Chapter 5 Leading and Managing a Business Intelligence-Driven Profit Improvement Program
“Strategic Planning, Benchmarking, Pay-for-Performance, Outsourcing, Customer Segmentation, Reengineering, Balanced Scorecard, and Total Quality Management are among the many management tools that companies have experimented with in recent years. Do companies using these tools do better than the ones who don’t? There is no equivalent of the Consumer Reports for management to use in evaluating the tools available to them.”
—Daryl Rigby, “Management Tools and Techniques: A Survey.” California Management Review, Winter 2001
In previous chapters, we have described business intelligence (BI), shown how major companies are using it to improve profits, described how you can identify the relevant BI-driven profit improvement opportunities for your company, described how to identify and manage company-specific success factors, and described a practical, proven method for designing, building, and leveraging a BI asset that improves profits. This chapter presents top management-level information about how to manage BI for maximum business value.
As suggested by the quote at the beginning of this chapter, a wide variety of management tools are available, “sometimes costing firms tens of millions of dollars to implement” (Rigby, 2001). Although for some companies the investment may not be that high, BI-driven profit improvement sometimes does require that magnitude of investment. Thus, we would argue that it requires the same level of top management thinking and attention as any of the other tools that have proven successful.
Recent trends suggest that BI is making headway in this regard. For example, Harvard Business School recently held an executive symposium titled “Competing on Analytics: How Fact-Based Decisions and Business Intelligence Drive Performance.” One of the key points of the symposium was that the ability to use BI for competitive advantage “starts with the CEO’s commitment and involves building the necessary enterprise-wide infrastructure, analytical skills, and culture. When done successfully, competing on analytics creates value and strategic advantage” (Davenport, 2006).
Another recent example of how BI is drawing both top management attention and coverage in the mainstream business press is found in a BusinessWeek article titled “Giving the Boss the Big Picture” (Ante, 2006). Although the article does not delve into the substantial BI and data warehousing (DW) challenges associated with delivering accurate, relevant information, its discussion of dashboards, a visual way of presenting high-level BI, as “killer apps” for executives is on the mark in emphasizing that modern BI tools can present timely, relevant business information that improves business decisions that affect profits. The article points out that 40% of the 2,000 largest companies use dashboards. It quotes Ivan Seidenberg, chief executive officer (CEO) of telecommunications giant Verizon Communications, as saying that the “dashboard puts me and more and more of our executives in real-time touch with the business. The more eyes that see the results we’re obtaining every day, the higher the quality of the decisions we can make.”
These examples indicate that BI is moving into mainstream business thinking. In this chapter, we will discuss the leadership and general management challenges associated with leveraging BI to create value (improve profits) and strategic advantage. In doing so, we hope to elevate BI-driven profit improvement onto top management’s agenda—if it’s not already there. As you read this chapter, please keep in mind that we are now looking at BI from a top management perspective, where we are not concerned with how to manage specific projects or with narrowly scoped BI initiatives. Rather, the information presented is for the benefit of the top executives who have determined that BI is strategically important for their businesses and who need to know how to go about leading and managing a BI-driven profit improvement program.
5.1 A Leadership Perspective on Business Intelligence-Driven Profit Improvement
From a leadership perspective, BI-driven profit improvement is largely about vision and cultural change, whether at the enterprise level, the business unit level or the functional (departmental) level. Leaders must articulate a compelling and specific vision for how their organizations will use information to improve profits and business performance. Furthermore, these leaders must also guide the process of cultural change so that the use of business information, business analytics, and fact-based decision making becomes ingrained in the way the business operates.
5.1.1 Changing the Culture of Information Usage
The cultural changes that leaders must drive to realize the value of investments in BI include the following:
Companies that meet the leadership challenges presented by BI-driven profit improvement initiatives will reap the business and economic benefits that BI can provide. The process of BI-driven cultural change can be viewed as a journey along a predictable development path that we think of as a BI maturity model with three stages, as shown in Figure 5-1.
5.1.2 The Three Stages of Business Intelligence-Driven Cultural Change
As Figure 5-1 suggests, the process of changing an organization’s culture to benefit from BI usually follows three distinct stages. To manage the change process effectively, you need to understand each stage of the process, as well as what you can—and can’t—accomplish during the stage.
