After the Crisis: The Business of Intelligence
“How to pull ahead of the pack? Use sophisticated data-collection technology and analysis to wring every last drop of value from all your business processes.” So advises Thomas Davenport, author of Thinking for a Living and professor of Information Technology and Management at Babson College in Massachusetts.
It’s a pitch CFOs haven’t been hearing for some time, not while the Great Recession was decimating corporate bottom lines. In the past year or so, the focus has been on automating account receivables, accounts payables and other cash-related processes – on IT spending to save and preserve.
Now, the focus may widen to include spending to compete and expand. The U.S. economy finally showed growth in the third quarter of this year. Japan, Germany and Singapore appear to be on the growth path as well. Economic expansion in Australia and Norway has been so rapid that both raised interest rates. There are question marks about the recovery’s sustainability, but companies should certainly be planning what to do if indeed it turns out to be real.
So the business intelligence (BI) drumbeat is starting up once again. The touted value proposition is the same as it was pre-crisis: BI software can leverage on data warehousing, ERP and other operational systems to evaluate past performance and gain insight to drive business planning. Those insights can provide the edge to help the company win in a fiercely competitive business environment.
The sales pitch will probably be tweaked to portray BI as having the potential ability to help the company detect early warning signals of a coming credit crunch and other stresses, thus allowing decision-makers to prepare early for a second-dip recession, if one occurs. And in light of the questionable business practices unearthed during the crisis, executives will be told that they can cite a robust BI system for making the decisions they did, not insider trading, commercial espionage and other anti-competitive advantages.
Making Sense of Data
Every company actually calls on business intelligence of a sort in planning and decision-making. It is the resource that executives tap in strategy meetings, when they recall what they did in the past, during the Asian financial crisis, say, and apply the lessons learned to make plans in the aftermath of the current crisis.
It is the “gut feel” of the founder of a built-from-the-ground-business, based on his or her past experiences as entrepreneur. It is the historical knowledge inside the mind of the business’s old-timers or locked up in musty paper documents in storage rooms across the organisation.
It is knowledge that gets richer every day. In the modern enterprise, the amount of data flowing through businesses is stupendous. Corporate data creation is estimated to increase between 40% to 60% year-on-year, reports consulting company Capgemini. It also cites analyst research that finds 80% of all corporate data isn’t stored in databases; it’s scattered disparately in emails, spreadsheets and documents. Data gets duplicated, replicated and goes out of date.
How do businesses currently utilise their data? When it comes to performance indicators, many businesses are still relying on reports cobbled together from spreadsheets. To make sense of the data, executives use basic analytics applications in various formats. Technology, for them, is already aiding their processes, but often has yet to reach its full capabilities.
What’s more, millions of dollars are sometimes thrown into technology and solutions to create, manage and store business data. Money is funnelled into setting up projects like call centres, but the mined data is not always being effectively utilised.
“Over the years, organisations have spent a lot of time and money on capturing and storing data as part of large-scale data warehousing projects,” observes Philip Carter, Associate Practice Director for IDC's Business Analytics practice in Asia/Pacific. “Moving forward, companies need to start developing this data into real 'intelligence' by offering it to a broader spectrum of users, as well as leveraging forward-looking predictive analytics to drive competitive advantage in the market where there is a potential recovery in the short-term.”
The key lies in obtaining the technology, then transforming it into a strategic weapon to measure customer behaviour, product movement, employee performance and financial reactions. A decision has to be made whether to focus ammunition on one area of greatest competitive advantage, or deploying strong doses of BI across the entire business.
Whatever the decision, the system has to be made available across a range of end users, including staff and customers. Internally, companies that failed to get their workforce’s full participation found that their plans suffered leaks at key areas.
Value For Money
So how do businesses go about effectively utilising business intelligence? Would buying the products touted by software and service providers guarantee success? Or are there other ways of collecting and processing crucial data without shelling out big budgets for fancy solutions?
What’s sometimes overlooked in the process of shopping around is that off-the-shelf solutions, found in standard packages for mass industries, are just that. Anything that needs to be customised to suit a business’ particular circumstances and niche needs can cost a pretty penny, depending on the level of customisation. And extra consultants don’t come cheap if a botched project needs to be repaired or restarted from scratch.
