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BI & BI STRATEGY
-profit
The Challenge of Formulating Business Intelligence Strategy
Pick up any business newspaper or periodical these days and you’re likely to find an article about big data or an advertisement about cognitive business—or both. These concepts are positioned as if they represent big advancements, and it is true that there are new types of data for businesses to leverage using new kinds of analytical tools. But if we drill down below the surface, the business benefits of big data and cognitive business are the same benefits that have been delivered by business intelligence (BI) for at least 15 years. From a business perspective, BI has always been about leveraging business information, business analyses, and decision support to improve profitability. The business benefits of BI may be couched in different business terms, such as “ customer intimacy ” or “ supply chain agility ” or the like, but there has to be a connection between achieving those things and incremental profitability. Otherwise, it is economically impossible to achieve a return on investment (ROI). So the strategic challenge for BI has always been to figure out how to leverage BI in the context of the core business processes that drive business results. We can now add the challenge of figuring out how to leverage stored digital content such as photos, texts, location data, music files, and other newer forms of data — which is the core of what is new about big data and cognitive business. That having been said, the business-driven BI strategy formulation methods described in this course apply equally well to traditional data and to big data. With this in mind, we’ll use the term BI to include leveraging the new types of digital content known collectively as big data. Where appropriate, we’ll also discuss big data and cognitive business as specific concepts. As we explore the strategic challenges for BI, the perspective we’ll take is a business-driven perspective. Many smart people have written about the technical side of BI—about how to move data from wherever it starts into an environment where it is available for BI, and subsequently delivering business information, business analyses, and decision support to the business people responsible for achieving business results. Our focus is on the business side of BI, because that is where the ROI is actually created. We can think of the
technical side (covered later on as part of Data Integration and Analytics) as creating an information asset, and the business side as leveraging the asset. From a general management perspective, pursuing BI-enabled business improvement opportunities is largely about designing the asset, creating it, and using the asset within and across the company to generate incremental profits. Accordingly, a business-driven BI strategy must address those topics. To formulate a BI strategy, it helps to have a common understanding of what BI is. When we talk with business leaders, managers, and analysts about their BI opportunities, the picture that emerges is of BI as a multi-faceted business improvement tool kit. The specific tools include reports, scorecards, dashboards, multidimensional analyses, ad hoc analyses, advanced analytics, predictive analytics, and alerts. Accordingly, BI can be used in many different ways to achieve many different business purposes. In the course of formulating and executing BI strategies and program plans, even successful companies struggle in two key areas when it comes to BI: BI Strategy : understanding how they can leverage BI in core business functions such as marketing, sales, customer service, operations, distribution, supplier management, cost improvement, and financial management; and BI Program Execution : effectively prioritizing, aligning, and executing the diverse workstreams that are critical for achieving an ROI, including BI applications development, integrating BI applications into targeted business processes, and managing changes in how information and analyses are used to inform high-impact business decisions. Essentially, it has been seen that BI can deliver competitive advantages and substantial economic benefits, but only if companies overcome these commonly-encountered challenges. There is no shortage of excellent guidance about BI technical methods, or about BI value propositions in the abstract. What is in relatively shorter supply is experience-based information about the business side of BI—including the strategy for leveraging BI for profit improvement and the enterprise approach to executing the BI strategy. Further, there is a need for managers to fully understand that BI initiatives are really business initiatives that require business units to change how they use information and analysis to drive and improve business results—particularly profits. From a business perspective, BI has always been about leveraging business information, business analyses, and decision support to improve profitability. The business benefits of BI may be couched in different business terms, such as “ customer intimacy ” or “ supply chain agility ” or the like, but there has to be a connection between achieving those things and incremental profitability. Otherwise, it is economically impossible to achieve a return on investment (ROI). So the strategic challenge for BI has always been to figure out how to leverage BI in the context of the core business processes that drive business results. We
is in relatively shorter supply is experience-based information about the business side of BI—including the strategy for leveraging BI for profit improvement and the enterprise approach to executing the BI strategy. Further, there is a need for managers to fully understand that BI initiatives are really business initiatives that require business units to change how they use information and analysis to drive and improve business results—particularly profits.