Stage 1
This early stage of BI maturity looks a lot like information usage before BI. There has been no redefinition of the role of information. Information requirements are gathered much like report requirements and typically consist of lists of data elements provided by business users to the BI team. As such, the information requirement focus is on the “what” the users would like delivered. Users regard the day-to-day usage of information much in the same unstructured way that they did before. The perceived BI benefits center around improved and more timely end-user access to information.
FIGURE 5-1 Stages of the business intelligence maturity model.
Stage 2
The middle stage of BI maturity is a great improvement over the early stage. During this stage, the company recognizes that to reap the benefit of its investment, managers must rethink the role of information in the organization and go beyond the status quo. Information requirements go beyond devising a list of data elements and seek to closely tie information needs to business drivers, goals, and processes. They go well beyond the focus of “what” is needed and demand the answers to “why” the information is needed by business users. They also address some of the “who,” “when,” and “where,” as information needs are directly tied to the business processes that support business goals.
Stage 3
The final stage of BI maturity improves further upon stage 2 by looking at overall organizational processes that are in place for using information. It does not stop at delivering the right information to the right people at the right place and time. Instead, it strives to fully understand the details of “how” the information can best be used once it is delivered to the business. It recognizes that the arbitrary and ad hoc decision processes that evolved when information was unavailable and untimely do not serve the business as well as they should. It strives to abolish decision processes that rely on individual business users and replace them with organizational decision processes that optimize the use of information throughout the organization. This is achieved in a number of ways. It can consist of standardizing responses associated with information. For example, an analysis of the effectiveness of campaigns can provide standard decision rules for future campaigns. The organization can redefine these standard rules as it gains more experience using them. This stage can also include automating certain decision rules. For example, an analysis of historical manufacturing capacity and demand patterns can be used to route orders to manufacturing facilities based on automated algorithms. Finally, once organizations approach this final stage of BI maturity, they are positioned to combine the power of information with institutional knowledge to fully optimize organizational decision making for competitive advantage.
Tip
To reap the benefits of BI, organizations need to rethink how information is being used in their organization and to envision opportunities to use new information in new ways. As organizations mature in their use of information, they begin to reap the bottom-line benefits that BI offers.
Based on our consulting experience and on what we hear from participants in classes we teach, we believe it is fair to assert that business use of information is in the early stages of maturity in many companies. To change that, business leaders must drive the evolution of their companies along the path to greater BI maturity.
5.1.3 Steps for Advancing Business Intelligence Maturity
The pace of evolution in BI maturity and the degree of success possible in your company depends partly on its ability to learn about, develop, and implement effective BI and DW competencies. We see this as a general management challenge, about which we will have more to say later in the chapter. The pace and degree of success also depends on your company’s ability to change.
To accomplish the required changes depicted in Figure 5-1, leaders can apply a change model such as the one advocated by John Kotter, a highly regarded expert in the field of change management (Kotter, 1995). Adapted for BI, the cultural change approach consists of eight steps:
Step One: Establish a Sense of Urgency to Change the Company Culture to Leverage Business Intelligence
Kotter’s research indicates that for change to be successful, as much as 70% of the relevant management cadre must believe that the status quo is untenable, that is, that the risks of change are lower than the risks of not changing. The state of adoption of BI as a management tool for profit improvement is at a point where there are BI success stories in just about every industry: those stories can be used to create a sense of urgency. External drivers can also contribute to increased urgency.
Tip
One way to establish a sense of urgency is to present managers with quantitative estimates of revenue lost owing to lack of BI information. Another is to identify competing organizations that are now or soon will be using BI to gain an advantage over your organization.
For one of our clients, the external drivers that have created the required sense of urgency include increased demand associated with an aging population, pending retirements within its aging workforce, economic pressure for efficiency, and ever-increasing customer expectations for near-instantaneous service in “Internet time.” An organization’s competitors can also provide a strong sense of urgency. For example, a perceived risk of “losing our best customers,” if we aren’t able to identify them and manage them more effectively, can be the catalyst needed to develop and leverage new BI capabilities.
Step Two: Create a Coalition to Drive Business Intelligence Use into the Company Culture
Driving BI use to the point that it is ingrained in the company culture takes consistent leadership over time. Change management experience suggests that cross-functional coalitions of powerful, respected executives are needed to provide such leadership. Absent such leadership coalitions, organizational inertia sets in and progress is slowed or stops all together.
