BI - Introduction

Leading Up to Business Intelligence

So, exactly what does “business intelligence” mean? The authors could provide a simple, tool-centric definition, but we have decided to give you the context that can help you make the most sense of what BI is, why it’s important, and what forces are driving its popularity.

Observations from Steven R. Covey’s book, The Seven Habits of Highly Effective People, show that an airplane that travels from Boston to Los Angeles is off-course for 90 percent of the journey, but the airplane successfully reaches its destination because the pilot makes continuous course corrections based on instruments that monitor the flight and provide feedback.

Much like an airplane, if a company is not steered, it will inevitably be off course more than 90 percent of the time. Most companies have a goal or destination and, to gain necessary business insights, use instruments or measurement tools to help monitor and analyze past, current, and projected future performance. Those insights give managers the information they need to make changes, or “course corrections.” Insights come in the form of reports, scorecards, KPIs, dashboards, and other information vehicles, driven by a concept called “trusted data.”

These scorecards, dashboards, KPIs, reports, and other tools can help a company see the relationships between their business and its highest priorities and strategies. Decision-makers want the visual experience that dashboards offer so that they can feel as if they’re driving their company to its destination.

Fortunately, airplanes are predictably more successful at reaching their destinations than companies are in successfully reaching their goals. Is this success due to the science and precision of the measurement tools used in the aviation industry?

Over the years, weather conditions, patterns, and other variables that affect flight and direction—originally considered unmeasurable—have become increasingly measurable. New instruments were developed and produced to give pilots precise location coordinates. Now the same is occurring for businesses. Douglas W. Hubbard, in his book How to Measure Anything; Finding the Value of “Intangibles” in Business, lists a few real-life examples of variables that companies previously chose not to measure because they were presumed to be unmeasurable, including:

• The flexibility to create new products
• Management effectiveness
• Productivity of research
• Risk of bankruptcy
• Quality

Accounting professionals and academics, including Robert S. Kaplan, Baker Foundation Professor at Harvard Business School, have developed methodologies for measuring many elements in business that were previously thought of as unmeasurable in the performance of companies. Kaplan and David Norton proposed the concept of a Balanced Scorecard (BSC) as a means of measuring the performance of a business strategy. The BSC encapsulates four main areas that capture performance metrics:

• Financial . Measures of profitability and market value to satisfy owners and shareholders
• Internal business processes . Measures of efficiency and effectiveness for producing a product or service
• Customer satisfaction . Measures of perceived quality, low cost, and other related factors to show how well a company satisfies its customers
• Innovation and learning . Measures of a company’s ability to develop and utilize human resources to meet strategic goals in the present and future

The preceding four areas can be simply referred to as Finance, Operations, Sales, and Human Resources or—to simplify even further—FOSH metrics.

Additional perspectives can include community and social impact, government relations, and others. These measures of success are sometimes called critical success factors. The BSC and other methodologies, such as Six Sigma,^[1] help companies follow the pattern shown in the following illustration.

A company vision statement or mission statement is important for getting a company to focus on what makes it successful. Someone said, “You must stand up for something, or you will fall for everything.” The vision statement helps a company filter which voices it will listen to, because the vision defines its purpose and reason for existence. Typically, upper management communicates the vision or mission statement to the company.

A strategy is a set of policies, procedures, and approaches to business that is intended to produce long-term success. The strategy reflects the mission of the company.

The mission is also used to develop measurable objectives. When established, objectives help determine KPIs, which are quantifiable measurements that reflect critical success factors.

KPIs allow for monitoring of metrics that are aligned with principal objectives. Then managers or employees can analyze issues that surface from data that indicate conditions that need more attention (once called “exception reports”). Action can then be taken to “correct the course” so that the company reaches its destination.

For illustration purposes, the following example shows how an organization designs a KPI, turning data into actionable information:

• Mission: . For Mtn. Bike Company to design, build, and market bikes to meet the needs of the mountain bike community
• Strategy: . To improve Mtn. Bike customer’s satisfaction
• Objective: . To increase repeat Mtn. Bike customer store sales by 20 percent
• KPI: . The number of quarterly repeat sales for Mtn. Bike customers

To achieve the objectives, the decision-makers in the company ask the following questions about the business:

• What has happened? (monitoring)
• What is happening? (monitoring)
• Why is it happening? (analyze)
• What will happen? (forecast based on analyzing)
• What do we want to have happen? (new hunches spurring new actions based on what you know)

Part of the problem when trying to arrive at the answers to these questions is that much of the data needed is in a raw format stored in line-of-business (LOB) systems and other disparate business areas. Chapter 3, explains how companies accomplish providing access to this data in a usable form.