Business Intelligence - A Management Perspective

1. Why is BI an Imperative Today?

2. BI: A Key Component of Enterprise Systems

3. Evolution of BI Systems

4. Hard Data vs Soft Data

5. The “Satisficing Concept”

What Is Actionable Information?

Efficiency vs. Effectiveness

Business Intelligence : A Management Perspective

The Consultant’s Café - “Today’s Special” Has Changed Over the Years

Executive Information Systems (EIS)

Total Quality Management (TQM)

Business Process Reengineering (BPR)

Enterprise Resource Planning Systems (ERP)

Supply Chain Management (SCM)

Customer Relationship Management (CRM)

Human Capital Management (HCM)

BUSINESS INTELLIGENCE (BI)

One Idea, So Many Names!

“ Business Intelligence” Term Coined by Gartner in 1989 – Simply defined as using information effectively to make better decisions

Gartner’s Emphasis Today: Corporate Performance Management – CPM means getting a better finger on the pulse of an organization to make a better, more accurate, and more timely assessment of how an organization is doing. Enterprises need to move away from asking, “ How did we do last month or last quarter” to “How are we doing right now” as well as “ How will we do next week ”

Meta Group: Business Performance Management - Companies realize they have six different tools, but they do not have a consistent approach to results reporting, management reporting, planning and budgeting, etc.

The Computer Made It to the Executive Suite In Late 80s!

The computer has little to offer executives since their work is unstructured "Fortune", Nov. 1983.

Executives are finally getting fast, clear information about what's happening in the bowels of their business. The new systems can change the way top managers work

"Fortune", Mar. 1989.

But Not Quite !

"Every business manager I know shares

one frustration:

the difficulty of obtaining fast, accurate

and comprehensive market information."

President, Frito-Lay

Wall St. Journal, June 11, 1990

What Happened in the Mid-1980s?

1. INCREASING GLOBAL COMPETITION

"In today's environment, a businessman without access to good information is playing with one hand behind his back"

2. TIMELY " INFORMATION " BECAME CRITICAL

"We need enough advance warning to steer around the iceberg. What we have had so far is the world's best damage report"

3. CORPORATE DOWNSIZING

"Fewer staff analysts available to sift through the mountain of ‘ data’ and cull out relevant ‘ information ’ ”

4. TECHNOLOGICAL ADVANCES

Made Executive Information Systems systems a reality

Major Growth Drivers for BI in 2005

Need for organizations to make a sense of the “data tsunami” that is hitting them from their enterprise applications

Focus on performance management and the need to develop and measure the associated key performance indicators

Ensuring accuracy, timeliness and consistency of data for regulatory reporting

Source: Gartner Management Update, Nov. 2004

Market for BI tools is estimated to grow from $ 3.7B in 2002 to $4.5B in 2007, according to industry analyst, IDC. Source: DM Review , April 2003

Case Example: 7-Eleven Japan - BI for Implementing a Customer-Centric Strategy

1974: Ito-Yokado acquired franchise rights to 7-Eleven in Japan

By 1998, expanded to over 5,000 stores

Company’s profitability reached 40% of sales

In contrast, 7-Eleven USA filed for bankruptcy

Sold 70% of its stores to Ito-Yokado

IT systems captured information about customers and their needs

Every clerk recorded customer features (gender, approx age, etc) at the time of purchase

Also, products requested that were not available in the store’s inventory

Inventory management systems based on customer information

Which products to stock in each store?

How much shelf space for each product?

Which are the most sellable items at different hours of the day and hence should be displayed?

HSBC’s Foray into Consumer Finance - Differentiated Customer Strategy Requires BI

Acquired Household International in the US

53M customers

33% are categorized as “sub prime” … those at the lower end of the market

Sub-prime Market is Lucrative

Can charge higher interest rates

But, higher risk of default

BI for Managing Credit Risk

A state-of-the-art consumer analytics system

Each customer is analyzed down to the last detail, including his choice of colours … a man buying a red car is assumed to be flashy and more daring!

The Urgency for BI

Gartner’s March 2005 BI Summit in Chicago and London drew over 750 attendees at each event!

