Thursday, September 15, 2005

Business intelligence

Business intelligence (BI) is the process of gathering information in the field of business. It can be described as the process of enhancing data into information and then into knowledge. Business intelligence is carried out to gain sustainable competitive advantage, and is a valuable core competence in some instances.

Information is typically obtained about customer needs, customer decision making processes, the competition and competitive pressures, conditions in the industry, and general economic, technological, and cultural trends. Every business intelligence system has a specific goal, which is derived from an organisational goal or from the vision statement. Goals could be short term (e.g.: quarterly numbers to Wall Street) or long term (shareholder value, target industry share / size etc).

Industrial espionage is a type of business intelligence that uses covert techniques. There is a gray area between "normal" business intelligence and industrial espionage.

Business performance management is a software oriented business intelligence system that some see as the new generation of business intelligence though the terms are used interchangeably by most in the industry.


The term was first used by Gartner and popularized by analyst Howard Dresner.

The first probable reference to Business intelligence is made in Sun Tzu's "Art of War" where he claims that to succeed in war, you should have full knowledge of your strengths/weaknesses and full knowledge of your enemy's strengths/weaknesses. Lack of either one might result in defeat. BI is the art of wading through tons of data overload, sieving through data and presenting information - both internal (from operational systems) and external (market intelligence) - on which management can act or build strategies.

Metrics /Key Performance Indicators

BI uses Key Performance Indicators (KPI) to assess the present state of business and to prescribe course of action. More and more organisations are moving towards faster availability of data. Previously data usually was available only after a month or two, which might not be the best idea if you want to hit Wall street targets. Of late, several banks have tried to move from availability of data at shorter intervals and lesser delays. For example, in businesses which have higher operational/credit risk loading (e.g.: Credit cards, Wealth management), Citibank has moved onto a weekly availability of KPI related data or sometimes a daily analysis of numbers. This means that data should usually be available within 24 hours at most times, necessicitating automation and the use of IT systems to achieve this.

So what are metrics / KPIs anyways? How do I get started?

To verify the design of the initial system, we could ask the following questions of every strategic initiative:

Goal Alignment queries:

  • What is the strategic goal of the organization that is being addressed by this particular activity?
  • What organizational mission/vision does it relate to?
  • Do we have a hypothesis as to how this initiative will eventually improve results / performance (i.e. a strategy map)?

Baseline queries:

  • What is the existing level of performance? Do we know or have the capability to know (monitoring capability)?
  • Are we collecting this data and storing it somewhere?
  • What are the statistical parameters of this data, e.g. how much random variation does it contain? Are we measuring this?

Cost and risk queries:

  • What is the existing cost of present operations?
  • How much will that increase when we go ahead with the initiative?
  • What is the risk that this cost will be exceeded or achieved? Have we performed a similar sensitivity analysit on this?
  • Is the money being spent on this presebt initiative the best use of the funds, or is there a better alternative usage?
  • What is the risk that the initiative will fail? Has this assessment been included in the planning?

Customer and Stakeholder queries:

  • Have you listed all the communities of interest that have a stake in this present initiative?
  • Who are the kinds of customers/stakeholders who will benefit directly from this initiative? Who will benefit indirectly? What are the quantitative / qualitative benefits?
  • Is the specified initiative the best way to increase satisfaction for all kinds of customers, or is there a better way?
  • How will we know that the initiative benefits these customers?

Metrics related queries:

  • What metrics will be used to define the benefit?
  • Are these the best metrics? How do we know that?
  • How many metrics need to be tracked? If this is a large number (it usually is), what kind of system are you planning to use to track them?
  • Are the metrics standardized, so they can be benchmarked against performance in other organizations? What are the industry standard metrics available?

Measurement Methodology related queries:

  • How will the metrics be measured? What methods will be used, and how frequently will data be collected? Are there any industry standards for this?
  • Is this the best way to do the measurements? How do we know that?

Results related queries:

  • How can we demonstrate that this strategic initiative, and not something else, contributed to a change in results?
  • How much of the change was probably random?