7.1 The Impact of Industry, Competitors, and Company Business Design on Business Intelligence Opportunities

What BI information is relevant within a given industry and for a given competitor at a given time ? The answer to this question lies in understanding the fact that there are many differences between industries and these differences suggest a broader strategic line of inquiry that considers the impact of industry, competition within the industry, and a given company's business design on the BI opportunities for a given company within a given industry. As industry evolves the these differences and competing ways changes and hence it is too narrow to only consider industry competition. Porter advances three generic competitive strategies: cost leadership, differentiation, and niche focus. Porter also advocate that there are many combination and permutations of ways in which firms and entire value chains compete .These are "the building blocks by which a firm creates a product valuable to its buyers" and that "any activity in the value chain can potentially contribute to differentiation"

Gary Hamel and C.K. Prahalad argue that "companies not only compete within the boundaries of existing industries, they compete to shape the structure create differentiation and competitive advantage, as the company Owens & Minor has done in the medical products distribution industry. It uses a BI system called WISDOM both to provide decision support information to its managers and employees and to help manage its supply chain.
Richard D'aveni points out that "the most important aspect of competition is not to meet those changing needs, companies' business designs must change".

For any given company, the choice of business design dictates the performance objectives of core business processes and the elements of business performance that are important to plan, measure, control, and improve.


As previously discussed that the business-centric BI development methods such as the BI Pathway suggest that any given company in any given industry, we should systematically evaluate its industry, strategy, and business design as a means of identifying potential BI opportunities. So although the permutations and combination of value chain activities are many and although the bases of competition are different within different industries at different stages of industry maturity, it is fair to say that the building blocks with which a given business design is built are common piece parts

7.2 A General Overview of Business Intelligence Opportunities

If we think of BI as business information and business analysis in support of fact based decisions in the context of business processes that impact profits, it quickly becomes clear that BI is a broad concept. The nature of business information varies along a number of dimensions

  • Whether the business information is intended for power users, general users, or executives
  • Whether the business information is intended for broad distribution or for more limited role-based use
  • Whether the business information must be retained for legal or regulatory compliance purposes
The appropriateness of these techniques vary, based on the subject of analysis, for example, data mining techniques applied to risk analysis in contrast to trend analysis applied to sales performance analysis.

Selecting the relevant business information and analyses is a function of the kinds of business decisions that must be supported by BI, which in turn is a function of the type of business process within which the BI will be deployed. Business decisions are generally classified as strategic, tactical, and operational, although in practice the distinctions can be blurred. These classifications tend to imply differences in
  • The importance of the decision, with strategic decisions accorded greater importance
  • The frequency or useful life of the decision, with strategic decisions having a life of several years or more and operational decisions being more frequent and shorter lived (e.g., what products and amounts will we produce this month)
  • The scope of the decision, with strategic decisions being associated with enterprise scope, tactical decisions being associated with departmental or functional scope, and operational decisions being associated with day-to-day business activities

The general relationship between business decisions and business processes is

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The center of the figure is a highly simplified representation of value chain business processes, that is, supply chain processes, operating processes, customer relationship processes, management processes, intra-company processes, and support processes. In the context of these value chain processes, companies make a variety of decisions, shown in the arrows surrounding the core business processes.

BI opportunities can be segmented into three major business process categories: management processes, revenue generation processes, and operating processes. Within these major business process categories, proven BI opportunities are aligned with key business sub-processes, such as forecasting, customer segmentation, and order processing

7.3 Business Intelligence for Management Processes

7.3.1 Common Ways Business Intelligence Is Used to Improve Management Processes

Management processes are the core of any business. To the extent that BI improves those processes, it improves the efficiency of the business and the accuracy of the management decisions that drive it.

Planning and forecasting. By knowing such historical information as unit sales and dollar sales by plant, by month, by product or product family, by customer, and by channel, a manufacturer can develop forecasts about future demand. Such forecasts are often augmented by collaboration with downstream supply chain partners.

Budgeting:From a BI perspective, budgeting requires historical information about prior sales and prior expenses as a starting point for forecasting future sales and expenses. Thus, historical information about, for example, departmental expense and output trends in relation to sales activity, is essential for calculating activity-based costs to use in budgeting.

Performance management, process improvement, quality management, and performance optimization.

(1) being able to measure performance along relevant dimensions, such as cost, quality, or relation to plan; (2) assessing the current state to understand whether performance is on target; and (3) being able to judge the efficacy of improvement activities and to assess progress toward a desired state.

