What is business intelligence (BI) and how can it benefit your organization? This article offers two examples to show how a company might use BI and then asks several questions to help you determine how well you're putting this intelligence to work.
Just as military intelligence works to give armies and generals an upper hand on the battlefield, business intelligence (BI) seeks to give CEOs and CIOs a tactical advantage in the business arena. Business intelligence is fundamentally concerned with transforming your organization’s operational data into an accessible store of high-value information (called a data warehouse) and distributing the right information in the right way to the right people at the right time.
In both business and military operations, it’s easy to see the correlation between the quality of intelligence and the success of operations: Those who comprehend and act quickly upon relevant facts have advantages over those who do not.
For this reason, intelligence has value to the business organization. Naturally, tools and technologies to collect and distribute of information—or to improve its quality—-will be embraced and employed quickly.
In this article, we’ll take a look at some questions that BI can help answer, and we’ll offer a few examples of how business intelligence is used.
Two examples of business intelligence
Some believe BI to be the magic differentiator between great and mediocre companies. Consider this example.
The Big Bank had a target of acquiring 200,000 new accounts, a number that would require mailing offers to 10 million prospects using a 2 percent return rate, an expected rate for direct mail. Instead, the Big Bank used BI techniques to mail to a “refined” subset of all prospects yielding a response rate of 12 percent.
Instead of mailing to the 10 million prospects, BI required the bank to send mail to about 2 million, which generated the required new accounts. In addition to reducing cost, the average profitability of an acquired customer was three times higher than usual because data mining had targeted the customers whose needs best matched The Big Bank’s services.
Here’s another scenario.
A quick-change oil company takes information from 2,500 stores and has information uploaded each night to servers at its headquarters. The chain’s main office immediately analyzes key operational measures: cars serviced, costs, revenues, profits, and trends.
By 5:30 A.M., performance data is available to the company’s managers who can check current revenue, average ticket price, time required to do each job, and other performance measures. Franchisees with multiple locations can see consolidated views, as can the company’s regional managers.
Now that you’ve read these two examples, try to answer the following questions to see whether your information systems allow you to accomplish the following tasks quickly, easily, and directly. Answer “No” if you depend on others to procure information or if your business and performance measurements lag after the fact.
Revenues and profitability
- I can identify the products, services, and channels driving my revenue and profit.
- I can rank customers and customer locations by profitability.
- I am automatically alerted when critical costs, such as non-billable overtime rates, fall out of control.
- I know when my sales reps/managers are on target, and I can intervene in time to make a difference.
Customer relationship management
- I can identify low-value customers and try to improve their value or design them out of my business.
- I am able to spot customer relationship problems early by monitoring leading satisfaction indicators, such as product or service quality.
Sales and marketing
- I’m able to target high-value customers in order to lower my marketing risk.
- I’m able to rank the success of product promotions to know what’s effective by product and market segment.
- I know what’s in my sales pipeline.
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- I can identify underutilized assets.
- I’m confident that I have the facts to make the right capital asset choices in next year’s budget.
- My budgets are based on accurate histories and current trends, not on pie-in-the-sky figures, guesses, or sandbagged numbers.
- I can easily identify how much I’m spending with each supplier and use that information to negotiate lower costs.
- I know which carriers are most often damaging my shipments (and on which routes) and/or delivering them late to my customers.
- I’m able to predict product demand and trade that information for more cash and less inventory.
- My employees view individualized key performance indicators, aligning them with the corporate strategy.
- My employees have instant access to a knowledge base of information that helps them to do their job.
- I’m able to use leading indicators to preempt health and safety incidents.
- I have the leading information required to measure and manage employee satisfaction and increase employee retention.
What could you do?
If you answered “No” to many or most of these questions (or similar questions), your business processes may move too slowly in the technology-driven Internet age. You’ll likely have increasing difficulty maintaining a grip on your customers, prices, profitability, and employees as more-enterprising companies leverage technology, improve their processes, and capture market share.
But if you answered “Yes” to many of these questions, yours is likely an intelligent organization. You possess superior intelligence regarding your employees, customers, partners, and operations. People at all levels can manage their own affairs, have intimate knowledge of your organization’s strategy, and know where to find information needed for further analysis quickly and directly.
Dan Pratte, a former technology and engineering vice president for a Fortune 500 company subsidiary, is a management and technology consultant in Louisville, KY.We’ve just asked you about your information systems. But what technologies do you use in your organization for Business Intelligence? What works well and why? Send us your comments or start a discussion.r00520010124pra01tbl01.htm