Introduction to Business Intelligence Strategy
This reading activity aims to advance the reader’s understanding of BI and to introduce proven practical methods and frameworks for: Determining the strategic importance of BI in an industry and company; Identifying specific ways that BI can be leveraged to improve specific business processes and to automate and enhance business performance management techniques; Documenting and prioritizing an enterprise and/or business unit portfolio of BI opportunities; Articulating and documenting business-driven BI requirements; Identifying business and technical readiness gaps, risks, and barriers to success; Identifying typical execution challenges; Understanding the key BI program execution workstreams; and Understanding options and tactics for organizing and executing enterprise BI initiatives.
The Personal Face of Business Intelligence
One way to develop a useful perspective about what business intelligence (BI) is and its importance in the business world is to look at what business people talk about when the subject is BI. Developing a BI Strategy using the methods we’ll describe in this lesson is a people-intensive process —as it should be. We can leverage proven techniques, but the quality of the results depends to a significant degree on “getting into the heads” of key executives and managers. How do they see their world, what are they looking to accomplish, and how do they want BI to help them? We can build a business case that is “bullet- proof” from a logical, corporate perspective, but it also has to resonate with business people on a more intuitive level that squares with what they believe they would be able to achieve if they had better BI. So, to put a human face on BI, this lesson will step through the business challenges and BI gaps identified by top executives in a manufacturing company we’ll call Big Brand Foods (BBF). We’ll then summarize the BI Vision and BI Portfolio that emerged from the strategy formulation process and offer some
generalizations about BI opportunities (BIOs) for other manufacturing companies. While we’ve chosen a manufacturing company for this BI case study, the logic and process of identifying industry challenges, company strategies, functional challenges, and BIOs applies to any company in any industry. Further, the views of executives in the different business functions may be of value to executives in the same function but different industries.
BI Case Study Setting
Industry Setting Food manufacturing is a large, complex industry that generates over $ billion in annual sales. Typical food manufacturers produce hundreds or thousands of end products (called stock-keeping units, or SKUs) that are sold through a complex network of brokers, food distributors, and food service distributors to tens of thousands of retail outlets and restaurants. At the retail level, once the sole province of grocery stores and restaurants, food products are sold in many different places—by mass merchandizers, drug stores, convenience stores, and warehouse clubs, among others. Industry data suggest that less than half of food product sales are through traditional grocery stores. Other key industry trends are increased concentration of retail sales (Walmart alone accounts for over 50% of food sales), the rise of healthier products, and the diversity and increased quality of private label products that are now available. As a result of these and other trends, food manufacturers must cope with increased complexity and intense margin pressures, both of which impact profitability and customer service. Faced with these challenges, more and more food manufacturers are recognizing the strategic importance of BI. IMPORTANCE OF BI IN FOOD MANUFACTURERS: Help understand its business processes Make them run more efficiently and effectively. Improves operational efficiency. Company Situation BBF is a very successful manufacturer of widely known branded food products. Acquisition of known brands from competitors who were fine-tuning their brand portfolios allowed BBF to achieve $4 billion in revenue, and to be first or second
The CEO’s View of Business Challenges and BIOs
After earning an MBA from a top-tier business school, John McCoy rose quickly through the ranks in sales and marketing for consumer-packaged goods companies. When BBF was put together by a large private equity firm (LPE), it was with a view toward further acquisitions and eventually going public. The original CEO moved too slowly along this strategic path, and thus LPE brought in McCoy, who was known to a LPE director who had been CEO of a multibillion dollar food manufacturer. Within less than a year, McCoy had grown frustrated. While acquisition plans were coming along nicely, BBF lacked the ability to actively manage revenues and costs. McCoy realized that execution is critical in the packaged food industry, and to get better at it he and his leadership team needed better visibility into all aspects of BBF’s operations. As an industry veteran, McCoy understood that the packaged food business is complex—getting hundreds of products to thousands of retail shelves and making a profit despite fluctuating purchasing patterns and growing retailer purchasing power due to increased concentration. As he considered what it would take to conquer complexity and move BBF to a point where all levels of the company had the visibility needed to be successful, his thoughts turned to BI and the results of a 2009 survey within the packaged food manufacturing industry. The results were troubling: over 50% said they wanted better information for cost and financial analysis; over 60% reported gaps in fundamental information and analytics needed for customer service analysis, and a third of those reported major gaps; over 80% reported gaps in fundamental information and analytics needed for performance management, and a quarter of those reported major gaps; over 80% reported gaps in fundamental information needed for sales and operations planning; and over 70% said that a key obstacle to BI success was lack of organizational awareness of how to use business information and analytics to improve business results. McCoy considered these results and wondered whether the results would be the same within BBF—or even worse. At the same time, he knew that BBF’s performance depended on execution, and he knew the old adage that “what gets measured gets managed.”
