What does not knowing mean for a company? This question gets to the heart of information and its value to the enterprise. Not knowing the right information prevents executives and managers from gaining insight into the business and making informed decisions that increase revenues, contain costs and initiate new business opportunities. When companies get real, bottom-line value from their information assets, they find new insights about customers, products and business operations and act on them to improve business performance. Companies gain a competitive advantage when their executives don't accept not knowing as a reason for not finding out.
Most executives and managers feel burdened by too much information, yet the real problem isn't wrestling with the volumes of information that besiege us; it is finding information we can use to improve business performance when that information is hard to find.
Today, only a few companies use hard-to-find information as a strategic asset for improving business performance. Hard-to-find information is both an important cause of not knowing and an untapped source of value in every company. Every executive needs to ask: How can I get the information that will help managers and executives improve business performance and produce value for the company, and is the effort to get that information worth it?
Hard-To-Find Information Can Help Improve the Bottom Line
Companies that use their information assets to help decision-makers act to improve business performance use business intelligence (BI) technology. For them, BI is a strategic technology for business improvement BI is used with the intent, commitment and dedication to solving business problems and improving business results. The achievements of these companies are hard-won and provide advantages that they usually keep from their competitors.
However, there are published reports of companies that use information-driven initiatives to get real results. These reports show what can be achieved when hard-to-find information is used. In 2001 alone, 3M generated more than $350 million in worldwide savings. Over the past few years, Lowe's Home Improvement has achieved more than $150 million in savings or revenue gains due to these initiatives and annual earnings growth of 20 to 25 percent. Wells Fargo Home Mortgage (WFHM) achieved loan default rates half those predicted by Moody's and Standard and Poor's for the industry, cut expenses by $250,000 and established new mortgage insurance business partnerships that generate more than $30 million in revenue. In one year, Harrah's Entertainment, Inc. achieved same-property sales growth of 14 percent, an increase in cross-market visitations of $250 million and an incremental flow to the bottom line of $50 million. Banco Espírito Santo (BES) reduced customer attrition by 15 to 20 percent and increased bottom-line profits by 10 to 20 percent.
As these examples show, information assets and the hidden data they contain are a treasure trove of data that, when made available, can be used by executives and managers to improve business results. This is an important lesson, one that eludes most companies today. When companies don't use their information assets as 3M, Lowe's, WFHM, Harrah's and BES do, they accept not knowing as business as usual.
Clearly, there is something different about information-driven companies that act decisively to extract value from their information assets.
What Sets Companies that Get Value from Information Assets Apart
The first difference in information-driven companies is that they believe in the value of information. Most companies make operational information (such as finance, workload and performance data) available to managers and executives to help run the business. Providing operational information for consolidation and analysis is an important step for sharing information across the enterprise. However, obtaining hard-to-find information that leads to significant bottom-line results is more powerful. This is analytic excellence, and it only occurs in companies imbued with a culture that values information.
The second difference is that these companies work to get the information they need. Information that is structured around business units and operations hides data that provides an enterprise-wide perspective. Enterprise-wide information helps executives and managers understand difficult business issues such as customer profitability, product profitability and risk mitigation. Enterprise-wide insights are needed for executives and managers to take actions that improve business results when those actions must cross business unit boundaries. Working to get this information, even though it can be difficult to find, is another mark of analytic excellence.
The third difference in information-driven companies is that they invest in an information infrastructure. They invest in technology to get the information they need and make it available. Then they track their performance to be sure they get the business improvements they want! These companies know it is solving the business problem that is important, not the technology itself. That said, Harrah's, for example, does have an IT budget 20 percent greater than its competitors.
The investment costs are for data storage, accessibility and availability, and the tools and resources to integrate and analyze the data. These are critical for successfully finding hidden information that can provide insight into business operations and help managers make decisions that improve business performance. Technologically, data warehousing and BI are the choice for information integration, analytics and visualization. Storing data does require space the average data warehouse doubles in size every 18 months and many organizations are approaching petabyte-sized data warehouses.
