Outsmarting rivals

In an effort to get an edge over competitors, firms are turning to business intelligence (BI) to liberate creative ideas and keep an eye on the company’s overall performance

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By  Caroline Denslow Published  September 3, 2005

Outsmarting rivals|~|BWObody.jpg|~|The latest developments in business intelligence (BI) have helped companies to react more quickly to market demand, launch new ventures, and design cost-cutting ideas. |~|Business intelligence (BI) is making headway in the market as a tool for companies to outsmart the competition and to understand their customers better. With innovation becoming a key source of future competitive advantage, senior managers see BI as a means to liberate creative ideas. However, BI tools, on their own, do not inspire people to think out of the box, they just help companies extract hidden value from the data they collect. Take, for example, the famous case of US-based grocery chain Wal-Mart that conducted a study of its customers’ buying habits using BI tools. It found out that each week, sales of beers and diapers reached a peak every Saturday. While, at first glance, the two items seem to have no correlation, it turned out that the reason these two items sell the most on that day is because most husbands who drop by the grocery store to buy, say, a case of beer are often asked by their wives to buy diapers as well. Based on their findings, the company decided to move the diapers closer to the beer section or near the cash counters so that these customers will more likely leave the shop buying two items rather than just one. Other companies have also found inventive ways of using their BI tools to help them make decisions on whether or not to launch new business ventures, design cost-cutting ideas, and react swiftly to market demand. However, while initial BI deployments were more about analysing and understanding market data, a new wave of BI applications is being implemented to concentrate on measuring the performance of the different divisions within an organisation. The concept is called corporate performance management (CPM), which is an umbrella term that describes all the processes, methodologies, metrics and systems needed to measure and manage the performance of an organisation. “Many organisations have been using BI to understand their businesses, to make their decisions faster,” says David Brierly, regional manager, Cognos Middle East. “However, many organisations are looking for the next level of performance, and that’s when you look at all the different aspects of the organisation,” he adds. With CPM, BI offers much more current measurements of the status of the business compared to the retrospective look pure BI provides. Whereas pure BI is more departmental, individually driven and very operations-focused, CPM extends over departments — and even geographic areas of companies — to provide companies with a more corporate-wide assessment of their performance. And if, in the past, BI was mostly concentrated on analys-ing financial information, companies are now beginning to realise that corporate data needs to be taken from the different units within their organisation and aligned with business processes. By coupling BI’s inherent ability to provide a 360-degree view of the business and rolling it out in all levels of the organisation, companies can ensure performance can be improved at a granular level. ||**||The CPM appeal|~|aymanbody.jpg|~|Ayman Abousief of Oracle.|~|The dynamic behaviour of the market makes CPM especially appealing to large organisations that need to mobilise their people and respond to changes rapidly. CPM promises to equip multinational companies with the same agility and responsiveness that small businesses have. CEOs of large organisations want the same capability a shop owner of a small business has to just walk over to the staff, tell them what needs to be done, and see the results in a real world. CPM is designed to make that happen. As Cognos president and chief executive Rob Ashe puts it, CPM ensures that top management’s priorities become the priorities of those further down the organisation’s hierarchy. “CPM preserves the direction and intent of senior management and empowers operations to do the right job well,” Ashe says. What CPM wants to create is a dynamic, yet fluid environment, one where people have a shared understanding of things that happen to their organisation, why these things happen and what needs to be done. Aligning the duties and goals of the different divisions and departments is key, but in order to do that there must be a single version of the truth, says Ayman Abouseif, Oracle’s managing director for the Gulf States. “The problem right now is that divisions within a company have different versions of the truth, and they are making their decisions based on what they see, and not the single version of the truth that CPM should be able to offer,” Abouseif notes. According to Abouseif, CPM integrates corporate data into a single instance, no matter the source: information from data warehouses, standard ERP applications, spreadsheet and legacy or proprietary systems. The important thing is once they are combined, they provide a greater understanding of the present — it’s just a matter of putting the pieces together to build the complete picture. “It’s all about analysing data,” says Bashar Kilani, IBM’s software group manager for the Middle East, Egypt, Pakistan and North Africa. “It’s all about looking at the patterns that you have, how you are behaving, how your customers are behaving, and using this kind of interface and the kind of data that you have to develop your value proposition and make the right decisions on what you want to do.” ||**||Building blocks|~|mctiguebody.jpg|~|Steve McTigue of SAS|~|While analytical tools play an important role in CPM, it is not, however, all about having BI applications in place. Other applications such as those used for forecasting, budgeting, planning and monitoring are also important in rolling out a comprehensive CPM strategy. Aside from BI, companies need to consider scorecards, dashboards, and reporting tools as well. “You cannot usually achieve full CPM if you do not have the [complete] building blocks,” Abouseif says. “To get there, you need to employ all the elements that produce data, which can be used to construct CPM.” Scorecards not only provide internal and industry benchmarks, they also define the goals and targets that help individuals and departments understand their contributions to the organisation. Dashboards, on the other hand, provide an “at-a-glance” summary of those goals and targets to relevant users and alert them when objectives go beyond expectations. While there are some confusion as to the overlapping functionalities of scoreboards and dashboards, and may lead companies to believe they only need to use one of them, the truth is each one caters to different sets of users, says Brierly. “Typically, what we’ve seen is that senior executives like dashboards because it allow them to see visually what’s going on in their organisation. Middle management is more suited to a scorecard because a scorecard gives them detailed