Analysis: Business IntelligenceBy Terry Kirkpatrick | Posted 03-18-2002
Analysis: Business Intelligence
On a cold December morning last year, Tom Lesica, the COO and CTO of NewRoads Inc., sat down in his office in a stone and glass building tucked away in the leafy New York City suburb of Greenwich, Conn., took a sip of coffee and booted his laptop. Up came his "digital dashboard," a graphical and numerical summary of the state of his business. At first glance all was well, but then he noticed a button glowing bright red. Something was wrong in distribution.
Most executives worry about their customers. Lesica worries about 200 sets of customers. His firm provides outsourced customer service and order fulfillment for direct-to-consumer activities at such companies as The Procter & Gamble Co., Avon Products Inc. and Godiva Chocolatier Inc. Given the condition of the economy, attention to detail during the holidays is critical. "We're the one throat to choke," Lesica says of his clients' expectations.
Lesica clicked through the red indicator, digging deeper into the data for its cause. There it was: Returns the day before were higher than forecasted. More clicks, and he isolated it to his distribution center in Martinsville, Va., and then to one client, a clothing retailer. Now he's on the phone with the operations manager in Martinsville and with the client, who are looking at the same numbers. In minutes, they see the problem: A yellow dress featured on the client's Web site turned out, in reality, to be another shade entirely. Changes are made on the site. Lesica's coffee is still warm. "Try to imagine yourself doing this in a spreadsheet world," he says.
What's going on here and in similar offices across the country looks like the future of business: information flowing in real time up and down the enterprise, across organizational boundaries, and out to partners, suppliers and customers. From the huge masses of data emerges both a snapshot of current operations and a basis for objectively refining the business in the future. "Any company that wants to maintain an innovative position has to have this type of interactive software, upstream and downstream," says James Brian Quinn, the William and Josephine Buchanan Professor of Management Emeritus at Dartmouth's Tuck School of Business, and the author of Innovation Explosion.
Business intelligence (BI) software or "analytics," grew up in the 1990s as companies began wondering what to do with the huge quantities of data they were accumulating from their ERP systems, call centers and the Internet. Lesica is sitting on more than a terabyte of sales transaction data, while certain financial services firms store dozens of terabytes. At some firms, Gartner Inc. reports, the data is growing by as much as 100 percent a year. Surely, the thinking went, lurking in that data is intelligence that could be usedif someone could just make sense of it. "We process 70 million to 80 million transactions a year," Lesica says, "and we can learn a heck of a lot about products or consumers or operating effectiveness from the transaction data. Let's say you place an order with one of our clients. That transaction kicks off many events: We check that it's in stock, we ship it, and then we e-mail you to let you know it's on the way. Meantime, the system is adjusting inventory, looking for back-order situations and providing reporting on business performance. One transaction can drive intelligence up and down the supply chain, from the consumer back to the manufacturers and suppliers of the product."
Lesica, who installed similar systems while serving as CIO of PepsiCo Inc. and then at J. Crew Inc., is in the early stages of rolling out the digital dashboard technology to all of NewRoads' 20 locations and 200 clients. As this Web-based technology replaces an already sophisticated reporting system using EDI, file transfer and other means, he anticipates shaving weeks off decision making and moving to a real-time, "events-based" operationallowing a client, for instance, to suspend an e-mail campaign the moment inventories disappear. He's been planning it for a year. Interfacing with 200 different client systems is one issue, but equally critical is getting everyone to agree on standard definitions and metrics. Does a phone call, for example, start the second a customer connects to the call center or when he actually begins talking to an operator?
True analytics isn't simply a matter of trusting your company's future to a screen full of clever charts and flashing lights. Can analytics ever go wrong, sending you marching confidently forwardand over a cliff? "Can computers make mistakes? Absolutely," says Mark Hurd, president of NCR Corp. and COO of its Teradata unit, an analytics database and software vendor. "Computers can make mistakes only in the context of the logic that's applied to them. I don't think you ever want to replace a human being at the other end of this who makes judgments. You have to get the humans schooled, and they need to take advantage of all the learning."
Running the Numbers
Running the Numbers
Business intelligence delivers speed in a world where offerings on the Web can be changed in minutes and last month's sales report is worthless. "There's the whole need for speed to market, to introduce new, creative products and services," says Mike Schroeck, managing partner of the iAnalytics practice at PricewaterhouseCoopers. "Analytics can help companies identify areas to pursue, which customers to target. And most important, it can show them the impact or payback from introducing a new product or service in a manner timely enough that they can refine and adjust their strategies."