Mountains of data; growing at 30% to 50% a year

Pressure of regulations such as the US Sarbanes-Oxley Act and in financial services, the Basel II capital adequacy rules forcing companies to “fix-up” their practices

Competition and customer demands requiring timely – and often real-time – information, and in plenty of detail - to “drill down” from high-level summarized reports, with the intervals between updates coming down, especially in financial services (“from 4 hours to 15-25 minutes”)

One Version of the Truth?

Data resides in disparate systems cobbled together over the years

Duplication of data in different systems, frequently conflicting – Which data is accurate? MIS reports causing confusion – Which report has the correct data?

Spreadsheet Hell! - Multiple spreadsheet databases created by users - Slow process; Prone to Error - Multiple Versions of the Truth

The goal of BI systems is to pull data from all internal systems AND external sources to present a SINGLE version of the Truth.

BI for the Masses - Not just for Statisticians and Corporate Analysts

Instead of a small number of analysts spending 100% of their time analyzing data, all managers and professionals should spend 10% of their time using BI software

Smart companies are democratizing data access with dashboards and other BI tools to empower everyone in the organization, at all levels , with analytics, alerts and feedback mechanisms - Transforms every employee into an “organization of one” who can make the right decisions at the right time in step with company objectives. - Everyone can work smarter!

Smarter Companies will ensure the payoff of investments in BI systems by making the masses accountable for data-driven action and results . - Accountability could be in the form of rewards, penalties Or simply, a mandated workflow

GE’s Concept of “Span” - Measures the operational reliability for meeting a customer request … the time window around the Customer Requested Delivery Date in which the delivery will happen - High Span  Poor capability to meet customer need Objective  Zero span - Squeeze the two sides of the delivery span - days early and days late - ever closer to the center - the exact day the customer desired RESULTS : Plastics : 50 days span to 5 Aircraft Engines : 80 days span to 5 Mortgage Insurance : 54 days span to 1

The GE Process - In the CEO’s Annual Letter (Feb 2001) When the order is taken, that date becomes known to everyone, from the first person in the process receiving the castings, circuit boards or any other components from the supplier, all the way through to the service reps who stand next to the customer as the process is started up for the first time. Every single delivery to every single customer is measured and in the line of sight of everyone ; and, everyone in the process knows he or she is affecting the business-wide measurement of span with every action taken. WHAT GETS MEASURED AND REWARDED GETS DONE !

Two Perspectives for BI Systems

Technical Perspective – Preferred by Vendors - Business Objects, SAS, Cognos, Brio, SAP, … - “Technology enables organizations to transform data stored in core business systems into useful information.”

Business Perspective – Preferred by Managers - “Focus on getting the RIGHT information to the RIGHT people at the RIGHT time to make MORE EFFECTIVE decisions” - THE PERSPECTIVE OF THIS COURSE.

What are Enterprise Systems? An integrated suite of information systems that form the backbone of the enterprise for running and managing its operations

Back To Back: Enterprise Systems Encompass

Front-end systems like Customer Relationship Management

AND

- Back-end systems like Enterprise Resource Planning and Supply Chain Management

Objective: Seamless and Transparent Flow of Data Across the Entire Value Chain

The Big Problem with Information Systems Today…

…“ Islands of Automation ”

Stand-alone systems designed for specific processes

Cannot “talk” to each other within the organization

Much less, externally with the systems of customers or suppliers

Drivers of Enterprise Systems

Inefficient operations

Higher internal costs

Lack of coordination with suppliers

Poor customer service

Missed opportunities for revenue

Most Important: Emergence of the Internet

A cost-effective means to connect

the back-office and front-end systems

IT Architecture Should Integrate Information, Processes and Functions Traditional View Enterprise View

Four Major Components of Enterprise Systems

ERP

Enterprise Resource Planning systems evolved from Manufacturing Resource Planning (MRP) systems

Integrate all the internal processes and data flowing through the organization: the “back-end” systems

CRM

Customer Relationship Management systems evolved from Sales Force Automation (SFA) for contact and lead management

A full suite of applications for telemarketing, call center (today, contact center), … for supporting marketing, sales and services: the “front-end” systems dealing with the customer

Four Major Components of Enterprise Systems (…contd)

SCM

Supply Chain Management systems address the problem of fulfilling, and responding to changes in, demand at a minimum cost.