He considered where to add a BI-related objective to the BBF’s overall strategic objectives, and decided that it fit under the objective “Leverage Information. ” With that in mind he added the sub objective “Create Business Intelligence Scorecards.” Questions to Consider: What does McCoy need to do to ensure that BBF is successful in leveraging BI and analytics to achieve its business objectives? What should be the relationship between BI, analytics, and a strategy map? Is it likely that people within BBF have a common definition of BI? What should the dashboards display, and at what level of detail? Who should be involved in dashboard design? Which business functions should receive their dashboard first? Second? Why? What does “visibility” mean in this context?
By what method might they determine what information and analyses they require? How should he and his direct reports determine the right set of key performance indicators? For Operations, is it more important to have a dashboard or to have other forms of BI, such as advanced analytics, predictive analytics, alerts, reports, or multidimensional analyses? Who should drive scorecard design? Which operations function—procurement, plant operations, transportation, distribution, customer service, cost optimization, or sales and operations planning—should receive their dashboard first? Second? Why? What Fred found was a mixed-bag of fragmented information, mostly in the form of a monthly PowerPoint decks that contained 50 pages of report-style information lifted from spreadsheets and traditional reports. Despite having two decades’ experience, he found it difficult to see the big picture based on the PowerPoints. In frustration, he asked the VP of Finance assigned to Operations whether there were plans underway to provide the operations function with the information and analyses needed to manage the key performance variables that would determine the success—or failure—of company efforts to achieve operational excellence and meet profit objectives. Fred knew that BBF was under heavy pressure from the Board of Directors to deliver on profit targets demanded by the LPE. Without timely, accurate business information and analyses at his fingertips, Fred wondered how he could achieve what was expected of him. As a self-described “data guy,” he was pleased to learn from the VP of Finance of the strategic objective to “Create Business Intelligence Scorecards.” Further, he was pleased to learn that the enterprise BI strategy project was underway and that his 11 direct reports were slated to be interviewed about their views of business challenges and BI opportunities. Questions to Consider: What does Sutcliff need to do to ensure that he and his direct reports obtain the business information and analyses they require to manage the performance variables for which they are accountable? By what method might they determine what information and analyses they require? How should he and his direct reports determine the right set of key performance indicators? For Operations, is it more important to have a dashboard or to have other forms of BI, such as advanced analytics, predictive analytics, alerts, reports, or multidimensional analyses? Who should drive scorecard design? Which operations function—procurement, plant operations, transportation, distribution, customer service, cost optimization, or sales and operations planning—should receive their dashboard first? Second? Why?