Companies are discovering that the information itself has value. Owens & Minor Inc., a Fortune 500 distributor of hospital supplies based in Richmond, Va., introduced a BI system from French software vendor Business Objects SA, in 1996 to better understand the flow of products from its suppliers to its customers; the system was eventually deployed to 700 of its 3,000 employees. It has been able to ferret out redundancies, reducing the company's total number of suppliers from 3,300 to 1,400 and the number of products it handles from 300,000 to 170,000. That saves millions in inventory costs.
Two years later, Owens & Minor realized that it was sitting on gold that its 4,000 customers, mostly hospitals, could mine. So it rolled out an extranet, offering versions of the same data it was using internally. Now a hospital chain can determine, for example, that its various units are buying 10 different surgical gloves from 10 different suppliers and consolidate that in one contract for a better price.
"We sell a subscription to this service," says Don Stoller, director of information management at Owens & Minor, "and it helps cover our costs. But the biggest revenue generator is the retention of customers and new business we're able to bring in because of this service. It's a real eye-opener for our customers. They can save a lot in no time and get a return on their investment in our little monthly fee." Stoller adds that because his company was the first to market this type of service, "we were ahead of our competition, and it's forced them to follow us."
BI software uses a Web interface that anyone who can navigate Yahoo! can use. If you want the data displayed as charts or maps, just click. The system will even send alerts to your PDA or mobile phone. Bart Foster, senior vice president for worldwide marketing at Informatica Corp., a BI vendor in Redwood City, Calif., says he probably sits at his desk 10 percent of the time; the rest of his days he's in meetings or on the road. So he programs thresholds for key metrics into the software. One is how many sales leads are generated in a week. Every Monday morning the system checks the number, and if leads have fallen to 80 percent of the goal, it sends an e-mail to his wireless PDA or calls his mobile phone and leaves a voice message.
"Here's another one," Foster says. "This one really freaks people out. I watch the aging of leads in the telebusiness pipeline. If a lead has not been followed up in 30 days, I get an alert with the specifics. So I can call the head of telebusiness and say, 'What are you guys doing down there?' That kind of stuff used to be quarterly, at best. It begins to change the way you behave. Good stuff happens. It's all about metrics-driven management. What the best companies have done manually and are increasingly automating is being clear about the metrics you want to use to run the business, and then getting the metrics in the hands of people. It's that simple. But it's not so simple to do." That's because, notes Foster, people are involved.
As amazing as they are, these systems aren't hard to create. "The software is not that difficult," says Nigel Rayner, research director at Gartner. "These vendors are bright people. The bigger problem will be that it's difficult for companies to adopt."
Some familiar organizational problems emerge. "You get tactical purchasing of BI solutions in silos," Rayner says. "Sales and marketing will go out and buy a system, for example, but they won't talk to finance. The CEO and CFO should be much more active in addressing this and take ownership. Otherwise, you end up with BI application spaghetti."
There are other people problems. Bruce Kasanoff of Westport, Conn., an adviser to technology companies, has helped firms wrestle with these systems. "The flaw with a lot of BI software is the people using it," he says. "It gives people the capability to do analysis, and they're not necessarily doing it correctly. They're not able to validate the conclusions. Instead of having a statistician or business analyst trained in confidence levels and statistics, it's just a marketing manager sitting at his desk. BI is democratizing some functions that maybe aren't ready to be democratized. Companies have to be careful that they aren't using powerful tools without adult supervision."
When Kasanoff was making the detailed decisions about fields and queries in BI systems, he realized how easy it was to arrive at misleading conclusions. "I could access a sales database and run a report that says these are my best customers. But it didn't look at support calls or returns or payments or credit problems. It was generating a completely false impression. There are times when your highest-volume customer loses you more money than anyone else, because of returns or late payments."
Or the numbers might tell you that customers in the Northeast are 20 percent more profitable this year, and you might change your strategy based on that. "And yet the fact is that because you don't understand regression analysis, you don't know that maybe it was just that it didn't snow in the Northeast this year," Kasanoff says. "Unless you really know how to isolate the cause, you're not able to draw an accurate conclusion." One remedy, he says, is a test: Offer a subset of your customers a certain product or discount and see if your conclusions hold up.
The key to using data is to understand your business first, then look at the numbers, says Peter Fader, associate professor of marketing at The Wharton School at the University of Pennsylvania. "Instead of crunching numbers, you need to sit down and say, 'What is the story? How do our customers act, how does the customer story change over time?' Tell those stories in a qualitative way, then bring in the data to check them."
Fader blames the dot-com crash partly on new companies trying to use data to understand customers for the first timeand misreading it. Experienced companies like Lands' End Inc. knew how customers behaved and weren't led astray by the flood of Web data, Fader says. "I spend a lot of time looking at data patterns, and I get concerned about a lot of data mining initiatives. People are throwing tons of resources at these databases hoping to discover some stunning insights, but it can do as much harm as good. They are basically taking away any judgment or critical thinking and instead saying, 'Ah, we'll have the computer do it for us.'"
