One of the hottest trends in recent years has been the increasing use of outsourcing. Business process outsourcing has impacted many functions, including customer service, finance, HR and IT. Yet, IDC research shows that the use of outsourcing in the search for business efficiency leads to unexpected side effects. Companies with a fragmented set of systems, both internally run and outsourced, have lost the ability to monitor the business. This deficiency leads to initiatives to improve visibility into business performance across these operational systems. Hence, the imperative to outsource business functions creates a more intense need for business performance management (BPM). With improved visibility into the business, it is time to look at improving the decision processes for taking corrective action, i.e., optimization.
There is general consensus that business intelligence (BI) is moving up on the list of priorities for IT organizations. The business drivers are also generally understood: the need to reduce complexity caused by implementations of multiple systems, the need to meet compliance guidelines and the need to monitor business performance for greater accountability.
However, these generalizations are true only up to a point. Though business intelligence and business performance management are gaining more attention, there are large groups of companies where BI and BPM are not priorities. What differentiates those organizations?
IDC recently conducted a survey of 100 senior business and IT executives as part of its ongoing Services and Software Leading Indicators research service. When asked to list their organization's biggest focus areas for IT investment, 52 percent of respondents listed business performance tracking/management dashboard as their top priority while others did not list this area at all. Why were the investment priorities so different from one organization to another?
To answer this question, cluster analysis was used to divide the survey population into two groups of nearly equal size, based on their responses to a question on IT priorities. IDC calls one group visibility in light of their prioritization of BPM. IDC calls the second group efficiency because of their priority to invest in systems that automate business functions and improve the IT infrastructure - whether run internally or outsourced.
In the business/IT efficiency stage, an organization has the following objectives:
- Invest IT dollars to improve a specific business function (customer service, marketing, supply chain).
- Look to leverage outsourcing where possible (both business functions and IT) to gain efficiencies and cost savings. In the business visibility stage, an organization has very different objectives:
- Invest IT dollars in order to monitor the business (business performance management, real-time) to improve employee productivity in support of a sense-and-respond organization.
- Available efficiencies via outsourcing are already being realized.
In other words, an organization's readiness for business performance management can depend on where they are on the path from efficiency to visibility.
The Efficiency Group
The efficiency group looks to invest IT dollars to improve a specific business function such as customer service, marketing/sales performance, human resources and supply chain. However, the biggest area of investment is improving the IT infrastructure (PCs, servers, LANs, storage, etc.).
Yet the search for greater efficiency does not stop with improvements to systems run internally. Outsourcing represents an attractive approach that promises further savings to the bottom line. Therefore, the business/IT efficiency group seeks to leverage outsourcing more extensively than they have done previously in order to gain efficiencies and cost savings.
What else can we learn about the demographics of this business/IT efficiency group? There is no distinct vertical industry pattern to differentiate this group from the business visibility group. Companies in this group were somewhat smaller, with a median annual revenue of less than $650 million - as compared to $800 million for the companies in the visibility group. The most striking difference between the groups was the level of commitment to outsourcing.
For example, only 4 percent of the efficiency group is currently outsourcing some aspect of customer service, as compared to 41 percent in the visibility group. In the case of nearly every business function, the efficiency group has a lower existing commitment to outsourcing than the visibility group. Hence the lowest hanging fruit for business improvement is perceived to be a pursuit of available efficiencies via business process outsourcing.
The Visibility Group
The business visibility group is pursuing a different strategy for IT investment. These organizations have already gone the route of gaining incremental efficiencies for specific functions, outsourcing wherever they felt they could get a cost advantage. However, this strategy has the unfortunate side effect of making it more difficult to track information about the business. The logical next step is to integrate the information captured by these systems, both internally run and outsourced. Hence, this group's leading priority for IT investment is business performance management, e.g., tracking the business via a management dashboard. The goal is to monitor the business in order to gain a better understanding of how it is performing against its goals and targets.
Responses to other questions provided more detail on this picture. When asked to describe the top three improvements needed to be made to the IT organization in support of the business, 59 percent of the visibility group mentioned real-time/near real-time monitoring of business performance. Only 32 percent of the efficiency group agreed with this. The visibility group also understood that data integration was the critical success factor for this strategy - 60 percent of this group looked to improved, integrated access to relevant information/data as one of their top improvement targets.
