RSS feedsThe current spike in demand for business intelligence (BI) software being driven by the need to comply with the more stringent reporting demands of directives such as Basel II and Sarbanes-Oxley, is a common and, in many instances, correct claim.
But an increasing number of finance directors are now turning to the technology to provide competitive advantage and help grow their business, rather than just aid with box ticking. The technology, when used properly, can help companies plan and forecast far more accurately, which leads to better informed business decisions.
However, FDs have learned valuable and often hard lessons from large-scale IT projects that have routinely failed to live up to their expectations. This has made them somewhat sceptical over claims for what, on the face of it, can sound like just another buzzword. The fundamental question that FDs need to ask is whether BI can offer their company a cost-effective way of improving access to company information and in so doing improve competitiveness.
David Rowling, chief information officer at Punch Taverns, which rolled out a BI system eight years ago when the company was founded, has no such scepticisms and describes the technology as “one of the strategic strands” upon which the business is operated. “We would say that business intelligence is fundamental to the competitiveness of our business,” he says. “It is one of the strategic strands where we invest. Business intelligence allows firms to fundamentally understand the profile of their business and to understand the key drivers that will make them successful, or otherwise, in the future.”
As a practical example of one of the simplest uses to which Punch puts its BI systems, Rowling describes the process of buying a new pub. Before purchasing a new site, the company needs to estimate its return on investment. Businesses that make this assessment the quickest and the most accurately will be best placed to bid the best price. If it is known that ROI will be at a certain level, it is possible for Punch to bid higher than its competition to secure a promising acquisition, or alternatively to only bid at a relatively low level for a business that is expected to perform less strongly. In short, companies that can share information and react in the timeliest manner to that information are the ones that will be the most competitive and most likely to succeed.
Information sharing
Punch also strives to make information available to senior managers who can promote and facilitate action. Rowling says that a decision is just the beginning of a chain of events. He explains that BI is valuable not only for helping single decisions to be made, but also to assist Punch’s managers to work out what will be the ramifications of such decisions, so that they can go on to develop a strategic action plan.
“It may be that you are looking at a sales promotion, so you start by looking at your past history of promotions. You can make decisions about a future promotion based on the success, or otherwise, of previous history. Or you could decide to terminate a promotion based on this data. These are all examples of information that help promote the right actions,” explains Rowling.
Moving up the acquisition scale from single pubs, Punch has relied heavily on its business intelligence systems to help with a series of recent pub chain acquisitions. For example, when it bought Pubmaster at the end of 2003 it knew the company it was buying had a recognised strategy of not investing substantially in its individual properties.
“We loaded the Pubmaster pubs onto our business intelligence system and started to track their performance compared with our own. As we invested in each of these properties we could track the improvement so we could show that our acquisition was being beneficial,” says Rowling. “This means we could demonstrate the upside of our acquisition and investment programme to our backers and because of this, confidence is engendered in our investors, so we can borrow more money next time to buy the next company. You can only do this if you are tracking closely at pub level. Business intelligence solutions are very good at rolling up this kind of information.”
He notes that business intelligence technology over recent years has become more sophisticated and, as a result, more useful. An important trend is seeing core BI applications being integrated into corporate intranets so that reports can be communicated very quickly across a business.
Read it and weep
Whereas drivers for BI adoption on the operational side include getting up-to-date information into the hands of managers, Crispin Read, chief marketing officer of business performance management software company Cartesis, claims that on the finance side, compliance is still a common driver for upgrading some of the financial performance management applications such as consolidation, management reporting and planning. He points out that, as the European accounts modernisation directive (EAMD) comes into force in EU member states, corporate financial guidance statements will need to be audited, so increasing demand for BI systems further.
Graham Walter, vice president EMEA of business intelligence company Cognos, agrees that recent moves by companies to meet the requirements of tighter compliance regulations has helped spur adoption of BI. “There are a lot of regulatory pressures. All of these are placing pressure on finance departments to have greater transparency and confidence in the numbers they produce. These requirements are driving the need for better reporting systems for finance departments,” says Walter. However, compliance is only one half of the story. It’s just as much about understanding the information a company already holds better and, crucially, more quickly.
Adding complexity
Given the fact that all the information a BI system can provide already resides within a company’s systems it can be argued that there is dubious value in adding an extra layer of complexity to IT systems by deploying business intelligence technology on top of a firm’s existing infrastructure.
Rowling dismisses such charges claiming that the technology is key to improving performance. “The real value with business intelligence is speed. Business Objects [which is the BI technology deployed by Punch] and comparable products allow companies to write a report or find an answer in a matter of minutes, compared with perhaps days to produce the same report from a more technical system. It is a much more efficient way of getting information out of the business,” he says.
In addition to speed considerations, BI allows companies to ask different questions and pose different scenarios such as “what ifs?” Because these can be done quickly, it’s possible to rapidly develop the scope of any report so that it can be used to explore different scenarios and conclusions. Trying to get this data without BI technology from an enterprise resource planning (ERP) system, or by using more traditional methods would be next to impossible as the process would simply take too long.
BI allows firms to ask broader questions with different dimensions depending on what decisions are being assessed. In the case of Punch Taverns this means that the technology allows the company to get a sales report for a single pub, or for a specific region or, indeed, the entire country. The same type of reports can be generated with multiple dimensions – for example, over the company’s own infrastructure, or across the infrastructure of one of its suppliers. Other useful dimensions by which reports can be segmented are by time or geographic region.
One of the Punch Tavern’s corporate objectives is to understand the environment in which it operates, the needs of its consumers and performance of its suppliers in order for it to “take appropriate actions to grow the business.”
Rowling argues that corporate knowledge is only useful in a business sense to companies that intend to do something with it. He describes Punch’s philosophy as trying to ensure that knowledge is available “at the point of decision”. In line with this philosophy the company seeks to develop information systems that can deliver knowledge to help senior managers make any decision, at any time and relating to any geographical part of the business.
No need for ROI
Despite the easing of compliance pressures and the business and operational benefits that adoption of BI systems provide, working out return on investment estimates for the technology can still prove extremely problematic.
Rowling says that Punch Taverns did not make ROI studies before rolling out its system: “We did not go in for a return on investment argument, which is why I make the statement that business intelligence is a strategic fundamental question. If you are to understand how your business is operating and want to be able to change this performance rapidly, then you need to have the right information. In terms of business agility you need to have this data. How do you put a value on business agility? It is fundamental to your competitiveness.”