Tip
Because higher levels of BI maturity require business change, organizations find that this is most successfully done by forming a coalition of well-respected senior business executives that can champion the business need to drive BI usage into the company culture.
For one of our clients, the prevailing culture around BI use had historically been report-focused (stage 1 of the information usage maturity model). To overcome that, the client developed a BI vision and formed a strong coalition of believers. This coalition is led by a well-respected executive who reports to the CEO, ensuring on-going executive attention to the BI initiative and the cultural change it requires.
Step Three: Develop a Clear Vision of How Business Intelligence Will Be Used for Profit Improvement
As you may recall from Chapter 2, we use the BI opportunity analysis to identify specific opportunities to inject business information, business analyses, and fact-based decisions into core business processes that make a difference in profit and performance. With that as input, we can create a clear vision of how BI will be used for profit improvement.
For example, we worked with one organization that determined through BI opportunity analysis that BI could be used to improve key treasury functions such as cash collection, cash concentration, cash forecasting, and cash balance optimization. This vision was communicated throughout the organization. A prototype BI application was used to generate enthusiasm and commitment to the changes that needed to occur for the client to reap the benefits of its BI investment.
Step Four: Share the Vision of How Business Intelligence Will Be Used for Profit Improvement
One mission of the BI coalition of business leaders is to share the BI vision, particularly with key thought leaders and potential early adopters within the management ranks. Companies are social organisms, and they evolve by achieving a shared vision about the direction the company must go to survive and thrive. Executive leadership is key to that process, as is gaining buy-in from the people in the company who are opinion leaders and exemplars of how the company operates.
Tip
Because BI is an expensive endeavor, it requires the formulation of a business case and active organizational marketing. Presenting a clear vision of how BI capabilities can be used to drive improved business performance is the best way to accomplish this.
At one organization with which we’ve worked, the operations function is driving change in how BI is used. Based on a vision of having more detailed, specific, and timely business information for improving business performance, an executive coalition keeps a focus on the BI vision and shares it via two thought leaders who have ties at the executive level. These thought leaders share the vision for how the new BI will be used to improve performance. In the process, they are driving cultural change.
Step Five: Empower People to Clear Obstacles to Business Intelligence Use
There are various obstacles that your company might encounter as it evolves in its ability to use BI to improve profit. Key cultural obstacles can be identified by conducting a BI readiness assessment, as described in Chapter 3. A few of the typical cultural obstacles we’ve seen include the following:
Figure out how to turn adversaries into allies. If some people feel threatened by the changes that BI represents, show them how BI can make their jobs easier and give them higher status in the organization. If you “convert” one or two BI adversaries, they’ll become your most vocal and enthusiastic supporters.
Overcoming these obstacles is really a business challenge: the impetus for changing how business information and business analyses are used for improving profits must come from the owners of the core business processes that must change to leverage BI.
Step Six: Secure Short-Term Business Intelligence Wins
Companies have been exposed to a number of management tools over the past few decades. Some of them have proven to be useful. Others have not borne fruit, whether because of data quality issues, because of failure to implement effectively, or because the tool itself was somehow flawed. As a result, some companies are cynical about new management tools, causing some observers to write about “fad surfing.”
To overcome cynicism and resistance to change, a key tactic for any change initiative is to identify pieces of the larger initiative that can be successfully completed in the short-term, however that may be defined in a given company. For BI initiatives, this can be as simple as completing a design prototype that gets executive sponsors excited and that can be presented to key parts of the organization to sustain commitment.
When using the BI prototype for this purpose, we have found that it is essential to use real sample data of the type that would be provided by the BI application. For example, for supply chain BI one could use actual order history data to prototype of metrics and measures such as order-to-cash cycle time, demand by customer, demand by stock keeping unit (SKU), and so forth.
Tip
BI prototypes are an effective tool to demonstrate how BI can be used in your organization to improve business performance.
We have also found that it is very useful to present the prototype to business users by using a storyboard approach that approximates the actual business context in which the finished BI application would be used. In other words, show the business users how the BI would be used in an actual business situation in which a decision that affects profit is required.