Advanced planning applications that take into account demand forecasts, production constraints, …. front-end systems connecting to suppliers, logistics providers, …to get the right product to the right place at the right time at the right cost .

BI

Business Intelligence systems, the new label for Decision Support Systems (DSS) and Executive Information Systems (EIS), including Data Warehousing and Data Mining

Systems for analyzing the vast amount of internal transaction data and external data about customers and competitors to track performance and manage the business more effectively

New Applications targeted by ERP vendors

The Time Value of Information - Key Benefit of Enterprise Systems Frito-Lay System: Sales data from the hand-held computers of salespeople provided the foundation for “time synchronizing” the entire business process: Purchasing Manufacturing Logistics Sales P&G’s Continuous Product Replenishment System: An inter-organizational system using EDI to transfer the scanner data from retailers to P&G’s computers, which figures out when and where to replenish the product -- minimizes mistakes and bill-backs, lowers inventory and improves cash-flow for both P&G and retailers Enterprise Systems compress the time taken for information flows.

An Opportunity To Be Seized . . . . - Computers used in Business for Nearly 50 Years - Dazzling Progress in Technology - Significant Investments in IT Infrastructure Hardware, Software and Peopleware Focus on OPERATIONAL SYSTEMS has blurred the potential of using IT for MANAGING the Business YET . .

The Information Age Paradox Lots of DATA . . . but no INFORMATION to manage the business The 1980s launched the Information Age. Still, most managers are less than satisfied with their information systems.

Computer Usage Evolution

ERA I: Accounting (1950s to early 1960s)

e.g. Payroll, Invoicing

Benefit: “Manumation”

ERA II: Operations (mid 1960s to early 1970s)

e.g. Airline Reservations, Inventory Control

Benefit: Improved Customer Service

Better Utilization of Capital

ERA III: Information Support (early 1970s - )

e.g. Market Analysis, Succession Planning

Benefit: Better Decisions

Increased “People Productivity”

Evolution of BI Systems

Expert Systems

To Manage by Wire

To extract news from the data

Decision Support Systems (DSS) Support , not replace, mangers in making decisions Executive Information Systems (EIS) Support top management Group Decision Support systems (GDSS) Support a group of managers

Managerial Data Encompasses Hard and Soft Data

Subjective judgments are an important source for quantities that are difficult to measure, or which cannot be measured in the time available before a deicsion is made

Soft data is more essential for certain functions... ... Marketing: Competitive Intelligence ... Human Resources: Succession Planning ... Corporate Planning: Forecasts And, for upper levels of management ... External data about the environment

The greatest challenge of the computer industry is to learn how to build information bases, not databases. The really important information cannot be easily quantified and exists outside the organization. - Peter Drucker

HARD vs. SOFT DATA

HARD DATA ... Fairly Accurate, Easy To Get

Historical Data

e.g., Revenue, Direct Costs

Measured Data

e.g., Bill of Materials for a Product

SOFT DATA ... Fairly Inaccurate, Difficult to Get

Future Data

e.g., Sales Forecasts

Judgemental Data

e.g., Allocation of Overhead Costs

Qualitative Data

e.g., High Potential of an Employee

Information Must be Tailored to Management Level Management Level Lower Middle Top Operational Control Narrow Narrow Internal Historical Micro Management Control Strategic Planning Wide Wide External Future Macro ? 1. Function 3. Scope of Information 2. Scope of Responsibility 4. Sources of Data 5. Time Horizon 6. Level of Detail

The Data Isn’t Where We Need It! Senior Managers -Strategic Planning Middle Managers - Management Control Front-Lines - Operational Control External, Soft Data Internal, Hard Data Corporate Data Warehouse The greatest challenge of the computer industry is to learn how to build information bases, not databases. The really important information cannot be easily quantified and exists outside the organization. - Peter Drucker (1993)

Type of Data in the BI System

Not just Hard, Internal Data

Not limited to Financial Data

Must include Soft, External Data

Key Areas to be Considered:

Measurement of Customer Service

Market Information on Customers & Competition

High-Potential Evaluation, Succession Planning & Career Development of Employees

Two Distinct Types of Systems

Operational Systems will be used because they run the “bread-and-butter” business processes of the organization - they are mission-critical

Information Support Systems depend on managers’ desire and ability to use them in their decision-making processes to manage the business

Prerequisite:

The management process must be driven by the information provided by the system. Only then will the system be used.

