
Understanding that fact marked the beginning of Mitch's conversion. And once he'd made up his mind to computerize, he knew exactly what he wanted the system to do. It had to track standard things, of course, such as the details of each sale and commission. But more important, it had to keep tabs on an indicator particular to the cellular-phone industry: Mitch wanted the system to rank Celluphone's dealers according to deactivation rate, or "churn," in the seventh month of service.
Here's why: The 11-year-old company is an agent of AirTouch Cellular, the primary provider of cellular-phone service in the Los Angeles area. It does most of its business through small cellular-phone dealers. The dealers sell portable phones and sign their customers on for the AirTouch Cellular service, which is activated by Celluphone. Celluphone then makes money by collecting a percentage of each customer's monthly phone bill.
Each time Celluphone activates a new phone number, it gets a commission from AirTouch. Celluphone passes that money -- plus some promotional funds -- on to the dealer who initiated the sale. If the dealer's customer cancels the service before he or she has been on board for seven months, the dealer must return the commission to Celluphone; after that, the commission stays in the dealer's pocket. So seventh-month cancellations are big money-losers for Celluphone: it's too soon to generate much in usage profits but too late to recover the dealer commission. "We wanted to stay away from the guys who had a 6% seventh-month deactivation rate and stick with the guys with a 1% rate," says Mitch.
So Mitch and Mike looked for an EIS that could on a moment's notice rank dealers by seventh-month deactivation rate. Mike called in Ken Moss, of Moss Micro, a consulting firm in San Juan Capistrano, Calif., that has extensive experience in the cellular-phone business. Because Mitch's needs were so particular, Moss chose to custom-develop Celluphone's entire system rather than rely on a vendor such as IRI or Pilot, whose software is expressly designed for EIS use. He built the system from Microsoft products, including an SQL Server for the database and Excel for the interface. At Mitch's request, Moss even programmed the spreadsheet to respond to a single rather than the customary double click of the mouse. ("That's stupid," Mitch had grumbled. "Why do I have to click twice?") The final price tag was $60,000 for hardware, software, and consulting services -- a cost comparable to that of specialized EIS products.
Within seven months the system had paid for itself in reduced hours spent compiling data. Profits rose, too, because the company stopped doing business with some of the dealers it once assumed were bringing in good customers. "We were losing money, and we didn't know it," says Mike.
As Mitch gets deeper into his EIS, he keeps discovering new things he wants it to do. Recently, he asked Moss to program the system to show deactivation rates per dealer for the past three years, not just for the current year. But the computer convert is still a businessman at heart. "My father is happy he has his own computer," says Mike. "But he still asks me, 'Why are we spending so much money to buy computers for everyone else?' "
Given the cost and complexity of building an EIS, it's no surprise that many small companies aren't willing to bring one on board. But if you know what's key to running your business, you may be able to produce some EIS-like reports using the systems you already have.
CEO Mary Baechler employs a make-shift EIS to gauge the progress of her company, $7-million Racing Strollers, a manufacturer of baby strollers for joggers, in Yakima, Wash. Every day she looks at a printed report that details cash coming in and cash going out. Her eye focuses first on the top right-hand corner of the page, where a single figure tells her at a glance how things are going. The number shows the estimated net profit for the month based on actual performance to date. "Some months it curls my hair," she says.
To create the reports, her staff takes information from purchasing, order-entry, sales, and inventory databases, and rekeys it into an Excel spreadsheet. Lots of companies, large and small, do the same thing. For many it's a practical, if frustrated, response to the reality of personal computing. Most of the components that run businesses were never designed to work together. Their owners purchased them piecemeal, with no attention to a larger plan. Without a customized program that can "port" data from one application to another in a usable format, they must resort to rekeying the numbers.
That's how Racing Strollers ended up with its jury-rigged system. The 50-employee company uses both Macs and IBM-compatible PCs; a host of software programs, including Great Plains Accounting software; and a database from Aldus called TouchBase. "Over the years I've bought virtually everything my local reseller recommended," says Baechler.
This year she plans to spend between $50,000 and $100,000 on a more formal EIS, which will allow the company's systems to work together. Her employees are likely to welcome the upgrade. Unlike some small companies, where even the suggestion of an electronic network brings on culture shock, Baechler's company has always shared information. She has an open-book policy, which means that her employees are privy to the financial status of the company. A new system, in which all the applications are linked and all employees have access to computers, will only enhance the business-savvy environment. Already, says Baechler, "nearly every one of my production workers knows what a debt/equity ratio is."
