Creating the digital cockpit

Patrick Palerme explains how GE has taken flight with the introduction of integrated balanced scorecards

By Danièle Rivest, CMA

Patrick Palerme, president and chief executive officer of GE Canada Commercial Finance, Equipment Financing, Canada was one of the speakers at the CMA International Chair symposium held in Montreal on September 29, 2005. He explained to attendees of the event the challenges and benefits the company has experienced using balanced scorecards to manage its business. This article provides a summary of his remarks.

The digital cockpit

GE is one of the world’s best-known companies. It has six major divisions, active globally in the technology, services and finance fields. For the seventh consecutive year, GE made the Financial Times’ list of Most Respected Companies. It posted a 14% growth rate in 2004 and is one of only six large corporations to have maintained its AAA rating. The GE Commercial Finance division, which is active in over 30 countries, has eight separate groups dedicated to equipment financing in areas such as healthcare, transportation (air, rail, etc.), manufacturing and real estate. It employs over 27,000 people who serve more than 900,000 clients throughout the world. In Canada, the Equipment Financing group, which is part of GE Commercial Finance, has over 300 employees in approximately 20 offices.

To manage its future, GE Canada Equipment Financing uses a balanced scorecard that it calls a “digital cockpit.” A balanced scorecard is an analytical tool that gathers together all indicators used by managers to simplify their roles as guides and “pilots.” Previously, information at GE Canada Equipment Financing originated from non-integrated systems, which meant that reports were produced manually and inefficiently. Moreover, it was necessary to wait until the books were closed at the end of the month to try to understand what had happened. Information arrived too late, and the group was forced into a reactive rather than proactive management approach. Managers spent 70% of their time collecting data and only 30% analyzing them.

By implementing a balanced scorecard, the company was therefore trying to achieve the following objectives:

• create a central information depository;
• focus on value-added activities;
• recognize trends early to enable it to take prompt action;
• eliminate unnecessary information searches and report formatting.

More specifically, GE Equipment Financing’s financial executives detailed the objectives as follows:

• manage rapid and substantial growth while minimizing additional resources;
• make financial information available throughout the company;
• establish business rules to make financial information consistent;
• provide a flexible source of information;
• establish the company’s decision base;
• manage access to information through a secure environment.

“Today, with GE Equipment Financing’s balanced scorecard, information is not only up-to-the-minute, but also available at all times on the intranet,” explained Palerme. “The balanced scorecard provides a complete overview of sales, finance, client services and credit for each division. This means that I am kept apprised of critical information in all regions. I can therefore call up regional managers and discuss matters with them knowledgeably, since I have all of the information relating to a client, a sector, etc., at my fingertips.”

Digitizing data and processes

The implementation of GE’s balanced scorecard was carried out in four phases over a four-year period. Phase 1 involved digitizing the data. Management reports were introduced in phase 2.

During this phase, it was necessary to determine the composition and hierarchy of reports. For example, level 1 would encompass reports relating to the company as a whole, level 2 would refer to a region, level 3 denotes a branch and level 4 involves a product.

An electronic agenda system was operational by phase 3. The contents of each employee’s agenda were digitized to enhance follow-up of client services. Finally, all the tools were integrated during the final phase. Thus, implementation was handled gradually.

The initial step was to create one single base integrating all the company’s data. Digitizing makes it possible to manage using real-time data, to explore the details of each piece of information, to base the budget process on real data, to accelerate decision making, to standardize business rules and procedures and to reduce the cost of outside consultants. Thus, a company is able to analyze collected data more critically, since it can automate data mining, identify market trends and develop predictive models.

“The database must be accessible to everyone at all times (in our case, via the Web), using a single system. To ensure the success of this tool, we eliminated all parallel information systems,” explained Palerme. To a certain extent, this forced employees to use this new database. Because information was readily and rapidly available, and since everyone had access to the same quality of information, the transition went smoothly. Managers were able to focus on analyzing, instead of collecting, data. Today, reports are presented in the same format, regardless of where they are made. However, the way in which data is extracted makes it possible to obtain detailed information on a specific client, transaction, representative, etc. The timeline for filing reports has been reduced from 48 hours to 15 minutes. This represents a savings, not only in terms of human resources, but also in time, which is a crucial issue in the finance field. One need only consider the fluctuations in interest rates to realize how important it is to act quickly when processing a file.

A balanced scorecard contains highly confidential data and critical information for the implementation of an organizational strategy. Managing security is therefore an essential component in system maintenance. It requires ensuring that each employee has access only to information (in terms of type and level of details) that he is supposed to obtain — no more, no less. Since the database can be accessed on the Web, GE’s system is encrypted.

The challenges

The greatest challenge GE faced in introducing a balanced scorecard was standardizing information and processes. For instance, before the implementation of the balanced scorecard, a given client could have up to 35 different identification numbers.

The onus in collecting this information is not only on analyzing, but also on acting. The employee must be selective, otherwise he will wind up with too much information and won’t know what to do with it all. It is important to control the scope of a project by proceeding in stages. You must also be able to estimate the project’s return on investment and how much time will be necessary to develop the project.

According to research conducted by the CMA International Chair, balanced scorecards developed for businesses are seldom integrated with each other and are almost always comprised of indicators that reflect past performance. At GE Equipment Financing, however, balanced scorecards have all been integrated. This means that everyone has access to the same quality and quantity of information at the same time.

“Our balanced scorecards include consolidated indicators that are drivers of future performance and that can be explored in greater detail by their managers,” said Palerme.

Lessons learned

Palerme, in his remarks, stressed the importance of unconditional senior management buy-in to make a project a success. Without it, it’s doomed to failure. Change management, an essential extension of management buy-in, is also critical.

“Initially, the employees were sceptical,” Palerme noted. “They viewed the project as an intrusion on the part of management. Today, they are taking advantage of the tool because they know that they can rely on the information that it contains. Nevertheless, since expected behaviour must be rewarded, compensation must be aligned with the objectives to be attained. Finally, information must be increased, to the lowest common denominator, by digitizing as many functions and data as possible. This data must then be aggregated to extract relevant information — that is, a limited number of key indicators.”

“You can’t manage a business by looking backward and by advancing blindly, as in a fog,” Palerme concluded. “Management control must be revamped if it is to play a role in assisting in the decision-making process. As competition becomes ever more fierce, the use of forward-looking indicators in the form of balanced scorecards is an effective way of adding value to a business.”

Danièle Rivest, CMA, is presently a student in the doctoral program at HEC Montreal, with a research focus on management and technological tools in SMEs.