7.3.2 Business Intelligence and Balanced Scorecards: Enabling Strategic Management

Executives:They now recognize the need to manage business performance strategically, to understand the key linkages between strategy and the business processes undertaken to execute strategy, and to measure the performance of those business processes. This need for strategic performance management tools has been the impetus for the Balanced Scorecard and other BPM tools.

Functional managers: They need performance management tools appropriate to the business processes they manage, which hopefully are aligned with the business strategy. This need has given rise to different strategies for using Balanced Scorecards. Balanced Scorecards are essentially analytical applications that map/model, accumulate, display, and report multidimensional performance information, including financial and non-financial performance targets, actual performance measures, variance and trend analysis, and associated meta-data.

Example on Balanced Scorecard for cost leadership :
  • Financial perspective: operating margin dollars and percentages
  • Internal perspective: unit cost, capacity utilization
  • Customer perspective: order-to-delivery cycle time, percentage perfect orders
  • Learning perspective: certified customer service reps numbers and percentages
The Balanced Scorecard initiative is just one application in the portfolio, albeit a strategically important one.

7.3.3 Business Intelligence and Management Accounting: Improving Operational and Financial Performance

Early management accounting systems mainly provided the information on standard cost information, which was used for planning and controlling the productivity and efficiency of internal processes. Those systems were meant to provide information required to manage operations in the specific industry in which the firm operated and to combine financial and non-financial information.
These systems :
  • lack cost information,
  • the organization also lacks the information to systematically, consistently, and routinely perform fundamental operations management trade-offs between asset levels, costs, process times, quality, service, outputs, and backlogs.

Following figure gives the view of traditional managerial accounting systems and the management tasks they support.
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Thus the organizations, does not have an integrated set of facts about organizational performance from which it can model, project, and analyze resource consumption under various customer-driven operating scenarios.

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7.4 Business Intelligence for Revenue-Generating Processes

BI is commonly used to improve revenue-generating processes such as market analysis, customer segmentation, campaign management, advertising, channel management, customer relationship management (CRM), sales force management, and pipeline management.

BI can also help to perform the following to develop a competitive lead:
  • Marketing analysis
  • Customer segmentation
  • Advertising, direct marketing, and public relations (PR)
  • Channel management
  • CRM
  • Category management

  • Marketing analysis. It involves analytical activities in which companies engage in order to understand such revenue generation fundamentals as who buys their products or services, when they buy the products, where they buy the products, how often do they buy the products, what price do they pay, how do they respond to promotional offers, which products or services generate what percentages of revenues, what are the sales trends for each product or service, which products or services tend to be purchased together, and so forth.

This analysis leads to:
  • Relevant business information with appropriate analytical tools.
  • See current and long-term revenue trends and to understand the underlying drivers of revenue growth.
  • Mining of transactions to answer the fundamental marketing questions posed above.
  • Attracting new customers, retaining profitable customers, and achieving a sustainable revenue portfolio.
  • Understanding the relationship between channels and profitability and introduce incentives for customers to use the more profitable channels.

  • Customer segmentation. By sifting through plethora of business transactions information about the customers, companies can gain the ability to segment customers. E.g. demographic segmentation grouped customers by common characteristics such as age, income, occupation, and so forth, and geographic segmentation grouped customers by where they lived. Volvo Cars of North America uses these techniques to analyze and predict the behavior of its customers and sales prospects.In the past few years, by mining data about millions of individual customer transactions and marrying such information with traditional demographic, geographic, and psychographic information, companies have been able to group customers by purchasing behavior and to understand the relationships, if any, between purchasing behavior and, for example, demographic variables and product characteristics.

  • Advertising, direct marketing, and public relations (PR). BI-driven market analysis and customer segmentation generates the input for advertising, direct marketing, and PR campaigns .BI provides an effective means of understanding the intended recipients of a given message and provides the ability to measure the effectiveness of advertising and direct marketing that is directed toward increased revenues. It can be done by a) observing the products' sales trend line after an advertising campaign has run. b) analyzing the purchasing behavior of targeted individual consumers in response to a direct marketing campaign Firms as different as Harrah's Entertainment, which runs casinos, and Capital One, which provides financial services, use BI to measure and improve the cost-effectiveness of their marketing and PR efforts.