Step Seven: Consolidate Business Intelligence Wins and Keep Moving
Achieving cultural changes in how information and analyses are used to support fact-based decision making ultimately means changing any and all aspects of existing operations that do not fit the vision for how BI will be used to increase profits. As the first production BI application is rolled out and successfully leveraged, the business must use the credibility that comes from success to force more change. In the BI world, this may mean such things as
Tip
Setting higher standards for performance based on BI can give users an incentive to jump on board. As they see other departments and coworkers enjoying BI’s benefits, they will become more receptive and eager to take advantage of those benefits themselves. A BI COE can help.
At one of our client organizations, the success of an initial BI initiative has created a higher degree of consensus among top executives about the business value of BI. This, in turn, has increased the executives’ willingness to change how BI is funded and how BI is handled within the broader information technology (IT) technical infrastructure. Seeing the business value of BI, the executives are consolidating the win and picking up the pace of BI adoption.
Step Eight: Institutionalize the Change in How Business Intelligence Is Used
The ultimate leadership goal for changing the culture around BI use is having the change become ingrained in company norms and shared values so that the change endures. The relevant norms when using BI for profit improvement are the decision-making norms within the context of business processes that affect profit. In Chapter 4, we talked about three general types of business processes: management processes, revenue-generating processes, and operational processes. To institutionalize the use of BI for fact-based decision making within these general processes, leaders have to model the behavior they are seeking.
In other words, they have provide what we call adoption impetus, which is a fancy way of saying that leaders must use and/or push the use of the new BI in a public way. If the CEO consistently asks the vice president of operations for business information and business analyses that can most easily be gotten from a BI application, the vice president of operations will make sure his or her people are using the same information the CEO is seeing.
We worked with a company that has institutionalized the use of BI for sales campaign management purposes. By using BI, the company can focus like a laser on the groups of potential customers who are most likely to accept direct marketing offers. Because this approach results in both higher revenues and lower costs, it has helped create company norms and shared values around the use of BI for profit improvement. People have seen the payoff, they take pride in leveraging BI, and there is little or no possibility of changing back to older ways.
5.1.4 Summary: A Leadership Perspective on Business Intelligence-Driven Profit Improvement
When we teach our BI Pathway course, class participants relate intuitively to the stages of our BI maturity model. Most identify their companies as being in stage 1, and they see the need for business leadership to get to the more advanced stages. Because many of these people are IT people, they do not feel they have the responsibility or the power to lead their companies along this developmental path. We agree. Only business leaders can change the behavior of people in the business units of the company, and to fully leverage BI, they must change the culture around information use and fact-based decision making.
The good news is that at well-known companies in many different industries, effective leaders have succeeded in doing just that.
5.2 A General Management Perspective on Business Intelligence-Driven Profit Improvement
From a general management perspective, BI-driven profit improvement is largely about strategic alignment, risk management, business process re-engineering, program and project management, IT infrastructure, and IT operations. In that sense, and except for the IT component, it is not different from any other strategic initiative launched in hopes of improving companies’ business results. At the same time, the IT component is critical to success, and successful BI initiatives require different methods than traditional application development projects or enterprise-level packaged software implementations. Accordingly, the general management focus for BI-driven profit improvement must balance considerations of business strategy, BI strategy, business infrastructure and processes, and BI infrastructure and processes. This concept is shown in Figure 5-2, which is adapted from “Strategic Alignment:
FIGURE 5-2 Balancing factors for business intelligence process improvement.
A Model for Organizational Transformation via Information Technology” (Henderson and Venkatraman, 2005).
The model, adapted for BI, shows that fully leveraging BI requires integration and/or alignment at four key points, which are numbered accordingly in Figure 5-2. These integration and/or alignment points are between
By focusing general management attention on these integration and alignment points, we can explicitly assess and manage strategic alignment, risk, business process change, programs and projects, IT infrastructure changes, and IT operational changes. A vehicle for doing so is the architectures phase of the BI Pathway, the results of which can be used to create a roadmap, or program plan, for managing your company’s BI-driven profit improvement program. From a general management perspective, company business and IT executives and managers can use the architectures phase analyses to focus their attention on general and company-specific business and technical challenges associated with leveraging BI to create improved profits.