For most small-business owners, building an EIS without expert help isn't a good idea. But Tom Scott is an exception. The 28-year-old CEO of Nantucket Allserve Inc. is something of a programming whiz, and he's turned his talents to developing an EIS for his five-year-old company so he can get a handle on cash flow.
Headquartered on Nantucket, an island off the coast of Massachusetts, Scott's company bottles and sells all-natural fruit juices, iced tea, and lemonade under the name Nantucket Nectars, to restaurants, delis, and convenience stores primarily on the East and West coasts. Even without cracking the supermarket chains, Nantucket Allserve expected sales of $10 million for 1994, up from $1.4 million in 1993.
The EIS Scott is programming will pull production, inventory, distribution, and financial information out of the company's five databases and move it into a single Excel spreadsheet that will serve as the root of the EIS. Scott's ultimate goal is to program the system to flash color bar charts and graphs delineating three indicators: cash that the business needs, cash it has, and cash it's expecting. "You can count your employees, your distributors, your trucks," says Scott. "But all that means much less than cash flow."
By writing the programs himself, Scott figures he'll save about $20,000 in contract programming fees. And with his new EIS, he'll be able to monitor where every penny of it ends up.
One of the most remarkable things about an EIS is the way it can transform the nature of a business. Three years ago the Coop's computer system comprised a few isolated PCs in a few key departments, like accounting. Now every scrap of business the store does is transacted electronically. Its EIS -- a software package known as Forest & Trees 3.1a, from Trinzic Corp., in Palo Alto, Calif. -- and all the databases connected to it are so much a part of the company's modus operandi that CEO Jerry Murphy is branching out in new directions based on technology. Later this year, for instance, the Coop will begin to sell its wares through catalogs on the Internet.
Murphy says the investment in an EIS has revitalized the business, allowing him to juggle prices and inventory in order to make overall sales goals. Based on data he pulls up from the EIS, for example, he can decide to reduce for quick sale the price of a poorly selling shoe, even if the margin falls too low. As long as he can boost gross margin on another item, he can maintain a positive balance. In fact, Murphy's favorite question for his EIS is, What's the real cost of the sale? He believes that's the most accurate measure of performance, especially for a store that sells much of its merchandise off-price.
Murphy likes to look at overall sales numbers for all six stores and compare them with this year's forecast and last year's history. That lets him know, in just a few seconds, whether things are on track. From there he drills down deeper and looks at more detailed graphs and charts, which are displayed in increasing depth with each click of the mouse. He might, for example, check out sales numbers for certain items by store or by vendor. Or he might look at inventory movement for each of the hundreds of thousands of household, clothing, and electronics items the Coop sells.
As Jerry Murphy's learning, it pays to teach an EIS everything you know about your customers, suppliers, products, competitors, and industry. For at some point in your company's growth, an EIS will be able to report on your business faster and better than you ever could.
Jennifer deJong (email@example.com) is a freelance writer based in Boston.
Get Help: Don't try to set up an EIS on your own, unless you can write computer code. Invest your time in figuring out which business indicators are most important for you to track.
Start Small: For a few thousand dollars you can begin tracking the two or three things you most want to keep your eye on.
Think Big: Don't draw up plans for a small system you'll have to scrap later. The long-term goal is to have one comprehensive system that lets you track every sign of your company's health -- even the indicators you haven't thought of yet.
Comparison Shop: The true expense of an EIS lies in the programming and consulting fees you'll spend to make your system hum. Make sure you know what you're in for, and compare rates from several vendors and consultants.
EIS Software VendorsBusiness ObjectsCupertino, Calif.408-973-9300
CognosOttawa, Ont., Canada613-738-1440
ComshareAnn Arbor, Mich.313-994-4800
IntelligenceWareLos Angeles, Calif.310-216-6177
IRI SoftwareWaltham, Mass. 617-890-4660
Pilot SoftwareCambridge, Mass.617-374-9400
TrinzicPalo Alto, Calif.415-321-7728
EIS ConsultantsCFT ConsultingSarasota, Fla.813-366-6657
Moss MicroLos Angeles, Calif. 714-248-9332
Quickstart TechnologiesNewport Beach, Calif.714-476-7575