Important Ways Business Intelligence Can Drive Profit Improvement 22 nd Meeting

2. Important Ways Business Intelligence Can Drive Profit Improvement 22nd Meeting Course Name: Business Intelligence Year: 2009

3. Source of this Material (1). Williams, Steve & Williams, Nancy (2007). The Profit Impact of Business Intelligence. Chapter 7

4. 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.

5. The Impact of Industry, Competitors, and Company Business Design on BI Opportunities (cont…) Table 22-1

6. The Impact of Industry, Competitors, and Company Business Design on BI Opportunities (cont…) Figure 22-1

7. 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.

8. A General Overview of BI Opportunities (cont…) Figure 22-2

9. 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

10. 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.

11. 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.

12. BI for Management Processes (cont…) Figure 22-3

13. BI for Management Processes (cont…) Figure 22-2

14. BI for Management Processes (cont…) Figure 22-5

15. 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.

16. 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.

17. 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.

18. 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

19. BI for Operating Processes (cont…) • Purchasing • Order processing • Benchmarking and process improvement

20. End of Slide “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