Intelligent Economy

In the Intelligent Economy, the single most important factor separating success from failure is how we make, implement and learn from decisions. The key unit of analysis in this forum is the decision itself. So the question is: How do we make, implement and learn from decisions more effectively? Companies that excel in the Intelligent Economy are, de facto, great decision-makers, implementers and learners.

That's why I was fascinated to come across the recent article "Distortions and Deceptions in Strategic Decisions" by McKinsey consultants Dan Lovallo and Olivier Sibony. In the piece, they note that top decision-makers often do not base their decisions on "objective data and sound business judgment," particularly when the decisions are of an unusual or infrequent nature (like a large corporate M&A decision, for instance).

"Despite the enormous resources that corporations devote to strategic planning and other decision-making processes, CEOs must often make judgments they cannot reduce to indisputable financial calculations," the authors write. "Much of the time such big decisions depend, in no small part, on the CEO's trust in the people making the proposals...Behavioral economics teaches us that a host of human biases, such as overoptimism about the likelihood of success, can affect strategic decisions."

The authors go on to sketch out a series of "distortions" (overoptimism, loss aversion, overconfidence) and "deceptions" (misaligned time horizons between managers and corporations, career risk aversion issues that encourage managers to be too conservative in their decisions, executive bias toward trusted associates). Loss aversion (the tendency to "experience losses more acutely than gains") is particularly interesting. Behavioral research suggests that managers often won't invest in initatives or projects that might make sense for an organization (which carries a larger portfolio of projects) because they fear personal risks heavily and "tend to evaluate every option as a change from a reference point -- usually the status quo -- not as one of many possibilities for gains and losses over time across the organization."

Lovallo and Sibony propose that companies "come to grip with these patterns" by 1) becoming more aware of their predispositions toward biased decision-making and 2) implementing safeguards in their decision-making processes and corporate cultures that address these biases. Ultimately, the authors point out, it is critical to have a "culture of reasonably open and objective debate" and offer several approaches toward creating such an environment. The CEO's worst case is when his or her fellow decision-makers feel too restrained to speak their minds and fully engage in the discussion. That's a foundation for stupid and costly decisions.

Posted by Britton Manasco at 06:31 PM | Permalink | Comments (0) | TrackBacks (0)

Who's the fairest of them all? That's what Nucleus Research set out to find out when it interviewed 30 executives that had deployed BI solutions from various vendors. Among the companies it looked at and rated on the "ROI potential" of their products: Business Objects, Cognos, Hyperion, Microsoft, MicroStrategy, and SAS.

Several issues, according to a piece in Optimize Magazine, rose to the top as customers weighed their experiences with various vendors.

One was "comfort." Once companies have evaluated the technical capabilities of various products, they begin to look at "the people behind the technology," explains Kathy Quirk, research manager, Nucleus Research. "How easy are they to work with? What support options do they provide? How do they speak of their competitors? In one case, a company found two products that would suit its technical requirements, but went with the higher-priced tool because the vendor of that product had a better understanding of the company's business. In addition, the company tired of all the competitive bad-mouthing from the other vendor."

She also points to "vertical expertise," as a key decision criterion: "Industry-specific knowledge and guidance provide a faster path to ROI." Finally, she says vendors were assessed on their ability to weigh the competing demands of their clients. "In order to cater to two distinct sets of users, companies must strike a balance between experienced users' need for speed and the easy access and rich graphical features that will let new users join the BI nation," she concludes.

Posted by Britton Manasco at 09:42 PM | Permalink | Comments (0) | TrackBacks (0)

Employees in finance, sales, marketing, and customer support are the leading users of business intelligence applications, according to a new study by Ventana Research. The study suggests that customer-focused initiatives and operations are a key driver of today's analytical investments.

The research, sponsored by CMP Publications and Siebel Systems, was based on the responses of 437 executives -- 73% of whom were in IT organizations while 27% had line-of-business roles. "The main features respondents look for in BI solutions are simplified integration of data and metadata across multiple BI applications and central management of metadata," states Eric Rogge is VP and research director at Ventana Research in Optimize Magazine. "Stovepiped BI applications aren't acceptable. Companies stitch various BI applications together to weave larger information fabrics, creating a seamless, consistent view of the customer and other key business entities."

Further, he pointed to a growing interest in Operational BI. " It's not designed to support strategic planning, but to gather and analyze operational BI and deliver this actionable information to front-line workers," he explains. "Operational BI enhances corporate performance by improving day-to-day, minute-by-minute decision making and the performance of critical business processes."

The trouble is that that too many Operational BI applications are "addressed with a task-specific application to support a defined set of decisions. Unlike general-purpose BI tools used by business analysts, these point-solutions historically were created one at a time by in-house development teams, which often can't keep up with the organization's burgeoning need for information."