5.2.1 The Program Plan for Business Intelligence-Driven Profit Improvement
In Chapter 4, we argued that the architectures phase analyses are critical because they provide crucial insights for addressing the multi-dimensional integration and alignment challenges that can be barriers to BI-driven profit improvement. These insights come together in a comprehensive BI program plan, which must address all of these challenges. At the applied level, the BI program plan must guide and coordinate systematic development of BI competencies that advance your company along the BI maturity path. The plan must also address risk management, business process reengineering, program and project management, IT infrastructure, and IT operations. To illustrate these ideas in action, we will use revisit Company B, the disability insurance company we introduced in Chapter 3.
Tip
Following a BI program plan instead of managing each BI effort as a separate, unrelated project enables you to see and implement the global changes your organization needs to get the maximum benefit from BI. It also ensures that BI efforts are not stove-piped, resulting in a suboptimal technical implementation and creating different and potentially conflicting information about your business.
Company B is an $8 billion company that faces substantial business challenges over the next decade. Those challenges come largely from increases in claims by the aging baby-boom generation, whose members are entering their disability-prone years. Other challenges come from heightened customer service expectations associated with the ever-growing number of business transactions that can be accomplished via the Internet. Accordingly, Company B needs to optimize claims processing productivity and improve service delivery. These challenges are complex owing to such factors as the following:
Accordingly, the company has embarked on a BI program aimed at providing all levels of operations management with more timely and relevant business information, as well as with appropriate analytical tools so that managers can consistently improve productivity and service. The BI program plan at Company B has addressed a range of general management challenges specific to its situation. This particular program plan has seven elements.
Element One: Business Strategy for Leveraging Business Intelligence
Given its strategic position, Company B has articulated a vision for leveraging BI that encompasses providing all levels of management with integrated business information and analytical tools to support fact-based decision making within business processes that affect claims processing productivity and service delivery. Specifically, Company B has begun to deploy business information and business analysis tools that provide front-line managers with more detailed, timely, and specific information about productivity. In turn, this information allows for closer monitoring, more insight into performance trends, and more timely corrective actions. Before the development of this BI application, front-line managers were limited to highly aggregated information that was delivered long after the fact, thus providing very little actionable information in time to correct adverse trends. Company B is also beginning to develop BI that focuses on service improvement. The business information and analytical tools will provide a comprehensive view of the entire disability claims process, which will allow top managers, middle managers, and front-line supervisors to identify and correct service issues and thereby meet or exceed customer expectations.
Tip
Company B’s experience is typical of the benefits an organization can derive from designing an overall BI program. By taking an organization-wide view, Company B can identify and prioritize all the information needed by managers in all departments to make good decisions.
Element Two: Program for Developing Business Intelligence Core Competencies
To achieve the business strategy for leveraging BI, the company is evolving toward a COE approach, which is a systematic way of developing and exploiting BI core competencies to improve profits and business performance. These core competencies are shown in Figure 5-3.
Developing these BI competencies has enabled Company B to increase the pace and effectiveness of its progress along the BI maturity improvement curve, resulting in a greater ability to leverage business information and analytical tools to improve performance. The specific BI competencies shown in Figure 5-3 each contribute to BI-driven improvements in profits and business performance:
FIGURE 5-3 Business intelligence core competencies.
The COE approach at Company B has steadily and systematically improved its core BI capabilities. Because of Company B’s size, progress has not always come as fast as executives wished, but the COE approach is a core element of the program plan and has provided constancy of purpose and direction. This is critical, because BI is as much about changing business behaviors and processes as it is about technology. Effective change in large-scale organizations requires persistence.
Tip
Developing a BI COE is a good way to set in motion a BI program aimed at maturing an organization’s current BI capabilities. It signals an organizational commitment to developing world-class BI capabilities.
Element Three: Risk Management
As we discussed in Chapter 3, a BI readiness assessment is an excellent tool for identifying risks in advance. At Company B, the most salient risks that are being actively managed include (1) schedule risk induced by IT policies optimized for transactional systems at the expense of rapid BI development and deployment; (2) data integration risk due to having several different legacy transactional systems and culturally stovepiped and proprietary organizational units involved in the claims process; (3) technical risk (and potential reward) induced by the introduction of a new enterprise information integration platform; (4) schedule and technical risk induced by the need to migrate IT skills from older technologies to the newer platform; and (5) technical and schedule risk that result from cultural differences between BI development organizations and the shared services group that “owns” the IT assets.