How will the integration be achieved? The visibility group was more inclined than the efficiency group to define their primary integration strategy as build and integrate in house - 21 percent versus 8 percent. They were also less inclined to believe that the solution to integration was to buy a suite from a single product vendor. This may reflect a growing recognition that applications from heterogeneous sources are a reality. In the case of enterprise application suites, companies have tended to proliferate instances, creating another level of complexity. The most popular integration choice among both groups is a hybrid approach: buy best-of-breed products and integrate, selected by 52 percent in the efficiency group and 46 percent in the visibility group.
In summary, the visibility group, already significantly committed to outsourcing, is responding to the issue brought about by the proliferation of multiple systems. The problem is made more challenging by the fact that not all of these systems are within the business. It is reasonable to believe that the efficiency group will be in the same position in a few years, once they have completed their outsourcing and functional efficiency initiatives. Thus, the next logical step after the pursuit of efficiency is the pursuit of visibility. One can surmise that the next step after visibility is optimization, as organizations will seek to coordinate a consistent type of response to observed patterns in the business.
The Next Stage
Providing greater business visibility is not the end of the road. When anomalies are discovered, you need to be able to act on the information. This can involve root-cause analysis and other more advanced analytical techniques beyond reporting and a dashboard display. This is where decision-centric BI comes into play, guiding knowledge workers through a process that can yield an optimal decision. Predictive analytics has a role here in helping to anticipate trends leading to actions that can avert an unfavorable outcome. Ultimately, the goal is to incorporate analytics within a business process (i.e., intelligent process automation).
The role of analytics for improving and optimizing decision processes was emphasized at IDC's recent Business Intelligence and Business Process Forum. The events attracted an audience from a variety of industries such as financial services, government, education, communications and manufacturing. The goal of the conference was to share strategies on the use of business intelligence to automate repeatable, operational decisions. Many types of applications were shown that automated repeatable, operational decisions.
Here are some insights gleaned from the event, as companies sought to move from visibility to the optimization of business performance:
- Making a prediction is only one step toward evaluating decision alternatives and ultimately automating a decision. Larry Rosenberger, vice president, Research and Development, Fair Isaac, noted that sending a predictive score to a call center agent could only provide a "grovel index," hinting at the degree to which the agent should respond to a customer's demand. This approach is not directive, and you need specific recommendations in order to achieve consistency in operational decisions.
- Automating operational decisions is not a new discipline. Operations research has pioneered this approach. Thomas Cook, formerly president of American Airlines Decision Technologies, pointed to areas such as yield management where measurable return on investment could be achieved. Though the use of operations research in the airlines industry is well known, it is not at all limited to that industry. Loren Troyer, director of order fulfillment, Commercial and Consumer Equipment Division, John Deere & Company, described the use of analytics and operations research for setting inventory levels for parts - savings that go directly to the bottom line.
- The incorporation of intelligence in a business process often requires integration with major packaged applications. Managers from nVidia and Avid spoke about their ability to monitor business performance in conjunction with their investment in SAP. Ultimately, analytics must work with the applications that are already in use to automate business processes.
- Support for decision-centric BI must be mindful of the varying needs of different end-user constituents. Jonathan Rothman, director of data management for Emergency Medical Associates, a New Jersey physicians group, explained how support for operational decision making based on Business Objects software is delivered to his user base of doctors and other medical staff. Delivering the right information to the right people at the right time is a strategy that in the case of EMA supports real-time, medical emergency decisions.
- Decision-oriented BI applications often need to integrate location information along with other business data. Mark Snow of Cox Communications described using analytics with location technology to make decisions on where to extend the firm's cable network -- decisions that have significant revenue impact. Krishnan Vijayaraghavan (Qualcomm) described the monitoring of real-time and near real-time operational performance. In a leading-edge example, they are monitoring the location of vehicles using GPS technology in order to direct optimized refueling.
How can you decide where to begin? Focus on a decision that has significant and measurable consequences to the business. Then put the metrics in place to measure your progress and enable refinements.
The pursuit of efficiency often involves outsourcing, but the resulting complexity of internally and externally run systems creates the need for greater visibility. IDC research shows that satisfying this need often motivates initiatives in business performance management. Before beginning a performance management project, assess your organization's current position on the path from efficiency (including outsourcing) to visibility to optimization.
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