The demand is attracting vendors, of course. They promise to put together more comprehensive packaged applications -- some of which are already being deployed. Unfortunately, not everyone's happy with their deployment experiences. "Areas for improvement cited by study participants include shorter time to deploy, more interactivity, faster query performance, better data integration from multiple sources, and more complete customer views," noted Rogge. "Deployment times varied: About half of the respondents say it took longer than a year to deploy vendor-developed BI applications. A third said the deployments were available in less than one year."

Posted by Britton Manasco at 09:03 PM | Permalink | Comments (0) | TrackBacks (0)

I should've posted this a while back, but forgot. Hey, I'm human. That said, let's explore what all the fuss was about...

Trendpointe's Roger Meyer reports on the recent Competing on Analytics Symposium presented by Harvard Business School Press. He says that BI is evolving- from technology to strategy to brand attribute!

"The net takeaway of the symposium - aside from the lesson that if you can afford to hold an affair at the Metropolitan Club, you should - is that analytics can make a difference. The big remaining question is this: How far into the organization can you reasonably expect an analytics strategy to penetrate before running into a wall of resistance from people who just don't get it?"

The "Quick Takes" sidebar of Meyer's article contains a gem from Irving "Bubba" Tyler, the former CIO of Quaker Chemical: "I do have a problem with companies that miss the opportunity to use BI as part of their everyday process," he said. "You don't have to be a rocket scientist to contribute small but important incremental improvements. Every individual in a company is already making decisions."

Jim Davis, the chief marketing officer of SAS tells Meyer not to expect "analytics to march "out of the backroom and into the boardroom" in the next couple of months. "But the strategic power of business intelligence is more and more in the forefront of executive thinking -- even if they don't fully understand it."

Davis' view is that "we need to push out information to the greatest number of users in an organization and create a culture that bases strategy on fact-based decisioning." He suggests the creation of Business Intelligence Competency Centers which function as a central location and collective memory for driving and supporting an enterprise-wide information strategy, coordinating current efforts, and ensuring that information and best practices are shared throughout the organization.

Like any initiative requiring behavioral change, BI "implementations" are going to succeed or fail based on the human factor. As Laurence Haughton might say, you gotta get around the CAVE people.

BTW, another report on the symposium comes to us from the good people at BI Review. Read all about how P&G got analytics!

Posted by Christian Sarkar at 04:48 PM | Permalink | Comments (0) | TrackBacks (0)

One company that is certainly competing on analytics these days is Britain's supermarket giant, Tesco. The company gathers most of its data from its successful Clubcard. With 12 million cards in use in the UK, Tesco can closely watch what its shoppers are purchasing. It then explores linkages between the products people presently buy and the ones they might be persuaded to buy next. “We believe we have one of the largest databases anywhere in the world,” says Martin Hayward of dunnhumby, which handles data management for the company.

Now, Tesco is bringing these capabilities to America. The company plans to launch new stores on the U.S. West Coast in 2007 with a convenience-store format and intends to annually invest £250 million ($436.1 million) on the expansion. In fact, half of Tesco's shelf space is now outside the UK. It has already set up shop in China and other emerging market.

The interesting thing to watch, however, is how the company will use analytics to determine how to localize, not merely globalize, its offerings. As Bain consultants Darrell Rigby and Paul Rogers pointed out this week in the Wall Street Journal (subscription required), Tesco is among the retailers that now recognize "regional market share is even more important than national scale if they are to grow profitably. An industry built on the principle that success requires standardization is now widely adopting strategies of localization."

Why is that? As the writers put it:

"Local communities are growing more diverse in age, wealth, ethnicity and lifestyle. Moreover, many locales are saturated with big-box outlets and customers are rebelling...In response, some leading retailers are customizing their offerings to appeal to neighborhood tastes and needs. It hinges on getting the balance right: Too much localization can cause costs to spike; too much standardization leads to stagnation. Industry leaders have focused on understanding which elements of a business should be considered for localization, how costly they are to customize, and how much impact they'll have from store to store."

The authors point out that retailers can and should now leverage their knowledge -- drawn from shopper cards and other information gathering resources -- to better understand local tastes and desires -- just as Tesco has done in the UK and elsewhere. "Downtown Tesco Metro stores, for example, often provide sandwiches at lunchtime, and create prepared dinner meals for customers to pick up on their way home," they explain. "The smaller Tesco Express store concept aims to appeal to convenience shoppers with a mix of groceries and household items. No surprise, then, that Tesco Express provides a model for the American convenience stores that Tesco plans to open in 2007."