A Different Perspective on Data Quality ... Depending on Use

Emphasis on getting complete, accurate and timely data

But limited to internal, hard data

Cost of data quality justifiable because systems will be used

Operational Systems (e.g., Invoicing, Airline Reservations, Electronic Commerce, etc.)

Information Support Systems

(e.g., Performance Evaluation, Market Analysis, etc.)

Scope of Data is Wider - External and Soft data

But ... Is “Better” Data Worthwhile?

Value is zero if system is not used

Payoff from Data Warehouses Depends on the Management Process

Easier to upgrade quality of the data than the management process for utilizing the high quality data

Improving the quality of data will be all costs and no benefits if the data is not used.

Need to upgrade the management process to effectively use better quality data.

If a magic fairy instantly gave you all the information...the company would ever need, do you think people would instantly know what to do with it and use it well. Peter Keen (1998)

Mere Access to Quality Data . . . Will create a data overload that can affect managerial productivity. Investments on market research, telecommunications, etc. to deliver better quality data should be complemented by investments in systems to convert the data into useful information. Quality of the data conversion process is equally important.

A Data Warehouse is Not Enough Because...

... Managers Ask for Analysis, NOT just Retrieval of Data

Sometimes retrieval questions come up of course, but most often the answers to important questions require non-trivial manipulation of stored data. Knowing this tells us much about the kind of software required. For example, a database management system is not enough. - John Little (1979)

“ Data” has to be converted into “Information” that triggers managerial action.

The conversion process is critical to get value from the data warehouse.

A Manufacturing Analogy Raw Data = Raw Material

Conversion Process

DSS/EIS/BI Systems

Expert Systems

Data Mining, etc.

Actionable Information = Finished Product

Quality of the Conversion Process

As Important as the Quality of the Data

COST versus VALUE OF DATA - “Satisficing” Concept

Better data Higher cost Value Impact on the decision

"We are subjecting every activity, every function to the most rigorous review, distinguishing between those things which we absolutely need to do and know versus those which would be merely nice to do and know." General Electric CEO Aim: Get a Satisficing Solution for Decision-Making - Select a satisfactory decision with limited information in a limited time instead of searching for the best solution entailing more time and information

Actionable Information

… Information that becomes the basis for action

Must be Timely

“ Satisficing ” Accuracy is Enough

Must Help in ...

Problem-Finding and Problem-Solving

Attributes of “ Actionable ” Information

Timeliness

If it is late, managers will make decisions without it

Complete and Accurate? How much?

– Just good enough for decision-making

What is absolutely needed in relation to What is at stake

Reason: $$$$$$ 100% Complete and Accurate takes time and is expensive

The key concept in information accuracy and completeness is “Satisficing.”

Timeliness vs. Accuracy Problem

Precise Financial Data Has a Price: Time

Accruals, adjustment entries and allocations lengthen Monthly Closing Cycles

Is the Precision worth the Time Lag in the Data?

“ Just-In-Time” Monthly Closing

Timely Data with Satisficing Accuracy

Frees up time of financial staff for value-added analysis

The DURACELL EIS: How It Provides “Information ”  The CEO, Robert Kidder, manipulated a mouse attached to his workstation.  To compare the performance of work forces in the U.S. and overseas.  Computer displayed a crisp table in colors showing higher sales per employee in the U.S.  He asked the computer to drill down for more data to explain the difference.  At the end of the data-browsing session, the real problem was found: .... TOO MANY SALESPEOPLE IN GERMANY WERE WASTING TIME CALLING ON SMALL CUSTOMERS.

Efficiency vs Effectiveness

There’s nothing so useless as doing efficiently that which should not be done at all Companies wrench their guts to downsize a business they shouldn’t be in at all