Speak with Facts and Data

January 1, 2011

Facts and data are the universal language of business. Whether you’re talking to customers, senior management or your peers, everyone understands the language of facts and data. This language should be used to make every business decision. The big decisions, like whether or not to launch a new product, or enter a new market, should be based on the data. The little decisions like what the production line should be running today should be based on the facts not gut feel, intuition, or personal preference.

To speak any language you must know the words and you must be able to put the words together in a way that communicates your intention. To speak the language facts and data you have to have the facts and you have to put those facts together in a way that communicates your intention. There are three primary sources of the data you need to run a business. First is data you already have in your business system. Second is data available to the general public through research. Third is data you have to create.

Most of the data you need exists in your business system. Most business systems today contain data on all aspects of the business. They typically contain engineering and quality data that helps you design or improve products. They contain sales data to help you decide marketing strategies. Business systems contain operational data on purchasing, manufacturing and inventory to help you decide what to produce when. Your business system contains all the financial data you need to help you understand the impact of your decisions on the bottom line. The best companies don’t do anything by the seat of the pants or by assuming they know what’s going on. They use the language of data to run the business and they get most of that data from their business systems.

The second source of facts and data is information available to the general public. Macro economic data can guide and inform decisions. You can indentify leading indicators to determine if your sales are going to go up or down. You can see how your competitors are doing and plan strategies accordingly. Other types of generally available data that businesses find helpful includes information about pending government regulations and revisions to tax laws, the direction of interest rates that affects the cost of borrowing, or price trends in commodities. The internet makes that kind of data easy to find and businesses should include this valuable and free data in their vocabulary.

The third source of data is data you create. If you don’t have the facts and data then you need to go get them. Data can be gathered either from sources outside your operation or inside. In this newsletter, Lisa Anderson’s article, “Metrics for Customer Loyalty ” suggests you can gather much information by talking to your customers. Lisa defines two key questions that you can ask your customers. The questions are: are you easy to do business with, and do you add value? Asking these questions of your current customers will give you information you need to revise your products and services and increase the likelihood of keeping existing customers and gaining new ones. Andy Pattantyus’ article, “Observe, with a Stopwatch,” also included here, recommends that you go inside your operation and look at what’s going on. Andy has several specific suggestions about how to go about observing both factory floor and office environments to gather critical data that can be used to help guide your improvement efforts. Whether from outside or inside your operations, a great way to extend the language of facts is data you create.

No matter the source, gathering facts and data is just the beginning. Your real goal is information. Facts and data are the raw material of the language of information in the same way that letters are the raw data that make up words, and words are the raw data that make up sentences. Information is data that has been transformed into a format that is understandable and useable by its intended audience. Getting from the raw data to information takes a little work. You have to combine and integrate the data, and then deliver it to people when, where and how they need it. A simple example may be helpful. In your current business systems you have data relating to sales, material and labor costs, and to current inventory levels. When you combine that data and do a little math you get inventory turns (Cost of goods sold divided by inventory). The independent pieces of data are not very useful to make business decisions. Inventory turns speaks to the effectiveness of your operation. Transforming data into information is creating the universal language of business.

The best kind of information for a business is actionable information. Actionable information not only tells you the current condition but more importantly points you in the direction of what action needs to be taken to meet business goals. Continuing with the earlier example, inventory turns is an important piece of information but is not actionable. Nothing in the number that is calculated leads you towards the steps you need to take to improve your operations. Contrast inventory turns with a metric called the Inventory Quality Ratio (IQR). IQR is a measure of inventory performance that allows you to drill down to identify and understand the underlying root cause of your current inventory position and highlight what action you must take to improve your operations. (For more on IQR go to, www.inventoryperformance.com). Actionable information is a powerful communication tool. Jim Strong’s article, “Selling Ideas to Your Management,” makes a clear case that people armed with actionable information can communicate up the levels in the business. Jim’s article includes an excellent example of how actionable information is the kind of information that managers can relate to. Actionable information is just as important in running day-to-day operations. To know what to build today, you must know what the current demands are, and the current inventory levels to meet those demands. Actionable information uses the language of facts and data to articulate what the business must do to perform at its peak.

To guide a business toward peak performance, actionable information must be defined as an integrated set of measures not just a haphazard collection of isolated metrics. Each measure in the system must be aligned with the business strategy and goals, and must guide behavior towards the achievement of those goals. For example, if the business goals are to increase sales and reduce material costs then measures might include: customer retention percentages, average sale per customer, standard cost variance and inventory turns. Whatever the specific measures are they must speak to the company’s progress toward those two goals. Actionable information must be flowed down from senior management to all levels of the organization creating constancy of purpose toward improvement of products and services. Carlos Conejo makes this clear in his article on Hoshin Kanri. Finally, each measure in the system must be related to a specific company objective. Measures should not exist for their own sake. Peak performance comes when all the pieces of the business are speaking the language of an integrated set of actionable information to guide their behavior.

Facts and data, whether they come from existing sources or have to be created, are the universal language of business. Facts and data must be transformed into information to be effective. Information must be transformed into actionable information and actionable information must be defined as an integrated set of measures. A well thought out set of measures becomes a language that everyone from the boardroom to the shop floor, from customers to suppliers, from stockholders to the general public, can understand.

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