WalMart, which has experienced the real brunt of the Big Box Backlash also is onboard with this localization strategy. It calls its new initiative "Store of the Community," tailoring formats, products and other services to local clientele. For example, readymade meals are provided at stores near office parks; pharmacies are expanded at stores near hospitals.

"Through its Retail Link program, Wal-Mart works with suppliers to tailor store merchandise with precision," the Bain consultants write. "Retail Link provides both local Wal-Mart managers and vendors with a two-year history of every item's daily sales." Explaining the analytical aspects of Retail Link:

It then creates maps of local customer demand, indicating which merchandise should be stocked when and where. For example, Wal-Mart stocks about 60 types of canned chili in the U.S. but carries only three nationwide. The rest are allocated according to local tastes. Five years ago, Wal-Mart used just five planograms -- diagrams showing how and where products should be placed on retail shelves -- to adapt its soup selection to local preferences. Today, Wal-Mart and its suppliers use more than 200 finely tuned planograms and have raised soup's growth rate by several points.

As Rigby and Rogers conclude, such retail localization leads to "a host of operational advantages -- higher sales productivity, fewer markdowns and faster inventory turns, among others. Just as meaningful, localization has kicked off a new round of innovation among retailers, by forcing executives and store managers to ask, "What if each store was our only store?" Indeed, the growing momentum of localization is a counterpoint to the assumption that the world will be packed with indistinguishable big boxes selling the same goods and services to everyone."

Posted by Britton Manasco at 09:04 AM | Permalink | Comments (0) | TrackBacks (0)

Performance scorecards and dashboards have the potential to make actionable intelligence available throughout the enterprise -- at both executive and operational levels. Rather than lining up for reports produced by IT analysts, performanace management solutions of this kind make the insights and analysis available on-demand, according to Wayne Eckerson, director of Research and Services for the Data Warehousing Institute and the author of Performance Dashboards: Measuring, Monitoring, and Managing Your Business.

"Dashboards and scorecards can help transform underperforming organizations into high fliers," he writes in Intelligent Enterprise. "They help you focus on the key objectives and provide timely alerts so you can fix problems or exploit opportunities before it's too late. As the name suggests, dashboards provide controls that executives can use to change the direction of an organization and get everyone headed in the same direction. "

Eckerson sees multiple layers in a performance management system:

Monitoring layer -- uses dashboards, scorecards or alerts to notify users of material changes in the performance of processes and activities.
Analysis layer -- lets users drill down into exception conditions and explore a problem's root cause using multidimensional analysis.
Reporting layer -- provides users with detailed operational data (such as a list of defective parts and the customers who received them) so they can take prompt action.
Planning layer -- lets managers employ the output of their analyses to create plans, models and scenarios, which are then fed back into the monitoring layer and encoded as targets and thresholds.

Eckerson warns us that there are "pseudo performance dashboards" on the market today. The key weaknesses to watch out for: too flat (inadequate data or analytic capabilities); too manual (requiring too much manual data collection and massaging); and too isolated (misaligned with the strategic objectives of the enterprise).

As he concludes, "Performance dashboards and scorecards are part of a layered set of analytical applications running on a common set of BI services; they let users measure, monitor and manage the processes and activities for which they are accountable. Don't forget that the system is dependent on a robust data management architecture that delivers actionable information to users on demand. Dashboards and scorecards should translate the organization's strategy into objectives, metrics, initiatives and tasks customized to each group and individual in the organization."

Read the whole piece here.

Posted by Britton Manasco at 10:40 PM | Permalink | Comments (0) | TrackBacks (0)

The market for online travel and reservations is about as competitive as a market can be. How does one differentiate and grow? Well, Travelocity -- which is owned by Sabre Holdings and also happens to be the home of the gnome -- expects to grow 40% this year. One key element of its smart growth strategy: business intelligence.

Mamie Jones, SVP of strategic sourcing at Travelocity, tells Optimize Magazine that intelligence-driven actions have dramatically enhanced its marketing and merchandising. As she explains, "[W]e know that as we increase the personalization of our marketing and target campaigns to be more relevant to customers, booking rates can exceed as much as eight or 12 times the standard methods [of outreach]. Our data warehouse plays a key role in assuring that our merchandising efforts pay off."

Over the coming year, the company intends to move to "an active data warehouse" that enables much more real-time data gathering and action. "It will help us make better, more accurate, and automated business decisions and offer more timely updates to consumers. We want to use data to improve our products and learn more about which promotions, experiences, and services customers find valuable," she adds. "Our merchandising objective is to increase customer value and offer a richer online experience."

Finally, she contends that Travelocity's investments in its Teradata data warehouse platform competitively differentiate the company to some degree. "We think we're out in front on this," she concludes. "Having current data will help us retain customers by building loyalty and satisfaction. It also leads to better predictive modeling."

