Understanding Business Intelligence
This capability will help make informed business decisions, which in turn provide better insight for assessing risk and help to facilitate healthy financial gains through business growth opportunities.
You may have heard of the expression, You dont know what you dont know. Unfortunately, many organizations make critical decisions each day with limited factual information. They believe they are making the best informed decision with data from reports produced by their IT department or gut feelings.
The challenge with the IT reports is that the logical view portrayed can be misleading and the gut feeling decision is driven by a lack of data. Over a period of time, this type of decision making can turn out to be the catalyst of revenue decreases, market share erosion, and, in extreme cases, the demise of a company.
When to use BI?
In a perfect world, BI applies to all decisions made all of the time. This means every decision, theoretically, would have the correct information for all the required variables in the decision making process, to accomplish the desired outcome of the decision.
The reality is that many times decisions are made with a subset of data that doesnt truly reflect the data trend over the actual time period required to make the correct decision, or key data variables in the decision making process are omitted.
So, how does a company or organization benefit from BI without implementing a perfect world solution?
Well, the answer is not simple, although there are some good rules of thumb:
The BI Benefits
Revenue. Over the years, companies with BI capabilities have reaped some level of financial benefits from their implementations. With a well structured BI implementation, they are able to modify their service offering and level of service to their customer, to better align with their customers needs.
Some companies with good BI implementation have not shown significant revenue growth, however, they have been able to control new competition and competitors with BI implementation to stay neutral, instead of going into the red.
Market Share. Increasing your companys market share is usually a good way to increase your revenue and stability.
In todays market place, monopolies are a thing of the past and new players are continuously entering the scene to grab up as much of your market share as they can. One example is a new comer under cutting prices for a set period of time in an attempt to grab up as much of your customers as possible.
Many new customers loyalty goes as far as the price of the product or service and most customers are more than willing to jump ship. If this is the case, then how does a company prepare themselves?
Some of the more financially stable companies can weather the storm and out last the new competition, while others can succumb to the new competition. Companies with a mature BI program have a much better chance of survival since they can usually react quickly with better decisions to retain market share and, many times, as a byproduct, enhance their offering or service, which in turn can increase their market share.
Decision Making. The decisions you make are as good as the choices you have to choose from. A simple example: you are driving home listening to the traffic report. The traffic reporter reports that the local lanes (the route you usually use to go home) are backed up due to a stalled car in the left lane, and recommends that you take the express lane.
You know that if you take the express lanes you will pass your exit and need to back track. However, you possess the knowledge that this type of traffic backup will delay your commute 30 minutes and the time you will spend back tracking is 15 minutes. With this information, your decision is to take the express lane; which minimizes the impact of your commute created by uncontrollable influences.
BI works very similarly to this example. BI assists the decision makers of your organization in drilling down key information for the purpose of making the best-informed decision.
Innovation. Over the past few decades some companies with major market share have suffered serious market share erosion and revenue loss. These organizations were sitting comfortably with a loyal customer base and made minimal investments into forward planning.
As they existed in a steady state, the competition was able to over take a large portion of their market share. If they had made an investment into a BI solution, they may have recognized warning indicators earlier. BI has become more critical in the past decade due to the changing market place across many industries.
Level of Service. Many industries, over the past several years, have been forced to provide more aggressive levels of service from the market place and their customers. For example, in the consumer products industry, service levels range from same day delivery, to next day delivery, etc.
The ability to measure the level of service your organization is performing and the ability to understand the root cause of why exceptional conditions occur is key. Once the measurements are available, this input goes a long way in resolving issues that help stabilize your organizations ability to perform higher levels of service consistently. The byproduct of this event is a happier customer who will be more loyal.
Productivity. Operating costs is usually a focus point of the CFO, especially in competitive markets. One major component of operating costs is the cost of labor. Sometimes in BI implementations, some workflow can be optimized or even possibly omitted; reducing labor requirements and cost.
In some cases, companies find the big savings come from a better understanding of each customers individual needs. An example of this is when a company starts to customize service offerings in an attempt to build their customer base. This process is very labor intensive and needs to be properly staffed since its part of an assembly line process.
When a BI drill-down occurs, the data received could show that only some sporadic low volume customers order this service. This information could drive the company to no longer provide this customized service, which causes the company to lose a small percentage of low-volume customers having a negative impact of $X. However, the savings could be $2X, which in turn would contribute to a lower operating cost which helps drive a positive ROI for the BI investment.
Planning & Management. A mature BI implementation fosters proactive planning, not reactive doing. This helps in stabilizing the planning process and a quicker identification of the business environment changes so the reaction to these changes can be phased in with a well managed structured approach.
Information Technology Investment. Today there are many BI solutions to choose from. Your IT department will need to work closely with key stakeholders from your business to determine which solution will best meet your companys most current and potential needs.
Once a solution is identified your IT group will need to invest in the infrastructure to support the hardware and access capabilities to your new BI application. Most BI solutions out there today support extract, transform, and load (ETL) & online analytical processing (OLAP) processes to prepare your data that will be presented. Your IT staff will need to support your BI application as new requirements are identified.
Management Investment. Management must be strong sponsors of your BI program to take advantage of the benefits. They will also need to be clear on your companys strategic direction to maximize the data extracted out of your BI tool.
BI is a tool, and if used properly by the user it will be invaluable; however, on the flip side, if it is not taken seriously or not used properly by your management team the ROI will be severely impacted.
Staffing Resource Investment. In some organizations BI will have their own group to support the business. In any case, there needs to be a balance of staff verses the benefit and ROI of the BI program.
If a company takes too many short cuts then the benefit of BI can be diluted and users will quickly become frustrated leading to the sabotage of the BI implementation. If the staffing investment is too high then the ROI will be impacted. BI investment should initially be in high visibility low risk areas. As benefits are recognized, the program should be expanded and scaled accordingly.
Standard Cost. Some of the standard costs for a BI implementation are capital investment (infrastructure, hardware, etc.), labor (in-house), consulting labor, licensing fees (software, tools, etc.), leasing (HW, facilities, etc.), as well as, training, maintenance agreements, support, SW & HW maintenance and operations staff.
Hidden Cost. As your companys BI program begins to gain interest, some additional functionality or customization may need to occur. When planning the initial investment it should be understood that the total cost of ownership (TCO) may need to be padded during years one to three as your company starts to understand the benefits of BI information.
The exception here would be if your company has expertise and experience to guide an optimal implementation. If this is the case, this expertise will only help reduce the costs during years one to three but will not eliminate the cost. This cost savings however, could be offset with the expense of a larger initial investment that contains a more robust scope.
Best Practice = Cost Reductions. There are a few good rules of thumb when embarking onto a BI implementation. First, educate your users on the intent and potential benefits of a BI implementation. Provide several demos with potential vendors upfront to allow a growth of their understanding and appreciations.
You will find this step invaluable if done correctly. The key to this step is to have the project sponsor control the scope of the discussion by keeping the focus on key business areas. Second, if you do not have expertise in-house then leverage outside assistance to optimized lessons learned from other organizations implementation.
ROI If your organization is ready and willing for a BI implementation then there is a higher probability of ROI benefit than a company who has not bought into the concept.
The financial investment into a BI implementation can start to add up quickly when you begin to look at the individual components, which can include a knowledge management, data mining, data warehouse packages, SW customization, infrastructure, out-side resources, etc.
The intent of this article was not to explore these equations & calculation, but to put some parameters and examples around some of the benefits of BI and potential investments.
David Roy is a consultant with Delta Corporate Services, a business and technology consulting organization servicing the federal government and fortune-level companies.