  • Channel management. Today, the Internet, ATMs, kiosks, and other point-of-sale mechanisms are examples of some channels and furthermore the channels varries from industry type. For industrial product manufacturers, channels include direct sales and a variety of often industry specific distributors and wholesalers. Nowadays , companies face strategic decisions about what channels to use and which partners to use within a given channel. and it invloves evaluating channel and/or channel partner effectiveness over time. BI for marketing analysis will help us gain insight into how much revenue comes from which channels; through which channels volume is increasing, decreasing, or holding steady; and how different products fare in different channels. With appropriate BI tools and techniques, we can assess their relative performance in terms of revenue growth and customer service.

  • CRM. CRM can have both a BI appeal and a transactional system appeal especially for the companies that want to improve their revenue generation processes . CRM is tied to the idea of repository (database) of customer information that can be used for cross-selling and/or up-selling customers. Harrah's Entertainment and Continental Airlines are two outstanding examples of using BI to tune up customer service and relationships to a high pitch of excellence and profitability.

  • Category management. Learning from the Wal-Mart's success in devising the competitive strategy, more and more retailers and consumer product manufacturers are using category management techniques to optimize revenue and margins.BI supports the category management by bringing point-of-sale data into a BI environment.The retailers can understand product-level demand trends and how they vary by relevant dimensions such as geography and service area demographics. BI can also be used to analyze the revenue increase succeeding promotions. To satisfy the basic principle of retailing i.e. to optimize contribution margin per cubic foot of retail shelf space BI provides the multidimensional demand trend data and the ability to track the effectiveness of promotions allows retailers to have the right product mix on the shelves, to optimize shelf space allocation to product categories, and to optimize revenues and gross margin at the store level.

7.5 Business Intelligence for Operating Processes

7.5.1 Common Ways Business Intelligence Is Used to Improve Operating Processes

By bringing together multidimensional information about all aspects of operations, BI provides the tools needed to improve asset utilization, reduce cycle times, improve quality, improve service, and reduce costs, all of which contribute to improved profits.

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  • Cycle time reduction. Cycle time is a important determinant of customer satisfaction as well as important determinant for capacity and asset utilization and can drive fixed costs up or down. By using analytical techniques from the operations research field, we can then identify improvement strategies and make operating changes. Furthermore, we can use the BI environment to gauge the effectiveness of the changes by examining post-change transactional information to see if cycle time has been reduced.Using BI ,systems we can find the information such as where the most of the time was spent in cycle time.

  • Risk reduction. In operations, risk can convert to costs, which affect profits. The risk may be in potentially obsolete inventory, in warranty repairs, in fraudulent transactions, in bad debt, in employee turnover, in supplier performance, or in any number of other places.For example, a very popular BI application in the credit card business is fraud detection, whereby a customer's previous card transactions are examined by using data mining techniques to detect his or her purchasing patterns. As another example, a major automobile manufacturer tracks warranty repairs by make, model, part, mileage, and so forth as a means of identifying the costs of quality problems.

  • Quality improvement. By storing and analyzing detailed transactional information, BI can deliver essential information for identifying, measuring, and quantifying the economic impact of quality issues. Brother International, for example, uses a data warehouse and BI techniques to glean information about product quality problems from its technical support calls. It then uses this information to improve both its products and its technical support.

  • Service level improvement. We can use BI tools and techniques to analyze detailed transaction records to discern service level performance and identify improvement opportunities.

  • Asset reduction. BI can be used is to reduce assets, particularly inventories of finished goods in product industries, inventories of operating supplies in various industries, and property, plant, and equipment in various industriesby understanding demand and demand variability, and thereby reducing capacity requirements in relation to level demand or enabling capacity to stay level in relation to increasing demand.

  • Purchasing. Using BI, companies can eliminate the barriers to reducing costs , as has recently been accomplished by a global automobile manufacturing company. We can create central repository for storing all the information pertaining to purchasing.

  • Order processing. BI can be used to efficiate order processing by caring about about the customer profitability and/or customer lifetime value which can be incorporated into business rules that prioritize order fulfillment to favor our best customers.For example, using BI on company was able to identify its most profitable customers, this company was able to define business rules that could automatically be implemented by its manufacturing scheduling system, thus avoiding the costs of expediting large orders.
  • Benchmarking and process improvement. BI is used by companies to analyze their processes along such key dimensions as time, cost, and quality and then compares its results to benchmark data. Benchmarking is a popular approach in operations, and some leading BI tools include reference databases of benchmark data.