That should get the attention of Priceline, Expedia and Orbitz -- not to mention the airlines themselves. If it doesn't, they just might fall right out of the sky.

Posted by Britton Manasco at 05:10 PM | Permalink | Comments (0) | TrackBacks (0)

From time to time, we're going to take a look at what various vendors are up to in the Intelligent Economy.

In this case we'll take a look at HP's vision for Business Intelligence.

Yale Tankus spells it out for us in his blog. It's all about "synchronizing strategy & execution."

But how?

If you look beyond the sales-talk, you'll see there is flesh on the bones. HP has built an enterprise management framework around "process aware" business intelligence. Admittedly it's still somewhat IT-centric, but they're headed in the right direction, with partnerships with SAS, Cognos, and Hyperion among others.

What's going to tie all of this together in a manageable way? SOA. And according to HP, their SOA Manager product.

Let's watch the fun. The first step will be getting HP consulting up to speed on SOA. The challenge is not in the vision, but in the execution. The first integrator to get their talent base up to snuff is going to win this game.

Are you listening, IBM Global Services?

Posted by Christian Sarkar at 12:17 PM | Permalink | Comments (0) | TrackBacks (0)

Tom Davenport gives us 10 characteristics of businesses that compete on analytics. Can you think of more?

Tell us about it, or better, post them on his blog!

Posted by Christian Sarkar at 12:10 PM | Permalink | Comments (0) | TrackBacks (0)

Here's some "intelligent economy" thinking from the folks at MercerMC.

The article is called "Uncovering the Hidden Drivers of Demand" and presents a good example of how a data-driven business model works to maximize profit.

Here's how they describe it:

"It's not enough to know what makes demand happen. Executives also need to know the variable costs of acting on that information so that they can determine whether a given move will make or lose money. Linking the information about each demand driver directly to the variable costs of the business answers questions such as: If the brand matters most, where should we invest to improve brand equity and what will it cost? If external influencers matter, should we shift the marketing mix away from golf tournaments and toward better relations with trade journalists? If customer acquisition cost determines most of the lifetime value of that customer, how do we adjust our channel mix to ensure a profitable relationship? If customer service matters, what exactly merits investment--a shorter wait on the phone, the knowledge of call center representatives, or the speed of technician response? If the customer is asking for 24-hour delivery of a turbine, what are the economic implications?"

Decisions are based on data and "profound knowledge" (hat tip to the late, great Deming) to embed the key value drivers and business economics data into a graphical representation of a company's business model, an Interactive Strategy Model, they call it.

Here's a "dashboard" of how this might look:

Doesn't that make you want to read the whole article?

Posted by Christian Sarkar at 11:27 PM | Permalink | Comments (0) | TrackBacks (0)

Is "competing on analytics" a management innovation worthy of Gary Hamel's "standards"?

Let's see... in his article "The Why, What, and How of Management Innovation," Hamel says:

"A management innovation creates long-lasting advantage when it meets at least one of three conditions:

1. It is based on a novel principle that challenges the orthodoxy
2. it is systemic, involving a range of processes and methods
3. it is part of a program of invention, where progress compounds over time"

Check, check, check.

Looks like "competing on analytics" meets all three conditions.

Hamel lists a dozen of the most noteworthy management innovations from 1900 to 2000:

1. Scientific management (time and motion studies)
2. Cost accounting and variance analysis
3. The commercial research laboratory (the industrialization of science)
4. ROI analysis and capital budgeting
5. Brand management
6. Large-scale project management
7. Divisionalization
8. Leadership development
9. Industry consortia (multicompany collaborative structures)
10. Radical decentralization (self-organization)
11. Formalized strategic analysis
12. Employee-driven problem solving

Losing out are the following:

- Skunk Works
- account management
- business process reengineering
- employee stock ownership plans.

Says Hamel: "There are more recent innovations that appear quite promising, such as knowledge management, open source development, and internal markets, but it’s too early to assess their lasting impact on the practice of management."

Let's add "competing on analytics" to the list.

The Intelligent Economy is, of course, not just about management innovation. Rather, it's about the process of continuous innovation - sometimes incremental, sometimes radical - with a fundamental focus on results. Not simply measurement, but the right measurements, often in real time... Decisions made not just on data, but on data models (David Maister has one we'll ask him to share with us one of these days).

Now let's apply this notion (competing on analytics) to every field, from branding to business activity management, from communities of practice to talent development, from physical (geographic) clusters to online global ecosystems.

Tom Davenport, you have a winner.

Posted by Christian Sarkar at 10:03 PM | Permalink | Comments (0) | TrackBacks (0)