The system Lesica is deploying at NewRoads is from MicroStrategy Inc. in McLean, Va. "We ask end-users what they want to learn with this software," says Brian Brinkmann, a senior product manager at MicroStrategy. "Then we sit down with a fairly knowledgeable analyst who understands the business model and understands the data, and we build the metricssales, or gross profits, whatever." Based on what they have learned over the years from other clients, MicroStrategy's experts have created hundreds of "out-of-the-box" CRM reports, which Lesica can select from or customize for his individual customers.
"How do we stop an end-user from misinterpreting the data?" Brinkmann asks. "We train them so they will understand what it is they're interpreting, how to navigate, drill down, what supporting reports are available to interpret what they're seeing. We go through a scenario with themsales are down, for instance." Typically, he says, companies will have "power users" in several departments who create the reports that others then use. So what Foster calls "data black belts" won't be out of workin fact, Gartner sees a looming shortage of thembut their handiwork will be much more widely usable.
A similar conversation takes place with new customers at SAS Institute Inc., an analytics vendor in Cary, N.C. SAS first asks the company what one metric it wants to target daily. Then it applies data mining tools to all of the company's data to discover what variables drive the key target. The Vermont Country Store chose daily revenue as its Web sites target, the same target it tracks in its catalog and retail store channels. SAS crunched the numbers and determined which variables, and in what order of importance, made a difference in daily revenue. At the top of the list was requests for catalogs. Knowing this, the company changed the Web site to make it easier to request a catalog, and since the dashboard shows how requests are going every day, the company can test the impact of the change.
The notion that the key metric was catalog requests was not accepted until it was discussed with the company. "It has to make sense," says Tom Grant, director of e-business strategy at SAS. "There could always be a casual relationship between two variables. So you have to be able to explain the result. In this case, Vermont Country Store said it makes sensepeople coming to the Web site for the first time want to see more items, so they request a catalog, and if they are that interested, they are also likely to buy."
The variables are recomputed nightlyalthough the key ones don't change oftenand SAS meets with every client for two hours each week to discuss what they've learned. That saved another client, which watched catalog response drop off and was tempted to respond by reducing catalog circulation. Analyzing Web log data found the answer: Customers were looking at the catalogs all right, but instead of buying by phone, they were going to the Web site to order.
So analytics isn't people-free business in a box? "No," says John Brocklebank, vice president of e-business development at SAS and one of 500 or so employees with advanced degrees running around the SAS campus. "We don't give them a black box. We give them a PhD in a box."
Gartner describes several levels of BI deployment (see chart at left), from bread-and-butter management reporting to implementations of packaged solutions in isolated departments here and there, all the way to what it calls "BI enlightenment." At this level, information enables you to change the business and react faster than competitors to changing business conditions and new profit opportunitiesessentially, to innovate.
"What's been missing is strategic employment of BI," Gartner's Rayner says. "This goes beyond management reporting and transactional analysis. How is the business performing, how is it doing? How do we support the executives making decisions? Can we say, 'Here's where we are today,' and then forecast trends? You really start getting to enlightenment when you're pulling together data from a multiplicity of sources, from ERP, CRM and legacy systems. You increasingly need to work with data coming from outside the enterprisefrom trading partners or the supply chain. Only when you understand how all things fit together can you be enlightened."
Only a small number of companies, he says, understand the importance of BI at the strategic level and are attempting to use it in a comprehensive, integrated way. "Those who do so effectively will outperform their peers and win market share."
John McDermott is partner and practice leader for information management at Marakon Associates, a management consulting firm. The panoramic view from his 44th floor office in midtown Manhattan is symbolic of the strategic perspective his firm takes.
McDermott talks about the "information advantage" a company can gain if it understands the unique way its leaders make decisions and can deliver the information they need to make those decisionsbe it historical or forecasted, internal or external. BI software can help orchestrate the process.
"If you get it right, really get it right, you end up making better decisions faster than your competitors," he says.
And yet you can't turn the business over to a computer and turn off your brain. "There are certain kinds of data that don't lend themselves very well to automation," McDermott says. "For example, a deep analysis of competitor activity. People are able to see patterns in the data that we just can't possibly program into a system, even with some of the expert-based systems that exist today. It's much more practical to ask a person with good business intelligence to do it."
Comments on this story can be sent to firstname.lastname@example.org.
Articles and Reports
- The Facts
and Nothing But the Facts
By Susan Osterfelt. DM Review, Vol. 11, No. 8, pages 16-20, August 2001
- The New Face of Business Intelligence
By Dan Kara. Software Magazine, October/November 2000, Vol. 20, No. 5, pages 32-38
- DataWarehousing Online
- The Data Warehousing Institute