Course Name: Business Intelligence
Year: 2009
Important Ways Business Intelligence Can
Drive Profit Improvement
22nd Meeting
Source of this Material
(1).
Williams, Steve & Williams, Nancy (2007). The Profit
Impact of Business Intelligence. Chapter 7
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The Impact of Industry, Competitors, and Company
Business Design on BI Opportunities
The concept of a business design is of particular importance for BI purposes.
Slywotsky defines the business design as “the totality of how a company
selects its customers, defines and differentiates its offerings, defines the tasks
it will perform itself and which it will outsource, configures its resources, goes to
market, creates utility for customers, and captures profit.” To illustrate, let us
consider Wal-Mart, whose business design is summarized in table 22-1.
To continue with the Wal-Mart example, its business design dictates that it be
concerned with core business processes such as demand planning,
forecasting, purchasing, supply chain management, category management,
and cost management, That focus drives BI opportunities such as those shown
in Figure 22-1.
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The Impact of Industry, Competitors, and Company
Business Design on BI Opportunities (cont…)
Table 22-1
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The Impact of Industry, Competitors, and Company
Business Design on BI Opportunities (cont…)
Figure 22-1
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A General Overview of BI Opportunities
Business decisions also take place in the context of business processes, such
as management processes, revenue-generating processes, and operating
processes. Depending on the process and whether the decisions to be made
are strategic, tactical, or operational, different combinations of business
information and business analyses will appropriate. The general relationship
between business decisions and business processes in shown in Figure 22-2.
At the core of Figure 22-2 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.
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A General Overview of BI Opportunities (cont…)
Figure 22-2
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BI for Management Processes
The business information and business analyses used for fact-based decision
making range from information about the current status of enterprise or its
subunits, to historical information about past business performance that can be
used to predict future demand and guide process and quality improvement
efforts. Overall, the goal of the entire set of management processes is to
ensure the long-term success of the company, and BI has a proven track
record of helping companies make better decisions toward that end.
• Common Ways BI 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. BI typically can improve management processes
in several areas, among others:
 Planning and Forecasting
 Budgeting
 Performance Management, Process Improvement, Quality Management,
and Performance Optimization
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BI for Management Processes (cont…)
•
BI and Balanced Scorecards: Enabling Strategic Management
Over the past decade, business performance management (BPM) frameworks such
as the Balanced Scorecard have been adopted by a growing number of major
organizations. Although a number of other management tools had higher adoption
rates and higher satisfaction rates, the data suggest that BPM framework such as the
Balanced Scorecard may become a staple within large organizations.
To develop a Balanced Scorecard, one typically does a top-down mapping between
business drivers, business strategies, and value-driving business processes. One
then selects financial and nonfinancial performance measures for those value-driving
processes, with the measures drawn from four perspectives: financial performance,
performance for the customer, internal operating performance, and learning.
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BI for Management Processes (cont…)
•
BI and Management Accounting: Improving Operational and Financial
Performance
The principal type of information, which was used for planning and controlling
systems was standard cost information, which was used for planning and controlling
the productivity and efficiency of internal processes. Figure 22-3 shows a
representative managerial accounting framework, which would note is concerned only
with costs and not with costs and not with the broader set financial and nonfinancial
information found in early managerial accounting systems and much needed today.
To move beyond these limitations, we need to provide a modern conceptual
framework for managerial accounting information, such as the one shown in Figure
22-4.
The BI products from which the MAIF can be constructed are proven and widely
adopted. So are the management and technical methods for doing so. With a
customized MAIF in place, an organization is then positioned to truly leverage
managerial accounting information to improve revenues, reduce costs, or both. This
can be accomplished by deploying BI applications and incorporating their use into the
key management and business processes that drive revenues and/or costs. An
example of the range of such applications in shown in Figure 22-5.
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BI for Management Processes (cont…)
Figure 22-3
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BI for Management Processes (cont…)
Figure 22-2
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BI for Management Processes (cont…)
Figure 22-5
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BI for Revenue-Generating Processes
Some of the earliest uses of BI were driven by the desire to improve revenue
generating processes. Simply put, companies wanted to understand their
customers better, retain their best customers, and sell them more product or
services. By building on the information presented in Figure 22-3, we see that
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. Some of common ways BI is used to
improve revenue-generating processes.
• Marketing Analysis
By marketing analysis, we mean the analytical activities in which companies engage
in order to understand such revenue generation fundamentals as who buys their
product or service, when they buy the products, where they buy the products, how
often do they buy the products, what price do the pay, how do they respond to
promotional offers, which products or services generate what percentages of
revenues, what are the sales trend for each product or service, which product or
services tend to be purchased together, and so forth.
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BI for Revenue-Generating Processes
•
Customer Segmentation
With the ability to sift through millions of detailed records about business transactions
with customers, companies have gained the ability to substantially extend the practice
of customer segmentation.
•
Advertising, Direct Marketing, and Public Relations (PR)
Aside from effective presentation, advertising, direct marketing, and PR campaigns
are about message, and BI provides an effective means of understanding the
intended recipients of a given message. Further, BI can provide the ability to measure
the effectiveness of advertising and direct marketing that is directed toward increased
revenues.
•
Channel Management
The nature of channels varies by industry and position within the value chain. For
product retailing and retail services, channels used to mean stores or branches and
sometimes mail-order and/or telephone channels.
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BI for Revenue-Generating Processes (cont…)
•
CRM
CRM means different things to different people. To companies that want to improve
their revenue generation processes, CRM may have both a BI appeal and a
transactional system appeal, and there is an associated idea of a centralized
repository (database) of customer information that can be used for cross-selling
and/or up-selling customers.
•
Category Management
The fundamental principle of category management is that retailers want to optimize
contribution margin per cubic foot of retail shelf space. IT in general and BI in
particular have dramatically advanced the state of the art in category management.
Category management BI also can be used to optimize supply chain performance,
which of course improves both margins and profits.
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BI for Operating Processes
The need for relevant business information about operating performance is
even greater when one considers the trend toward extended enterprises and
competition based in the performance of constellations of organizations up and
down the entire value chain.
• Common Ways BI is Used to Improve Operating Processes
By bringing together multidimensional information about all aspect 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.
To frame the discussion, we are concerned here with the highlighted operating
processes, shown in the simple value chain representation shown as Figure 22-6.
Here are some common ways you can use BI to improve operating processes:
 Cycle time reduction
 Risk reduction
 Quality improvement
 Service level improvement
 Asset reduction
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BI for Operating Processes (cont…)
 Purchasing
 Order processing
 Benchmarking and process improvement
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“The real competitive problem is laggards versus challengers, incumbents versus
innovators, the inertial and imitative versus the imaginative…. At worst, laggards follow
the path of greatest familiarity. Challengers, on the other hand, follow the path of greatest
opportunity, wherever it leads.”
-Gary Hamel and C.K. Prahalad, Competing for the Future
End of Slide
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