The Chief Marketing Officer’s View of Business Challenges
and BIOs
Rachel Smith was another hard-charging, fast-mover on the BBF management team. After graduating from a top-tier MBA program, Smith advanced through a traditional succession of marketing jobs for three different manufacturers of branded consumer products. Her many years of marketing experience were mostly in the packaged food products industry, and she was well-prepared for her new role as Chief Marketing Officer (CMO) when she joined BBF. Much of the pressure for profits that the Board was placing on the management team fell squarely on Smith’s shoulders. She was responsible for all aspects of brand portfolio management, including brand strategy, general management of brands, product innovation, consumer advertising and promotions, and brand profitability. Having come up through the marketing ranks in the 1980s and 1990s, Rachel was used to traditional sources of marketing information, such as focus group and other market research, market share data, and brand profit and loss (P&L) statements generated through laborious spreadsheet-based processes. She was not a “data” person in the same sense that the operations people were, and thus her perception was that BI and analytics were essentially better reporting. When the subject of committing her business resources to the strategic objective “Create Business Intelligence Scorecards” was raised in a meeting of BBF’s Executive Team, Rachel made it clear that BI was certainly not among the top five objectives for Barry Green, her VP of Marketing. As it turned out, however, Barry Green was very aware of the potential for BI and analytics to help meet the business challenge of optimizing the profitability of BBF’s brand portfolio. His group felt the pain week in and week out of trying to make good marketing decisions without having a complete picture of current performance or the ability to effectively model the P&L impact of various courses of action. Green identified the key gaps as: the people in the marketing, sales, and finance departments lacked a common set of business facts, figures, and terminology for discussing actual revenues and profits in relation to the targets in annual operating plans and quarterly updates; due to business information gaps and inconsistencies, marketing lacked a complete picture of product shipments in its various distribution channels, making it nearly impossible to determine and respond to unfavorable volume performance in, for example, the grocery, mass merchandizer, drug store, convenience store, food service, and/or warehouse club channels;
The Chief Sales Officer’s View of Business Challenges and
BIOs
Like others on the BBF Executive Team, Bob Alvarez had progressed through successively more responsible positions with larger packaged food product manufacturers. For over 25 years in sales, he had moved up the ranks by being aggressive in driving revenues to meet targets. Bob was known for his skill in developing effective professional relationships at the highest levels with key customers. By the time he joined BBF, he had also proven to be a very effective coach and men- tor to his sales teams. At BBF, the scope of the Chief Sales Officer’s (CSO’s) job was defined to include top-to-top sales, directing regional sales managers, managing the business relationship with their primary food broker, managing trade promotion spending in concert with brand strategies, and managing a business development organization, whose function was to translate brand strategies and plans into executable sales plans and tracking results. BBF’s food broker handles sales within the grocery, warehouse club, drug store, convenience store, and military channels. BBF handles sales to Walmart and to deep discount chains, such as Dollar General and Family Dollar. BBF and its broker collaborate on brand planning, volume forecasting, trade spending, and joint sales calls. The broker handles day-to-day in-store execution of pricing actions, promotions, and merchandizing. As Bob Alvarez settled into his position, he quickly realized that BBF could not provide the quality of business information and analyses he was accustomed to seeing at his former employer—at least not in the near term. What he received was an almost overwhelming pile of spreadsheets that looked at various performance measures in excruciating detail. Upon digging deeper, he found that there were 14 standard monthly views of sales performance, all of which contained page after page of detailed spreadsheets. Given that BBF sold nearly 1000 SKUs to hundreds of customers, at thousands of customer locations, though eight major channels, and at differing price points and promotion terms, Bob wondered how he and his team could effectively achieve revenue, share, distribution point, and other key objectives. With that concern in mind, he was happy to have his key people work with the Enterprise BI Strategy Team to discuss their business challenges and BI gaps. His people identified the following gaps: due to business information gaps and inconsistencies, BBF’s sales teams and business development teams lacked timely, automated access to key performance measures to help them understand sales performance in
relation to brand volume plans, and help them determine what actions to take to address any unfavorable performance trends; the current processes for trying to obtain needed business information involved extensive hunting for data and reformatting for various analytical purposes, and while this was viewed as suboptimal, getting the optimal information from the information technology (IT) department was so hard they have stopped asking and had adapted to suboptimal conditions; due to business information gaps, the sales teams and business development teams lacked historical performance information that would have enabled them to analyze and model the relationships between product demand and various marketing mixes, that is, price, trade promotions, consumer promotions, and merchandizing; due to business information gaps and overreliance on the spread- sheets described above, the sales teams and business development teams were not able to leverage dashboards to “manage by exception” and quickly focus in on the performance variances that were the most important and had the greatest financial impact—it was too hard to separate the wheat from the chaff; due to business information gaps, and because the sales, business development, and finance departments lacked a common set of business facts, figures, and terminology, it was very difficult to manage product profitability, that is, timely and accurate product-level profit measurement was very difficult to deliver for the nearly 1000 SKUs, and thus it was hard to determine the impact of varying the marketing mix on product profitability; while many in the industry were talking about supply chain collabo- ration between retailers and manufacturers, BBF business development teams lacked consistent access to its customers’ Point-of-Sale data and inventory levels, which made it difficult to get a true picture of demand for each of the nearly 1000 SKUs; due to departmental boundaries and business information gaps and inconsistencies, the business development teams lacked a timely, automated way to determine the return-on-investment on the 40, promotional campaigns BBF executed every year, which made it difficult to optimize the marketing mix and brand P&L; due to business information gaps, the business development teams lacked a timely and efficient way to measure, manage, and improve in- store execution of trade promotions by BBF’s broker and the fields sales teams, and to measure incremental volume and lift; and due to business information gaps, it was very laborious to measure and track trends for key performance indicators (KPIs), such as cost per incremental case, cost per shipped case, cost per consumed case, merchandizing efficiency, ROI, share-of-market, distribution points. As Alvarez looked at the list of gaps, he was impressed that his sales teams and business development teams were able to perform as well as they were. At the same time, he wondered how much revenue and profit was being left on the table due to all of the fundamental gaps in BI and analytics—and it occurred to him that without better BI and analytics it would be nearly impossible to figure that out.
