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A tool for downsizing in lean times
4th June 2009 > Fin24dotcom
PETER TOBIN, senior lecturer at GIBS, says: "There's little doubt that in tough trading conditions and uncertain times ahead organisations large and small need to better understand every aspect of what they do - from relationships with vendors and customers to key internal performance issues.
"Business intelligence (BI) tools and systems, deployed with appropriate levels of skilled use and experience, can help to unlock significant potential for many organisations and go a long way to help to improve management decision making. This also potentially provides a competitive edge, much sought after in these lean times."
Though BI is one of the most exciting areas of IT, mention it to the average CEO at a cocktail party and it's the last invitation you'll get. Although a business tool, few people outside IT have any inkling of what it means. BI was a victim of its own hype during the ICT bubble, when it was sold on the basis of potential cost savings rather than its true value proposition: efficiency and productivity.
Networks can improve productivity in businesses by 30% to 40%. And it's for that reason, while companies are cutting back on all their overheads during the current economic slowdown, one area they aren't doing so is BI. The reason? BI is the precise tool they use to identify areas of fat in a business.
Due to earlier transaction-based IT implementations, companies are faced with huge volumes of data: BI is about analysing that data to facilitate and implement decisions. It reduces a huge volume of data to concise exception reports, so that instead of spending hours analysing that data executives can now concentrate on making strategic decisions.
For example, in the telecommunications industry churn (cancelling a contract and shifting to a competitor) is a major factor: BI sifts through all those churned contracts to identify trends, which enables executives to take the necessary action.
Although BI is an invaluable tool in good and bad times, it becomes vital in an economic downturn.
Adrian van der Merwe, MD of 8th Man Consulting, says: "Forecasting is a primary activity of any executive. However, in volatile economic times a budget meant to last a year needs to be reviewed as frequently as every six weeks as the fundamental economic factors fluctuate. The prices of commodities are highly volatile, as is the rand's exchange rate. Such factors make a huge difference to a miner and the one exacerbates the volatility in the other.
"A decision made three months ago may no longer be valid and in this environment BI becomes imperative in analysing current data, while enterprise performance management (EPM) takes that analysis to look ahead," says Van der Merwe.
"Take AIG. They would have had a five-year strategic plan: but over a period of just one year their strategy would have had to swing from one of exponential growth to protecting shareholder value. It took just one division of that enormous company to almost bring it down."
Only BI has the capability to sift through all the data to present a meaningful report of what's happening in an organisation. BI - or at least the EPM component of it - gives leading indicators of trouble ahead. This isn't just software, says Van der Merwe, but a process.
BI has traditionally been a hard sell, because executives haven't understood what it's about. But most BI consultants claim it's addictive: once clients have a taste of it they want more and more.
The range of reports that can be generated is almost without limit and as executives realise that they typically want more.
Julian Field, marketing director at Knowledge Integration Dynamics, says companies are currently looking at all their operational costs to see where they can cut. BI enables them to make better decisions for the better employment of capital.
"It enables 'what if' scenarios. 'If we cut manufacturing, what happens?'; or 'If we push suppliers on prices, what happens'?"
That's vital in any consumer industry, where retailers are trying to create efficiencies through just-in-time supply chain management. BI works out optimum stock levels, while financial companies use BI to analyse compliance and risk.
Adoption rates of BI are relatively low - because it's seen as being in the field of IT rather than business consulting. Field says: "Before you can even talk about BI you have to have all the other IT systems in place. BI is very much at the top end. In fact, any large company with a mature IT infrastructure already has some aspect of BI. The challenge is that BI has to be sold to the business owners - and they switch off as soon as a techie starts talking IT. They aren't talking the same language.
"It has to be sold on a business benefit level and, once understanding is achieved, we find they can't get enough. That's why a company which already has BI gives us regular repeat business - because it gives them deeper and deeper insight into their own business, improving decision-making," says Field.
Among those companies that have understood the power of BI and deal with large volumes of raw data - such as banks, telecoms companies and public utilities - a trend is to establish BI competency centres headed not by IT but by business managers and dedicated to delivering strategic information.
"The value of such a centre is to act as a relay point between the business managers and the IT technicians. Without such an intermediary there will always be a lack of communication," says Field.