Tip
It is important to identify and actively manage the risks associated with introducing BI into your organization. A BI program plan is the best place to do this.
The specific risks to be managed differ from company to company. The BI program plan is the place to identify them and describe the risk management techniques that you will use to mitigate them.
Element Four: Business Process Re-engineering
The business strategy for leveraging BI is to
To capture the business value of its investments in BI, Company B must leverage BI-driven reengineering skills, that is, the ability to use introduce and standardize the use of BI within business processes that affect profits and performance. Toward that end, the program plan addresses which specific business processes must change, how the change will be accomplished, by whom it will be directed, and how the benefits will be measured. As we noted earlier, front-line managers at Company B had been receiving only highly aggregated information that was delivered long after the fact, thus providing very little actionable information in time to correct adverse trends. Because they had never had timely, relevant, and detailed information before, the managers did not have established business processes for using such information, nor did they have analytical or decision support tools.
To address this, the BI program is using power users as early adopters, and the number of users has gone from six to 70 in six weeks and will soon be rolled out nationwide. Top management will also begin to use the information, which will further support changing management processes to include use of the new BI application.
Element Five: Program and Project Management
To succeed, a BI-driven profit improvement program must have effective program management and project management. In our experience, the most effective program managers blend general management skills, relationship-building skills, and IT strategy skills to set the program agenda and see that it gets carried out. At Company B, general management skills come into play in such areas as capital budgeting for BI investments, financial planning, facilities planning, and staffing. Relationship-building skills come into play at Company B
IT strategy skills come into play as the company adopts its standard IT system development lifecycle to fit the BI program, and as it evolves its IT platforms and tools to accommodate BI. At the project level, Company B is evolving its resource tracking system to provide better information for project managers.
Element Six: Information Technology Infrastructure
A BI-driven profit improvement program may require changes to the existing IT infrastructure, depending on the company and its starting position with respect to BI and DW. At Company B, the BI program has had to address two key IT infrastructure challenges. The first challenge is that the development, validation, and integration testing environments are heavily used shared environments that have been designed to support development and testing of transactional systems and modifications thereto. Accordingly, these environments are optimized for processing the typically small data sets associated with units or modules of transactional systems. As Company B moved into the larger scale data integration required for BI—in some cases processing 50 million records per day—the development, validation, and integration environments could not effectively accommodate such processing. That made it difficult to test data integration software routines and to predict performance in the target production environment. From a BI program perspective, the IT environment needed to adapt to accommodate the business imperative of rapidly developing and deploying BI releases.
The second IT infrastructure challenge stemmed from the fact that Company B invested in a new data integration platform that introduced an unknown into the tightly controlled, mainframe-centric IT environment. Although the data integration platform Company B selected was an established and widely adopted product, the process for obtaining architectural approval and getting the data integration platform installed in the environment had to be carefully planned and managed at the program management level. The managers of the shared services environment and the development environment had to be educated about how the new data integration technology would play in the existing environments before they would buy off on acquiring the technology. Furthermore, a range of technical issues and decisions needed to be managed as the technology was introduced into the environment, even down to topics such as selection of connection methods and designation of dedicated ports. Because of the mission-critical nature of Company B’s transactional systems, it was important to proceed with caution. This generated the need for program-level planning.
Planning your IT infrastructure for BI involves both art and science. On one hand, your BI efforts should leverage your existing IT infrastructure as much as possible. On the other hand, your BI efforts must go beyond your existing IT infrastructure to deliver new value to the organization. You should consider the potential return on investment (ROI) for new BI technologies as well as (realistically) political factors such as the need to win support of groups that might have vested interests in parts of the existing infrastructure. All factors considered, what mix of old and new infrastructure will enable you to deliver the maximum BI value relative to your BI investment?
Element Seven: Information Technology Operations
As business information and analytical tools become ingrained and fact-based decisions become the norm, it is critical that IT operations support both (1) the production operations of the data warehouse and (2) the BI applications it supports. In particular, the regular data integration processes must be run during batch windows, the relevant parts of the IT infrastructure must be administered, licenses must be managed, technology upgrades must be installed, and users must be supported. At Company B, these requirements are managed at the program level. In turn, that requires coordination with the shared services organization, with vendors, and with business user communities. To achieve this coordination, the BI program is establishing working groups for such topics as technical architecture, development environment, and user tools.