The Chief Financial Officer’s View of Business Challenges and
BIOs
Like many Chief Financial Officers (CFOs), Steve Hayes earned his CPA and started his career with a major public accounting firm. Within 5 years, he had moved up to become CFO of a consumer pack- aged goods company focused on over-the- counter health and wellness products. Upon joining BBF in the early 2000s, Steve took on the responsibility for financial operations, treasury, tax, and IT. One of his first major initiatives were reducing IT and operating costs, which provided him with a deep understanding of how the company worked day in and day out and allowed him to contribute to meaningful improvements in profitability. The scope of Steve’s responsibilities made him both a producer and a consumer of BI and analytics. On the producer side, he was counting on the CIO—one of his direct reports—to lead the charge in formulating the Enterprise BI Strategy. As CFO, Hayes had a lot on his plate, including a directive from the Board to shift the mix within the $900 million advertising and promotion budget toward a more balanced allocation between trade promotion spending and consumer advertising and promotion. At the same time, he was concerned because his CIO was more of an operations professional and less so an IT strategist/technologist or BI visionary. The CIO’s strong background in operations had been extremely useful during Steve’s early effort to reduce supply chain and operations costs. That background had also been useful because BBF managed IT as a cost to be minimized rather than as a profit enabler. As a consumer of BI and analytics, Hayes knew there were big gaps at BBF, and he was concerned about the CIO’s ability to successfully close the gaps and meet his needs and those of his peers on the Executive Team. On the other hand, with BBF’s yet-to- be-announced acquisition of a well-known maker of packaged food products about to be announced, and with all the postmerger integration work to be done, Hayes felt he had bigger fish to fry than pushing ahead with BI and analytics. Even so, he had his direct reports meet with the enterprise BI strategy team and lay out the business challenges and BI opportunities. His people identified the following gaps: due to business information gaps and processing inefficiencies, the plant controllers reported that it was difficult for plant managers to manage the various drivers of plant profitability—including such variables as production costs, batch yields, and equipment effective- ness—in relation to forecasted and actual order volumes and mixes; due to information gaps, plant managers and plant controllers lack standardized historical information about performance, making it hard to conduct trend analysis for sales volume, product production volume by SKU, and actual raw materials usage;
due to information gaps, plant managers and plant controllers lack standard automated variances analyses in relation to operating bud- gets, quarterly budget updates, and standard costs; due to information gaps and processing inefficiencies, senior financial planning and analysis professionals were handcuffed in their ability to dynamically measure, manage, and improve the financial performance of BBF’s supply chain and production operations—the monthly cost-of-goods sold report consisted of 50 pages of spreadsheets that was hard to produce, delivered more information than could be usefully consumed, and provided no ability to manage by exception; and due to information gaps and processing inefficiencies, senior financial planning and analysis professionals were handcuffed in their ability to dynamically support marketing, sales, and business development teams with SKU-level and customer-level P&L statement and variance analyses in relation to annual operating plans, brand plans, and quarterly updates. As Steve Hayes reviewed these gaps he knew there were others, but the list did a good job of reflecting the fact that BBF lacked ready, efficient access to vital cost and financial information about the guts of the business. Manufacturing, supply chain, and sales and marketing expenses were a huge portion of the company P&L and BBF needed to improve and optimize those expenses in order to meet Board profit expectations. Questions to Consider: How can Hayes balance the need for better BI and analytics across BBF with the demands of postmerger integration and the fact that the CIO is not a BI visionary or IT strategist? In the role of producer of BI and analytics for BBF (through the CIO), how might Hayes think about priorities between his own needs as a consumer and the needs of his peers on the Executive Team? What factors should be considered when setting priorities? Is there a systematic way to evaluate which business requirements for BI and analytics are common among the various BBF business units? How might BBF’s overall IT budget be set, and what portion of that budget should be invested in BI and analytics?
