Trade-offs

Business executives have to make choices from among a growing number of options for allocation of resources as channels, technologies, supply sources and markets increase. Executives struggle to find the numbers to evaluate their options as data is scarce or accountants allocate resources by broad categories so that it is hard to disentangle the costs and benefits of specific decisions. Business intelligence software helps to bring together the detailed data that makes assessment of options easier.

After spending over $700 million on television ads, Jeff Bezos recognized that probably more than half of the expenditures were misspent. On the other hand, the investment in one million of its affiliate paid-off and the returns could be easily measured from the click stream data while equivalent information on TV ads was hard to come by. Jeff Bezos decided to change course and lowered investments in TV advertising. According to the 2003 Annual Report of Amazon.com, marketing expenses, net of co-operative marketing reimbursements, were $123 million, $125 million, and $138 million for 2003, 2002, and 2001, representing 2%, 3%, and 4% of net sales. The reduced expenses were accounted by lower costs of on-line advertising and cuts in expenditures on TV advertising.

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Uncertainty

Business executives wrestle with uncertainty as their companies are buffeted by a welter of technological innovations, international competition, regulatory flux, financial changes and improvements in business models. Investments have been kept on hold as corporate leaders look for greater visibility in their environment. Meanwhile, cash reserves with corporate American continue to increase as executives defer decisions on investments. According to a Fortune magazine article (Nov. 29, 2004), S&P 500 non-financial corporations have accumulated $600 billion in excess cash. The Wall Street Journal (Dec.1, 2004) cites one consultant who estimates that corporate liquidity now totals $4.7 trillion, up from $3.6 trillion in 1999.

While CIOs are generally unwilling to invest in new technologies, they are enthusiastic about business intelligence which they expect will help them enhance their understanding of their business climate. According to a recent survey conducted by Accenture, a management consulting company, 91% of chief executives in corporate America agree that business intelligence systems help them cope with uncertainties.

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Measurement

Gut feelings, guess work and intuition have often been the hallmark of successful entrepreneurs; they have the ability to sift through fuzzy information, seize an emerging opportunity and make the decisive moves that lead to success. While these personality characteristics are the inspiration of major breakthroughs, these flashes of brilliance can also be spectacularly wrong as the internet bubble pop was to demonstrate. Tentative hunches need to be tested against data on the ground. Business intelligence is an aid to test alternative decision options before making a commitment.

A classic case of gut instinct going wrong was the case of Logitech which had to make a decision after the September 11th terrorist attack whether to reduce production or to raise it on the East Coast. Common sense seemed to suggest that demand for its computer accessories would necessarily decline as businesses and households faced an uncertain prospect. In the past, the company would have gone by its hunches as aggregation of its sales data would have been a painstaking twenty five days of effort. Instead, Logitech took just two days to collate the information and came to the conclusion that its sales were actually rising!

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Detail

A broad brush approach to decision making is often effective in times of rapid growth of industries. The leaders in periods of expansion know how to read the business trends and position their companies for growth. Unfortunately, these traits are not as valuable when industries become mature; margins in these industries shrink as competitors wring out the excess profits. Companies, in such situations, need detailed measures of their costs, productivity, advertising effectiveness and consumer response to eke out efficiencies from unseen nooks and crannies to remain profitable in industries wracked by hyper competition. Business Intelligence provides the precise information to pin down the unseen sources of efficiency that eludes.

Parkway, a garage management company on the East Coast, is an example of a company which gained from implementing a business intelligence system to keep track of individual lots in its garages. A wealth of data enabled it to measure the utilization rate of every lot and understand the patterns by geographical location, the design of the parking lot, pricing, time of day, etc. In addition, it has accurate measures of its revenue and cash receipts which help to lower theft. The use of digital technologies lowered costs of overtime, workers compensation and damage claims. Finally, it could provide information on occupancy of the parking lots to customers via the web to help them find the best location for them to park.

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Complexity

Companies planning on change today have to grapple with countless imponderables. The success of a new project or product is contingent on understanding consumer need, market size, geographical focus, financing methods, sources of supply, promotion techniques, pricing and bundling among others. Most executives looking to fire growth in their companies recognize that they cannot rely on their old products. On the other hand, they find the task of mastering all the variables influencing growth from new products and services much too daunting to attempt change.

Business intelligence is increasingly coming to the rescue to manage the complexity that has stymied innovation in recent times. With the arrival of these tools, invention is no longer seen as serendipitous breakthrough. Instead, innovation is increasingly process driven and is achieved by collaboration with consumers, suppliers, product developers and the employees. The participation of all these stakeholders ensures that the unforeseen errors that often wreck a new product are spotted in time to correct them and to modify new products to meet specific consumer needs at acceptable price levels.

According to a comprehensive study of 650 companies completed by Deloitte and Touch? new products will account for 34% of revenue in 2007 compared to 21% achieved in 1998. The cost of achieving this target, with current methods, is going to be high since the success rate of new products is low. Only 14% of new product ideas ever make it to the market and 50 to 70% fail which implies that less than 7% of products are successful. Deloitte's research also found that only 7% of the companies in its sample have mastered the art of integrating their entire value chain including their customers, suppliers and engineers.

