Management reporting is a crucial tool for SMEs (Small and Medium-sized Enterprises). Management reporting is the basis for CEO’s decision making and in the core of management and leadership. In this blog article, we delve into five considerations to take into account when enhancing management reporting. Following the guidelines in this article will enable you to create a report that supports efficient data-driven management and boosts the company’s shareholder value.
Data-Driven Management is Not an IT Project
While data collection and technical systems are vital for data-driven management, it’s essential to understand that, fundamentally, it’s about leadership. This encompasses setting objectives, monitoring, action planning, decision-making, and implementing decisions. Data should serve leadership and operational activities, not the other way around.
The focus of SME management reporting should be: how reports facilitate more efficient leadership and decision-making. A common mistake is collecting all possible data from operational activities without connecting it to the company’s strategy. Reports should be clear, concise, and outline the crucial aspects specific to the business for them to be beneficial in decision-making. An excess or unprocessed amount of information doesn’t aid decision-making but complicates it. Particularly in executive reporting, one should not mix in more detailed operational information and data needs.
- Data driven management is about leadership and management: setting up the overall direction of your company, agreeing on goals and priorities, allocating resources, assigning responsibilities and making management level decisions
- Communication is at the heart of data driven management. Data should be turned into communicable information: understandable, visual, actionable and not overwhelmingly jargon.
- Typical pitfall is to start from bottom up meaning you gather all the data you currently have and try to technically structure and automate it without any link to your strategy and high level decision making needs
- Remember the granularity of information you need in order to lead and don’t try to please all the needs of more operative persons who potentially require more frequent and detailed information for their own purposes. “If everything is essential, nothing is essential.”
What is the CEO’s Role in Data-Driven Management?
A CEO should build a mechanism within the company that they merely guide and adjust. If a CEO gets too involved in operational activities, they quickly become a bottleneck in the process. CEOs have more significant areas to focus their efforts on: leading and developing the business. If the CEO doesn’t manage the organisation and develop the business from the top, who will?
Creating value in business only starts when decisions are executed. All actions before execution are preparatory, and thus, CEOs should primarily focus on decision-making, execution, and monitoring outcomes. But not collecting and structuring data to mention few examples.
It’s also beneficial for the CEO to have an external, independent sparring partner to bounce off ideas and gain new perspectives not considered through the lens of their business operations. The CEO is the expert of their company, but an external advisor might have experience from hundreds of different businesses and their life cycles. The CEO’s role can be quite lonely, and thoughts might start to become circular. An external business advisor can also support the CEO’s mental well-being.
- You should create a machine consisting of two components = people x design
- Don’t be a person involved as you’ll become a bottleneck + the opportunity cost of you as the CEO not doing the job of a CEO is massive
- Your level of engagement = think of it as a pyramid, engage only at analysis upwards to decision making, execution and true value creation and don’t get sucked into technicalities let alone data creation, IT issues or error fixing
- Make sure you have a neutral coach or sparring partner to enhance your thinking, discover insights and cover your blind spots
What is a Common Operating Picture?
A Common Operating Picture (COP) is a management technique rooted in military practices. The fundamental idea behind COP is that, even in the stormiest moments, leaders must make efficient and uniform decisions based on available information. To achieve this, management reporting must consider:
Holistic Approach: A Common Operating Picture is a comprehensive perspective that accounts for different sectors and functions in the company, and their interrelationships.
Timeliness: The situation should be continuously updated and reflect the company’s state as precisely as needed.
Future Focus: The emphasis should be on the future. As while the past can’t be changed, decision-making can shape the future. Analysing historical data, like bookkeeping, doesn’t enable efficient decision-making.
Focus on Drivers: Concentrate on drivers that yield results, such as the number of sales meetings, not the end results like finalised sales.
Clarity and Accessibility: All members of the organisation, leaders or other employees, should understand and leverage the common operating picture. However, different organisational levels might receive varying amounts of information based on necessity.
What to Include in Reports and Forecasts?
Creating useful reports and forecasts begins with understanding your company’s business logic and its primary drivers. It’s crucial to tailor reporting to be aligned with your business model, objectives, and specific situations. Although financial data is vital, it’s critical not to overemphasise it, as it often reflects past activities and outcomes rather than guiding future decisions and strategies.
Be brave: focus on only 2-4 primary points in executive reporting. It’s vital to select the most critical numbers for the business, but equally important to ensure that the tracked numbers are ones that management can influence through decisions. While it’s essential to keep reports simple, ensure they include the most significant numbers that depict the entire picture.
Everything’s Set, What’s Next?
Even if executive reporting is ready to be implemented, it’s never entirely perfect. As a company and its circumstances continuously change, executive reporting should evolve accordingly, especially as the company grows, expands geographically, or introduces new shareholders. Adapting executive reporting according to circumstances is crucial.
It’s also essential for the CEO to remember their role: an overseer above operational activities who guides, leads, and develops the business. CEOs can only add value in their role by making decisions and ensuring they are put into practice.
If you need support in boosting the value of your SME or developing executive reporting, please contact us.