information about their key performance indicators (KPIs) or the KPIs of their division that they have to monitor,” Brierly explains. “A dashboard is very good at giving a very high view of what’s going on, but a scorecard gives that granularity that you need to go through the changes,” he adds. Reporting tools, yet another principal facet of CPM, keep relevant groups informed about the health of their organisation. However, some companies often mistake their report writers for BI tools. While gathering data sits at the core of every CPM objective, presenting the data in a report form does not make a company any wiser about the way it performs or how the market behaves. For instance, Brierley cites a company in Saudi Arabia that spools off a 1000-page report every month. While its methods of gathering data may seem to be very thorough, having too much information imposes a bigger problem compared to the lack of it. “Nothing ever got done. Because the reports have thousands of pages, no one was reading it. There was no point having it,” Brierly notes. Traditionally, reporting implies something that happened historically in the past, says Stephen McTigue, solutions manager, SAS Institute Middle East. “They are intended to give visual to management in occasion of what happened in the past, and for them to make decisions as to what they want to do in the future,” says McTigue. With CPM, companies will not be getting reports on a regular basis. Instead, reports will be generated whenever there are potential problems at hand. “It flags up areas that are starting to cross thresholds. That way, it makes your management approach more proactive rather than reactive,” McTigue explains. “What you want to do is to turn data into information and then into knowledge. Once information becomes knowledge, you can then act on it and make a decision, and from that decision take action,” he contiues. “The quicker you can have that cycle from data to information, from information to knowledge, and from knowledge into decisions and actions, the more proactive an organisation will become.” ||**||Defining KPIs|~|brierlybody.jpg|~|David Brierley from Cognos|~|A company that is looking at executing CPM needs to first define its KPIs. These provide the baseline from which everything is measured; they allow management to determine the areas where the organisation is performing well and the areas that require improvement. There are certain things that companies need to take note of when establishing KPIs. One of them is to consider having both lagging and leading indicators. These provide a balance between what the company has achieved in the past and what it can do in the future. Lagging measures reveal the state of the company today, such as balance sheet data, customer retention rate and market share. Leading measures predict future performance, such as customer satisfaction, training budget and time to market. Companies also need to realise that there are no set KPIs for each industry. Just because they move in the same circle doesn’t mean that their goals and targets are the same. “Many organisations come to us and say, ‘How many KPIs do you have for the banking industry?’ Or ‘How many do you have for manufacturing?’ The reality is we have thousands but a KPI is not worth anything to you unless you yourself understood and developed it,” says Brierly. “We can give you a million KPIs but it doesn’t matter because KPIs have to be thought up by yourself because they have to reflect your business. Do you want to be using KPIs from a company that has no relation to you?” KPIs are, more often than not, multi-tiered. Companies can start with a handful in the senior management level, which can then be further subdivided into finer details as they are issued to middle management and division heads. “It really depends on the business and what you want to measure. I would think in every business you need around five to seven KPIs that you have to focus on. As you move on, you start to define sub-performance indicators so you can refine and optimise business processes as you go along,” explains Kilani. The more detailed you want your targets to be, the more KPIs you will need, but Kilani warns that having too many can prove difficult to manage. Companies should always weigh the amount of resources and effort put into these measurements against the returns they will be getting out of it. “You should only go as deep as the business requirements compel you to go,” Kilani says. Oracle’s Abouseif advises bus-inesses to start small. Initiate your KPIs in phases and then move across into other areas as they become more stabilised and the people in your company become more confident with them. ||**||Cultural shifts|~|86156body.jpg|~|CPM often requires a significant shift in cultural perspective, especially in the way that people share information.|~|Implementing CPM is not merely a matter of deploying a suite of tools and applications. It often requires significant cultural changes, especially in the way people act towards it and how they share information. Because CPM provides tools that allow companies to monitor how their divisions perform, most people perceive CPM not so much as a means to manage processes but a way for management to keep a close eye on employees. “It shouldn’t be taken that way. If users think of it as a monitoring system, then it’s going to fail because what they’re going to do is to try to cover up the problem rather than allowing it to go through the right channels and flag it up in time,” says SAS’s McTigue. Instead of positioning it as some sort of Big Brother tactic or as a carrot on a stick, management must work in making people see and believe in the value of CPM. “It’s all about getting everybody to contribute in the success of the implementation,” Kilani says. Adoption of CPM in the Middle East is not one without challenges; particularly since local business environments and market climates are very different to those in the West. According to Abouseif, some companies refuse to incorporate CPM as part of their strategy because they do not like what they see. People reject what their data implies, especially if sales figures look bad. “People tend to say that the data is old or inaccurate,” Abouseif says. Other companies do not feel the need for CPM because they are in an environment that is not competitive, he claims. “If you are a monopoly that is protected by the government, you can be as inefficient as you want. There is no reason why you should spend on technology. But I don’t think that it is a sustainable model for any company that wants to survive in a competitive world,” comments Abouseif. Brierly says that having an open market will force local companies to consider CPM. “As organisations become more professional, they have to understand more about their organisation. They can’t leave it to chance,” he says. In fact, there are companies, such as the telcos, that have shown interest in adopting CPM. According to Abouseif, these companies understand that a monopolistic approach to business is not sustainable in the long term. “It’s really refreshing to see companies that are doing it now today,” Abouseif says.||**||

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