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Why Business Intelligence?

August 23, 2003 | Articles | Admin As a consultant in the IT industry for the past fifteen years, I have seen what Business Intelligence can do for clients in diverse industries. It allows businesses to leverage their information assets as a competitive advantage. It allows businesses to better understand the demand side of the business and manage customer relationships. It allows organizations to monitor results of change both positive and negative. What is also readily apparent is that Business Intelligence is the latest buzzword working its way through the business and technology worlds. Much like ERP, SFA and CRM before it, the hype is now shifting toward Business Intelligence. From 1992 to 2000, businesses made an enormous investment in technology. In todays economy, where spending must be decreased, businesses are asking themselves, What technologies have we invested in? and How do we leverage these investments? However, although overall IT spending has decreased, within that spending, the portion spent on Business Intelligence and Business Intelligence related technology has increased. Forrester Researchs Business Technographics Benchmark survey (Feb 2003) of 877 business and IT decision makers suggests that IT spending is likely to grow only 1.9%, but that 45% of the businesses surveyed will buy business intelligence tools. Why and why now? There are two major reasons why the increased interest in Business Intelligence: the information age and the economy. In the information age, information is power. Companies that leverage, exploit and maximize their information assets have a strategic advantage over their competitors. Business today moves at the speed of information. Getting the right information into the right hands at the right time is essential. One needs to look no further than Wal-Mart for a successful example of effectively leveraging information assets. Wal-Mart has been able to develop and maintain consistency among systems throughout the enterprise, which, among other things, has allowed them to rapidly collect and integrate detailed sales information down to the SKU level. The ability to integrate and analyze near-real time data has benefited Wal-Mart on many levels. The visibility of product performance (turns) in specific stores, on specific shelves, allows them to only stock those brands that sell within a particular region. It also allows managers to analyze the profitability of various products through both inventory turns and gross margin, thereby improving overall business velocity. The other reason for the current emphasis on Business Intelligence is the economy. In an effort to survive the current economic storm, companies have focused on two main areas reducing costs and increasing revenue. Where Business Intelligence systems have been implemented, a company can pull together cost information from all internal organizations, which shows where the costs are, what the costs are, and provides a framework for making cost cutting decisions.

When the cost cutting is complete, the organization can view exactly what has been done and detail the impact in real-time. In order to increase revenue, firms must focus on retaining customers as well as acquiring new ones. Retaining customers is always the most attractive. But understanding the profitability of the customer base is the first step. Typically, 20% of customers account for 80% of the profits. Firms first need to segment the customer base by profitability and act to retain the most profitable. Retaining these customers will provide the greatest lift to profits. Business Intelligence enables this segmentation. The next step is analyzing the attributes and behaviors of the most profitable customers. This knowledge can then be used to help manage customers up the profitability ladder making notso-profitable customers more profitable. This could be completed by enticing customers to use lower cost channels, up-selling customers to higher revenue items or cross-selling customers to higher margin items. The important item is to differentiate the treatment based on profitability companies should not be treating all customers equally, for they are not all equal. Finally, this understanding and analysis allows firms to identify prospects that are similar to their most profitable customers and target them for acquisition. This provides an influx of customers who are most likely to be profitable. The Business Intelligence environment is the enabler for these types of activities. For within this environment, customer information is consolidated throughout the enterprise. Sales information, contact history, customer service information, channel preference, revenue history, product preference and demographic data are all brought together. The Business Intelligence toolset further provides the functionality required to analyze the information and produce meaningful customer intelligence as well as measure the results of retention and acquisition efforts have on increasing revenue.

Business Intelligence Implementation Challenges


When businesses focus their spending on a specific technology, that technology gets the attention of the marketplace. Today there is a massive focus on products and services that deal with Business Intelligence. There are thousands of biarticles, white papers, vendors, and consultants dedicated to Business Intelligence. With so many expert resources, why do so many companies still struggle with successful business intelligence implementations- Why is the phrase, If I only had access to the data a common theme in the business world? There are 3 main factors that contribute to the poor success rate in this arena: 1) Lack of business alignment 2) Doing nothing by trying to do everything and 3) Inadequate training. The first is a fundamental issue lack of alignment with the business. When technology efforts disengage from the business and take a technology focus, these efforts typically fail to meet the needs of the business user. This type of situation has been a played out again and again since the advent of information systems development. It is most likely the main cause of project failure today. In these situations, project teams become enamored with the latest software product features. The marketplace is ripe with Business Intelligence vendors all touting their companies latest and greatest offerings. Teams lose the focus of selecting the right tool to meet the needs of the users and get caught up on the bleeding edge of technology.

In the second case, companies fail to do anything because they try to do everything. These are the enterprise-wide initiatives that fail to gather any momentum. These efforts involve multiple lines of business and multiple IT groups with some type of governing committee. Decisions are made by consensus, which is extremely difficult to obtain. Each line of business has its own priorities and each IT function has different opinions on the technology direction. More often than not, these efforts fail and each line of business undertakes separate projects to meet their own needs, making collaboration and information sharing across lines of business more difficult. The final situation involves the lack of adequate training for business analysts and internal customers who will use the system. This creates a situation where the end users must continue to depend on IT for analysis. Business users do not understand how to effectively use the tool or comprehend its potential to help them do their jobs more efficiently. In this case, adoption of the functionality is not realized and users quickly revert back to their old ways. This is so disappointing when a company makes the technology investment, implements the system and then nobody uses it.