5.2.2 Summary: The Program Plan for Business Intelligence-Driven Profit Improvement
By using Company B as an example, we’ve illustrated some of the key topics in a program plan for BI-driven profit improvement. As you can see, there is a lot to manage. From a top management perspective, driving BI use into key management processes, revenue-generating processes, and operating processes that affect profits requires a multi-year perspective and an orchestrated alignment of business strategy, BI strategy, business infrastructure and processes, and BI infrastructure and processes. The analyses and activities of the architectures phase of the BI Pathway feed development of a comprehensive program plan for BI-driven profit improvement. As with planning in general, the planning document itself is useful and the format should be tailored to the situation. However, the most important aspect of the plan is the consensus, coordination, and communication it promotes. With the program plan as a navigation tool, top managers can ensure that the BI program is unfolding as planned, thereby leading to BI-driven profit improvement.
5.2.3 Business Intelligence-Driven Profit Improvement Is a General Management Responsibility
One of the most common challenges we have encountered—and one we hear about all the time when we teach BI courses–is the challenge of getting top management to engage on the subject of BI. We believe this is symptomatic of a broader problem faced by IT generally. For example, a McKinsey & Company study of IT use in manufacturing companies found that
OBSERVATION
Information management must receive the attention of top management. On average, the top managers at IT stars together spend about 45 hours per month on IT, compared with 20 hours for laggards…. Not surprisingly, top managers at low-performing companies, who spend an average of just 4.5 hours on IT per months, tend to have vague and unrealistic expectations …. At IT stars, by contrast, top managers devote time and energy to developing an IT strategy, and get actively involved in the introduction of new systems. In particular, they play a critical role in defining projects and agreeing upon measurable goals in specific business processes and technologies [emphasis added]…. Without the intimate involvement of top management in critical IT issues, information management rarely performs well. (Kempis and Ringbeck, 1998)
Although the survey population for this study was small manufacturers, the findings are very representative of what has come to be regarded as a universal truth in IT: that top managers don’t get as involved as they should. This idea was echoed very succinctly in a conversation we had with the chief information officer (CIO) of a well-known consumer packaged goods manufacturer. When told about the findings from the McKinsey study cited above, he said, “I doubt that our CEO has spent 4.5 hours on IT in his life, let alone in a single month.”
If we consider the business and technical challenges outlined above in our discussion of BI-driven profit improvement programs, it’s clear that
The implications for shareholders are unfortunate, because BI-driven profit improvement is a proven management tool that will become increasingly important over the next five to 10 years. Absent top management involvement, it is unlikely that BI will have as much profit impact as it could.
5.3 Business Intelligence-Driven Profit Improvement Is Crossing the Chasm
In his excellent book Living on the Fault Line, Gordon Moore (2000) describes a technology adoption life cycle and various classes of adopters. The order of adoption follows a predictable pattern: technology enthusiasts are first, followed by visionaries, pragmatists, conservatives, and skeptics. If they succeed, the highest incremental profit goes to the early adopters—enthusiasts and visionaries. The majority of the market consists of pragmatists and conservatives, who take less risk but consequently reap lower rewards. In fact, if they wait too long, they may have to invest simply “to stay in the game” if the technology is important enough.
For BI, the early adopters are well down the road and have achieved documented competitive advantages and incremental profits. For example, the Wall Street Journal recently published an article (“Gauging the Wal-Mart Effect,” December 3–4, 2005) citing how Wal-Mart used information to predict that Hurricane Ivan would spur demand for toaster pastries, and was able to fill Florida stores to meet this anticipated increased demand. Based on the recent attention it is getting, we believe that BI is crossing the chasm between the early adopters and the mainstream market. We work with and talk with major companies in a wide range of industries who have invested millions in IT infrastructure and transactional systems such as enterprise requirements planning (ERP), supply chain management (SCM), and customer relationship management (CRM) and who still say, sometimes bitterly, that they don’t have the information they need to run their businesses.
Given this state of affairs, BI is becoming more and more important as a profit improvement tool. We believe that the time is right for top management to embrace its potential and step up to the leadership and general management challenges of a BI-driven profit improvement initiative.