According to Gartner, sales of BI systems will grow by an estimated 25% from 2008 to reach $7.7 billion by 2012. They also reported that from a survey of 1,500 CIO’s, BI is their top priority and has been for the last 3 years. So it would seem that organisations see real value in BI – otherwise why would they invest in it? But is this true in every organisation – or is money being wasted that could be better invested elsewhere? Michael Coveney, senior FSN writer questions the role of BI and urges organisations to set their sights much higher.
In a 2007 survey reported by Information Week, executives said that the top three reasons that prevent their organisations from implementing BI throughout the enterprise are problems with ‘integration’; ‘ease of use’ and there being ‘no clear Return on Investment’.
This last point is somewhat surprising given Gartner’s prediction. After all, why continue to invest in a product or service, if it’s not contributing to the overall value of the organisation?
BI is like any other resource. It consumes organisational assets – money, people and time – all of which could be used elsewhere to help meet corporate goals. And yet software vendors and analysts alike proclaim that if organisations fail to invest in BI, then they will be at a competitive disadvantage.
So what is the reality of BI and organisational value, and how can management ensure that BI delivers on what it promises?
What exactly is BI?
It was Howard Dresner who in 1989 proposed BI as an umbrella term to describe "concepts and methods to improve business decision making by using fact-based support systems”. This was later refined in a Gartner Research document as:
“The systems that help decision-makers throughout the organization understand the state of their company’s world. A set of methods that support sophisticated analytical decision-making aimed at improving business performance”
BI is the fusion of both systems and methods, although today the term BI is synonymous with technology alone. But like any other technology, it is only when applied in the right way, can it generate value for an organisation.
‘BI” systems had been around commercially since the early 1970’s. They can quickly sift through enormous volumes of data to report trends, variances and relationships to end-users, in a format that helps those users make informed decisions. When used correctly they can help identify potential savings in costs and time; adverse trends; optimal production costs; fraudulent activities; and revenue opportunities.
However, for this knowledge to have any real value, data must be presented in the right context, which lead to actions that take advantage of what has been identified.
Context is everything
BI systems are primarily about data analysis. It is often assumed that the more data (assuming it is accurate and timely) a system has, the more ‘insightful’ those analyses will be. But nothing could be further from the truth.
For example, a BI system could reveal that a contribution of 50p is made on every item a company manufactures. It could also reveal that this contribution level has increased marginally year on year, and that volumes had grown by 5%. From this data, management could make a decision to continue current levels of investment in the product line.
But what if the same management found out that competitors had made a contribution of 60p, that their volumes were growing by 20% which now made them market leader and that they were planning to drop their prices by 70%? With this contextual information, the decision would probably be very different.
For BI systems to add real value they must present data in the context of what’s going on inside an organisation and in the market being served, so that informed decisions can be taken. Without the right context, data can cause organisations to destroy value through wrong investments as well as supporting wrong operational and strategic decisions.
Actions speak louder than alerts
In 1983, Comshare developed one of world’s first Executive Information Systems (EIS). It was so successful that it propelled Comshare into dominating the market for EIS during the 1980’s and early 1990’s. One of its attractions was ‘Detect and Alert’ – a software ‘robot’ that would trawl through a sea of information and alert managers to exceptions they could easily have missed in traditional reports. It was thought that the era of ‘missed opportunities’ was over.
But by itself, an alert is only the start of a process. The idea was that when an alert was triggered, management would analyse the cause of the alert and determine a course of action. These actions would be communicated, resources allocated to them and subsequent results monitored.
For BI to have real value, there needs to be a mechanism where identified alerts are followed up and any subsequent actions linked into the organisations planning/budgeting and decision monitoring systems. So often, BI systems are implemented as totally separate systems with little or no thought on how to deal with their findings.
Tactical or Strategic?
BI can be used both tactically and strategically. Tactical deployment covers applications that are focused on either saving costs or identifying revenue opportunities. Strategic deployment consists of applications that focus on helping organisations achieve long-term aims and objectives.
Most BI implementations are tactical, and while that may improve operational efficiency, the things that drive the future value of an organisation are being ignored. To deploy BI strategically involves the following steps:
Determining the long term objectives/goals of the company and how they are measured
Defining the strategy (i.e. the way) in which those objectives are to be achieved, e.g. launching new products, expanding territories, acquisitions, etc.
Developing activities/actions that directly influence and implement the chosen strategy
Finding out how the organisation is performing those activities today
Assessing how competitors could perform those activities in the future
Forecasting how activities would need to change to beat competitors
Allocating resources to enable those changes
Monitoring results and making adjustments
A strategic deployment of BI would consist of systems that directly support steps 4, 5 and 6. Tactical deployment only concerns itself with part of step 8 – monitoring results, but can’t help with making adjustments as the strategic context is missing.
In the paper ‘Five Business Intelligence Predictions for 2009 and Beyond’, Gartner note that: “Because of lack of information, processes, and tools, through 2012, more than 35 per cent of the top 5,000 global companies will regularly fail to make insightful decisions about significant changes in their business and markets.”
The real value of BI is bound up in how information is presented in a strategic context and how that affects the decision-making process.