Companies such as Dell use business intelligence tools to track real time information to determine customer requirements, communicate information to their designers so that their products meet market needs and communicate with their suppliers so that the right components are manufactured. These strengths have enabled Dell to undercut Sony's domination in the consumer electronics industry.

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Clutter

While modern business intelligence technology is able to pull together the disparate components of data that is relevant for decision making, it also adds to the clutter of information that executives have to absorb to arrive at a decision. This is analogous to a military strategist looking at the data on the movements of the ground forces, the air force and the navy in battle in order to ensure that their combined might achieves the objective of winning the war. If the military strategists tried to visualize by drawing the rapid movement of the forces, it is very likely that they would not succeed. Instead, the military would need more movie-like graphics to rapidly comprehend and react to the information as it is received.

The staple of graphic presentation in the corporate sector in the past has been pie-charts, bar diagrams and line diagrams. Today, dashboards have pushed the envelope of visual display for ease of decision making. They recognize that decision makers need to simulate situations to understand how alternative choices will alter the outcomes; they need to understand the causes of the results achieved and the inter-relationships in the data displayed before them. Visual display for decision making is, therefore, three dimensional, uses animation and allows decision makers to interact with the graphics and text presented.

Harrah's Entertainment utilized visual technology to monitor the performance of slotting machines on a daily basis. It needed to find out which of its numerous slotting machines, spread all across the country, was performing better than others. In addition, it needed to adjust the placement of the slotting machines in a way that attracted the highest number of customers. It installed specialized visualization technologies to single out the significant facts from the clutter of information flowing from its myriad slotting machines. The rapid assimilation of information allows it to offer incentives to customers to manage the utilization of the slots.

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Collaboration

Multinational companies, today, are a labyrinth of regional subsidiaries, departments, or strategic business groups. When the extended enterprise is included, the network spans the suppliers, the wholesalers, the clients and a host of partners who offer complementary services. More often than not, the actions of individual units of the enterprise are disjointed and are unable to act in a cohesive way. The divisions within large companies are exacerbated by information silos; traditional information tools such as spreadsheets discourage communication between groups because of the pain of consolidating information for the entire enterprise. Information winds its way through several hoops before it reaches the senior management if its does at all. Implementation of decisions is usually tangled in turf battles; the leadership of a company is often helpless in the face of intransigence of the lords of individual units of the company.

Business Intelligence helps to tie the loose ends in the enterprise and empowers organizations to marshal all their resources to achieve their business goals. Companies can share information with their partners which the latter can reciprocate by improving performance such as lower inventory holdings, lower returns, etc. The empires within a company are hard to sustain when each department comes under the glare of a single corporate data warehouse.

One example of collaboration is the case of Briggs & Stratton, a manufacturer of small engines, which has set up a site for its suppliers and distributors on the one hand and for its customers on the other. These sites help the partners to look at engine specifications, set up schedules for training, check on the availability of parts and their inventory, access product brochures and marketing materials. Each of the distributors has the option of using information relevant to them to build their own web-sites without undergoing the costly process of collecting the data on their own. The customers can use web sites to find technical information, locate the merchants selling the wares in the neighborhood, etc. Altogether, the information about Briggs and Stratton disseminates at a lower cost for all its partners and benefits all of them.

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Speed of Decisions

Speedy delivery is one of the key instruments of competition in a world where the more advanced industrial countries face intense price competition from the emerging industrial economies of the world. Enterprises in the industrial world have to be able to offer new products rapidly to fend off competition from cheaper products of an older vintage. Time delays, however, have been rife especially at the stage of commercializing new products. In the automobile industry, for example, a typical product life cycle runs over a period of 36 months; the first twelve months are taken up by conceptualization of a new product and the remaining 24 months are required for design and engineering. These are way too high given the pace of product obsolescence.

The disproportionate share of time accounted for by design and engineering is due to the delays in communication with partners involved in the process. Typically, design and engineering within a company is a collaborative effort of R&D, Engineering, Marketing and the purchase division. In addition, other partners such as suppliers are also involved. In the past, the R&D and Engineering had the lead in driving product development decisions. Managerial perspectives have changed and increasingly the technical staff has to work closely with marketing, purchase and the suppliers to ensure that the product development process is completed in time.

The product development process is interrelated; a change in the design specification would require modifications in the manufacturing process or the materials to be purchased or acquired from suppliers. Numerous iterations in the product design and the slow communication of alterations in the design process often have been the cause of disarray in related divisions. Business intelligence software provides the tools for continuous and real time communication with all the partners in the process of product development. Product Life Cycle Management software, a variation of business intelligence tools, and helps in communication during the process of product development. All partners and divisions involved in product development can now receive information about the latest specifications on an intranet.

Quantum, a manufacturer of tape drives, found that it took up to a hundred days to implement an engineering change in a part in its manufacturing process. After a product life cycle management system was implemented, the time cycle was lowered to seven and a half days and the costs of rework and scrap were also eliminated as information on bill of materials was corrected for errors.

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