Team, Milan also knew that a major acquisition was about to be announced, and he had been through a postmerger integration before. He wondered if the business community would engage as needed to develop BI dashboards. With these considerations in mind, Milan approved an acquisition of a mod- ern BI tool and then decided to sit back and gage business interest in BI Scorecards before pushing ahead. Questions to Consider: Is it likely that deployment of a new BI tool will enable BBF to over- come the business challenges and capitalize on the BI opportunities described in the CEO, COO, CMO, CSO, and CFO sections of this chapter? Based on the information presented, what do you believe is likely to happen at BBF with respect to the strategic objective—Create Business Intelligence Dashboards? How important does BI appear to be in the food manufacturing industry? If BI is important, how might the CIO proceed to create BI dashboards?
The CIO’s View of Business Challenges and BIOs
Ralph Milan was a key player in BBF’s strategic objective—Create BI Scorecards. His background in supply chain systems, enterprise operations planning, project management, and information systems had allowed him to make important early contributions to improvements in BBF’s supply chain and operations performance. Further, he had a prior 4-year working relationship with his boss, Steve Hayes (the CFO), and they were philosophically aligned with the idea of managing IT as a cost. Like most of BBF, the IT department ran lean, and Milan ran his 70-person department without the benefit of an administrative assistant. BBF’s primary foray into BI and analytics was embodied by a 10-year old marketing data warehouse (MDW), which had been developed and delivered by a prominent public accounting firm. The information in MDW was pulled from BBF’s enterprise resource planning (ERP) system and from its trade promotions management system, a nightly process that took over 8 hours due to flaws in the original design and approach to refreshing the MDW. The information in MDW was a key input to a large number of reports generated by BBF business units using outdated BI tools— reports that provided raw data to business users across BBF for the various manually intensive, department-specific monthly reports prepared in standard spreadsheet templates. Milan was aware that BBF was falling behind in its use of modern BI and analytics, and thus he launched the 3-month Enterprise BI Strategy project. The project produced a number of key deliverables, including an assessment that identified the following technical gaps and challenges: reports take a long time to run; a typical data usage scenario is that business users pull data from the data warehouse into the BI tool, cut and paste data from a BI report into a spreadsheet, combine data from multiple reports and spreadsheets into a single spreadsheet for formatting and calculations, and then cut and paste information from spreadsheets into PowerPoint presentations; business users want dashboards and reports where they can use pick-lists to specify and filter what information is to be presented; business users want pre-staged information about key performance metrics and they want that information to be standardized across BBF; business users want to leverage alerts and management by exception; business users want to leverage automated variance analyses; and business users want to have standardized, automated P&L statements and associated drill-downs. As Milan looked the list, it seemed to him that many of the business users’ wishes could be met by upgrading to a modern BI tool that enabled user self- service. He knew there were power users in the key department, and he believed that if they were armed with a better BI tool that they could create BI dashboards for their purposes. While not an official member of the Executive Team, Milan also knew that a major acquisition was about to be announced, and he had been through a postmerger integration before. He wondered if the business community would engage as needed to develop BI dashboards. With these considerations in mind, Milan approved an acquisition of a mod- ern BI tool and then decided to sit back and gage business interest in BI Scorecards before pushing ahead.