Some businesses just can’t utilise plug-and-play tools, to begin with. Health-club chain California Fitness in Hong Kong, for example, had its own in-house IT staff work with its supplier to create tailored proprietary software. “If we’re a retailer, there’d be lots of packages we can buy,” says CFO MC Wong. “But our business is a bit different from mass industries. I’m proud to say that our IT software is quite leading edge.”
Creating and maintaining in-house developed software can be pricey, requiring full-time IT staff, for example. But ready-made solutions can also be costly if it can’t produce the results needed. Some businesses have already learned this the hard way. Because they have sunk so much money into the BI system, however, they are swayed into piling on even more solutions to recoup the losses made in the first botched investment.
CFOs should fully inform themselves about the total cost of ownership, which extends beyond just licensing fees. They should also factor in charges for deployment, customisation, integration, and maintenance. Vendors say that the total cost can depend on many factors, including geography. Prices in Asia may be lower compared to the developed markets in the West, for example.
Fruits of Consolidation
According to market researcher IDC, BI continues its march in Asia. IDC’s ongoing survey, the Asia/Pacific Dynamic IT Benchmark 2009, found that 53% of CIOs in Hong Kong have made increasing profitability and performance through IT as their key focus. In the whole Asia Pacific region, despite reduced IT budgets, reviewing IT service, cost alignment with business and optimising existing IT infrastructure – including BI systems – are high priorities.
Product development in the BI space has not stood still even with the crisis. Performance, availability and user interfaces have improved dramatically, leaving in the dust the days of early BI software that required users to be programming geniuses, and that managed to generate only bare-bones reports at specified times or weeks apart.
And whether for good or ill, industry consolidation continues. Of the major BI players, only SAS remains as a stand-alone enterprise. Cognos has merged with IBM, Business Objects is now part of SAP, and Hyperion has been acquired by Oracle. The marriages are opening new routes into bundling BI products with other software suites such as ERP, corporate performance management and other business solutions.
Meanwhile, Microsoft continues to develop its own BI offerings. It touts its SQL Server, for example, as containing all the components needed to build out a business infrastructure, with Excel as the front end. Smaller players and start-ups are coming up with BI products using new technology and delivery systems, including software-as-a-service.
With all these competing claims, careful consideration is needed regarding what your business ultimately needs. Vendors can have different definitions for analytics, warns Andreas Bitterer, a research vice president at technology research organisation Gartner. “It's fairly interesting who is actually positioning themselves as a vendor who can provide the ability to do analytics,” he says. “Whatever they mean by that is still fairly unclear. If you believe some of the marketing and PR... it is just fluff.”
Study all the options, and don’t rule out the less-fancy alternatives, such as using simple spreadsheets for the front-end, or software-as-a-service. Also, make sure that your data warehouse has already been mining data for a considerable amount of time before considering BI services that will trickle down to end-users in various departments and clients. It’s no use to put your staff through training if you just don’t have enough data to produce analysis. After all, poor-quality data will lead to poor decision-making.
Businesses should also exercise prudence in going down the road of implementation, because it will require time and money to keep the system fully optimal. Regular employee training may also be required with additional upgrades.
And be aware that a BI system can require a long gestation period, as the UK Consumer Cards and Loans business within Barclays Bank discovered. It took five years to execute its plan to apply analytics in marketing credit cards and other financial products.
Process changes had to be applied in almost every aspect of its consumer business, such as servicing accounts, controlling fraud and cross selling. Technical challenges included integrating data on 10 million Barclaycard customers, improving data quality, and erecting systems to beef up data collection and analysis. In terms of personnel, Barclays also had to hire new top-drawer employees skilled at handling quantitative data.
Rick McMahon, CFO of Sunstar Butler, a Chicago-based oral-care products company, hit the mark with his observation made while his company was considering the purchase of an analytics programme: “It's just way too much money and time to end up being a toy.”
About the Author
Angie Mak is online editor at CFO Innovation.