Ongoing investments of this magnitude only make sense when business advantage is a result. Lowe's improved its store performance and sales, WFHM reduced loan defaults and risk, Harrah's increased customer sales and cross-property visits, and BES reduced customer attrition. It is using analytic excellence to improve the business that is the heart of the matter, and several challenges must be faced to do so.
Challenges that Need to be Faced to Achieve Analytic Excellence
Believing in the value of information, working to find the information needed and investing in an information infrastructure are all important, but they are not enough. Too many data warehouse and BI initiatives fail or don't provide the value expected. There are several organizational challenges that create obstacles to analytic excellence that must be faced:
Exact benefits are not known. Because the information needed to solve problems important to the business is hidden, there is no way to know in advance the exact impact of the information on the bottom line. Too many questions remain unanswered: How much will a particular business result improve? What will be the value of the improvement to the company? When will the improvement begin to take effect?
Exact costs are not known. Exact project plans and costs to find the information needed and make it usable cannot be estimated accurately either. This only exacerbates the unanswered questions mentioned earlier and adds new ones about resource and cost requirements.
Actions that transcend organization boundaries can be required. The toughest challenge by far is to turn information into action when the actions required are beyond the authority of one business unit or organization. BES, for example, had to solve customers' problems when the customer was served by several different product and service organizations. Lowe's had to improve store performance and sales even though the actions affected category managers, buyers and store management. Which business unit is responsible when there are several involved and the responsibility for action is unclear?
The fundamental obstacle to using hidden information successfully is the company's organization structure. A focus on the needs of business unit managers does not address enterprise-wide or cross-business unit problems well.
Improvements in business unit operations that affect the bottom line are addressed by business reengineering, back office and supply chain improvements, and CRM. Cross-business unit improvements remain a fertile area for improving business results, and initiatives to use information to improve the bottom line need to be sponsored by executive management. The decision to invest in projects that get business value from information assets is a strategic executive decision. These initiatives require continued executive attention. Because the focus is on strategic business issues and solving business problems, actual performance and results are tracked to enable executive management to see improvement.
It is the solving important business problems, not the technology itself, that produces the real value. Establishing the practice of finding and using information is the first step toward creating a company dedicated to acquiring solid information and putting it into action. An information-driven company is one that finds and uses information to solve business problems. Using information to drive business improvements is what sets Lowe's, WFHM, Harrah's and BES apart from other companies.
Surviving in a Dynamic Business Environment
An information-driven company can identify changes in a dynamic business environment and take actions to adapt. As data-driven decision making becomes entrenched in the business, data availability, storage management and backup and recovery become critical for supporting decision-makers as they run the business. A new business process is required to continually provide new insights into business operations that help executives and managers make decisions that improve business performance. This process establishes a team of business experts and BI professionals to execute a five-step data discovery and business improvement process as follows:
Focus. A business pain point that needs improved business results is chosen. Executive management commits to the initiative and sets targets for the improvements expected.
Find the hidden information. BI professionals work with business experts to find the hidden information that provides insight to decision-makers and informs actions to deliver the expected improvement in business results.
Monitor improvements with dashboards and metrics. It is essential that metrics and dashboards are developed or enhanced to monitor performance so that business and IT management focus more on improved business performance than on finishing the project and moving on to other activities.
Measure the payback. While metrics and dashboards monitor performance, it is also critical to translate the improved performance into its bottom-line impact. Turning information into action requires business managers to act on the new information and they must be empowered to do so. Companies struggling to become data-driven often fail because this step is missed. When the payback isn't an important part of the process, executive interest lessens and any operational impact is diffused.
Do it all again. The key point is that it never ends there will always be new business pain points to address. It is important to move on to the next business pain point and start again. Keeping a core group of BI professionals as a BI competency center focused on helping the business improve operations and results is a cornerstone for success.
Companies can gain bottom-line value from information, but it is not easy. Perhaps the best example of how important it has become is this: Lowe's top competitor (and the leader in this market segment) is Home Depot, which announced in September 2002 that they have initiated a data warehousing effort of their own. Only time will tell if Home Depot and the many other companies wanting to improve their business results with BI successfully overcome all the challenges to success and get it right.
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