I ran across a recent IDC study of corporate priorities that drive the use of consulting firms, and I was not surprised to see that the top three were improving operational efficiency, creating a more effective business model, and reducing costs. In our surveys about how companies are leveraging business intelligence, we get similar results. In effect, many companies remain focused on blocking and tackling, and business intelligence is great for that. Let’s take a look at how more and more companies are using BI to drive profits and business performance.
Business Intelligence Drives Business Performance
Well-designed BI applications give companies the ability to measure, manage, control, and improve business performance. From scorecards and dashboards that report on performance, to sophisticated analytics that uncover root causes of unfavorable trends and predict the impact of alternatives courses of action, BI is a critical tool in the modern manager’s toolkit. Here are some examples:
Business Intelligence and Operational Efficiency
For the COO and operations management professionals, BI provides precise and granular information for cost analysis, analytical tools for monitoring and improving customer service and product quality, and high-quality historical facts about demand for forecasting and capacity planning. BI is also great for overall performance management, delivering timely scorecards and dashboards that enable management to keep on top of the performance variables that make a difference in their results.
Business Intelligence and More Effective Business Models
From a strategic perspective, a more effective business model is one that enables a company to achieve sustained growth, competitive advantage, and suitable profitability. Business intelligence provides critical information about growth and profitability trends from a number of key perspectives – by customer or customer segment, by channel, by product or product family, by market, by geography, and by organizational unit. This allows management to evaluate and fine tune the business model – or scrap parts of it that aren’t working.
From a tactical or operational perspective, BI provides CFOs and financial management professionals with a precise and granular understanding of the relationship between operational performance and financial results and better tools for performance management, forecasting, and working capital management. BI provides the CMO, sales leaders, and marketing professionals a key tool for better customer segmentation, more precise campaign targeting, improved customer service and customer retention, more timely campaign lift analysis, improved ability to determine customer lifetime value, a better understanding of the price elasticity of demand, improved tools for category management, and tools for performance management. Across the enterprise, BI provides information and analyses for making the business model more effective.
Business Intelligence and Cost Reduction
As business intelligence consultants, we hear time and again that managers lack high-quality cost information. Too often, cost information is buried in an ERP or accounting systems and it is organized by a high-level chart of accounts for financial reporting. Further, the information is too aggregated to be relevant for many cost analysis purposes. This means that operations managers, financial managers, functional managers, and cost analysts often lack the cost information they need to truly understand cost drivers. Business intelligence is ideally suited to overcome this gap – allowing cost analysis from multiple perspectives, such as activity costs, relevant costs, incremental costs, fixed and variable costs, and controllable costs. Armed with better cost information, managers can reduce costs in intelligent ways that leave critical capabilities intact.
Key Steps for Leveraging Business Intelligence at Your Company
In order to leverage BI to achieve your company’s strategic priorities, it helps to have a BI strategy that is well-aligned with your business strategy. We recommend companies take the following key steps:
- Do a structured analysis of opportunities where better BI would be useful for improving operational efficiency, creating a more effective business model, and/or reducing costs.
- Prioritize the BI opportunities according to business impact, technical risk, business adoption risk, and competitive impact.
- Develop a business case built around the prioritized BI opportunities, which together comprise a BI portfolio.
- Assess your current state capabilities for executing a BI program and identify key gaps, if any.
- Develop a pragmatic roadmap that includes program management activities, BI application projects, technical infrastructure projects, business process change management projects, and generation of BI program performance metrics.
In addition to ensuring tight alignment between the BI program and strategic business priorities, this approach will enable the CIO and BI Director to do a better job of meeting the demands of business users. By being able to operate with a solid business case and adequate time and money, the IT team can be an effective partner in helping improve business performance and profits.