Improving Business Intelligence


So what can be done to improve the Business Intelligence success rate? And how can businesses create intelligence from their data and provide timely, accurate access to their end users? For this, lets look at the business intelligence process (See Figure 1.). This process is dynamic and iterative. The process begins with questions, the answers to which invariably result in more questions and subsequent iterations of the process. So the end of one cycle is the beginning of the next, seeking further clarification or leading to new questions altogether.

Figure 1 Business Intelligence Process

Directing & Planning:


The Directing & Planning phase is both the beginning and the end of the process. It is the beginning because it involves drawing up specific requirements and the end because answered questions lead to more questions. The business intelligence process begins when consumers (executives, line of business leaders, etc.) generate the questions that will help them achieve their objectives. Who are my most profitable customers? What is the gross margin for each product line? How much revenue has been generated over the past month? These needs are expressed as needs levied on various analytic groups. The analytic group uses the consumers needs to develop specific requirements and in giving planning and direction to guide information gathering and formulation of answers.

Information Gathering:
There are many sources of information within companies today. The automation of business processes has created a wealth of sources: Point of Sale, ERP, CRM, SFA, Customer Service applications, etc. The different systems create, process and store different pieces of information each and every day. This process is continuous. It is important to understand that data from these sources counts as information, not intelligence. Raw data is often incomplete or possibly misleading. Information becomes intelligence through processing and analysis. The Information Gathering process is where the different sources are examined to determine the necessary data sources to obtain data to answer the questions.

Data Processing:
The Data Processing phase is the integration of the raw data into a useable format for analysis. This can be the creation of a new database, addition of data into an existing database or the consolidation in some other type of analysis system (i.e., utilizing an analytic tool to extract and manipulate data). This phase can generally be thought of as the Extract, Transform and Load (ETL) processing that occurs within Business Intelligence environments.

Analysis & Production:


The analytic group leverages data mining tools and techniques to sort through the data and create the intelligence. The end result of this phase is the production of intelligent answers, in proper context, with supporting commentary. In some cases this is as simple as creating a report. In other cases, it is a detailed assessment of predictive indicators for cross-sell campaigns. Additional requirements may also be generated during this phase as analysts identify other pertinent questions to be answered.

Dissemination:

The dissemination phase is the delivery of intelligence products to the consumers who request them. This typically involves the use of a Business Intelligence tool to publish an executive dashboard, standard reports or the ability to actively review the data. This is used for intelligence that is self-explanatory. Other products are delivered in presentation form, allowing the consumer to directly interact with analysts in a more collaborative fashion. Figure 2 shows, at a conceptual level, how the Business Intelligence process fits within an organization. The graphic shows each phase of the process, highlighting the components of each as it relates to a business. Lets walk through a simple example. The head of mortgage for a financial services firm asks the question, How many mortgages are sold to existing customers? The analytic team for the mortgage group is asked to answer this question starting the Business Intelligence process. The team begins by understanding what information they need to answer the question. The data they need is being captured throughout the company; they just need to determine where it is and how to get it. At this point, IT may become involved to help identify the appropriate data sources. Once the data sources are identified, the team works (likely in partnership with IT) to extract and integrate the information. In some cases, the data required is housed within a single database and no data integration is needed. The next step is the analysis and production. Utilizing the data, the analytic team will look at the mortgages sold and identify those who were sold to existing customers those individuals who currently own one or more products. The answer is then provided back to the consumer (head of mortgage) who, in reviewing the answer, now asks, How do we sell more mortgages to existing customers? And the next iteration of the process is born. The analytic team then moves back to understanding the attributes of mortgages holders who have other products and can identify prospects for crossselling the mortgage product.

Figure 2 Business Intelligence process within an organization

How do we become successful?


So what must change in order for businesses to become more successful in Business Intelligence First, companies need to stay focused on the business alignment ensuring that Business Intelligence efforts are closely aligned with business objectives. Teams should remain true to the needs of the Business Intelligence consumer and emphasize execution. They need to be more like the Navy Seals than the Navy. Rather than get bogged down with which Business Intelligence tool is the best or the latest features being touted, they need to focus on providing answers to the questions. Keep it simple. Second, companies need to have an overall data management strategy. This addresses the data collection and processing and reduces the time to obtain intelligence. Companies that are doing this correctly, have the foundation in place to capture, cleanse and integrate the raw data into databases, ready for analysis. Leverage existing infrastructure, analysis software and Business Intelligence tools. In most cases the answer is not the feature set of a particular tool, but rather the execution of the process within the organization. Finally, firms should walk before they run. Put together a roadmap that starts with business objectives, aligns with technology and establishes momentum with realistic, short term projects. This roadmap should fully leverage existing tools, technologies, databases, data marts, etc. to

serve as the foundation. The most important point to remember is that this is not about purchasing more technology to solve the problem. Rather it is about making the most of existing resources and establishing a solid business intelligence process to provide answers.

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