Business Intelligence Gets Smart(er)

By: Jack Doren

Companies are using business intelligence software for more than simple data mining. They're using it to identify hot sellers, cut costs and discover new business.

IT LOOKED LIKE your average faux fish, mounted on a faux wood plaque. But when you walked by, the fish would turn its head, open its mouth and start singing, "Don't Worry, Be Happy" or "Take Me to the River." Pure kitsch. And as it turned out, pure gold for the True Value store owners lucky enough to have them in stock. "It was a hit," says Neil Hastie, former CIO of TruServ, a member-owned hardware cooperative of 7,000 or so independent retailers. "We ran out of them." So when the same company came out with a gopher singing "I'm All Right"—remember Caddyshack?—it seemed like a sure bet. "Everyone thinks, 'God, this is the second fish! Let's order the hell out of it.' So we did," Hastie says. "We ended up with truckloads of gophers we couldn't give away."

Fortunately for TruServ, the company had business intelligence (BI) software that helped it recognize the gopher fiasco early enough to liquidate the unwanted rodents and recoup some of its expenses. That ability to quickly make sense of oceans of data can be a competitive advantage, making BI software essential for many companies.

A 2003 Forrester Research report found that 45 percent of companies surveyed planned to shop for BI software this year, which explains why vendors such as Business Objects and Cognos have seen double-digit increases in their revenue. With today's BI tools, business folks can jump in and start slicing and dicing data themselves, rather than wait for IT to run complex reports.

A broad range of applications for BI is helping companies rack up impressive ROI figures. Business intelligence is being used to identify cost-cutting ideas, uncover new business opportunities, roll ERP data into accessible reports, react quickly to retail demand and optimize prices.

TruServ's Hastie, for example, spent $250,000 on BI software from Business Objects and says the investment paid off in about two months. Besides using it to track anomalies like the gophers through an executive dashboard, TruServ is also pressing it into service as a CRM tool and is using it to integrate data from disparate accounting systems, which will help the company close its books two days earlier every month.

Time To Leverage That Data

To get at that data stuck in corporate America's big-ticket enterprise systems, many companies are turning to BI software. "We've seen a number of companies that invested a lot in ERP or CRM that have not necessarily seen the big returns they expected," says Rebecca Wettemann, vice president of research at Nucleus Research. "They're looking to BI as a way to, with a small additional investment, squeeze additional value out of those systems." Besides making data accessible, BI software can give companies more leverage during negotiations by making it easier to quantify the value of relationships with key suppliers and customers. Given a corporate directive to cut purchasing costs by $2 billion in 2002, Motorola needed a consolidated view of its global supplier network. It used Informatica's PowerAnalyzer to analyze purchasing data to ensure that buyers around the world were taking advantage of negotiated deals. The tool automatically alerts buyers when they exceed spending thresholds that entitle the company to discounts.

Discover Opportunities, Drive Decisions

Within the walls of the enterprise, there are plenty of opportunities to save money by optimizing business processes and focusing decisions. BI yields significant ROI when it sheds light on business bloopers, à la TruServ's gophers. Employees of the city of Albuquerque, N.

M, for example, used Cognos to identify opportunities to cut cell phone usage, overtime and other operating expenses, saving the city $2 million during three years. Likewise, using Brio's BI software, Toyota realized it had been double-paying its shippers to the tune of $812,000 in 2000. Companies are also using BI to justify or disprove the wisdom of what would otherwise be gut business decisions. "Too often, evaluations of opportunities for growth are based on gut feelings, estimations and assumptions because it would be too expensive and time-consuming to get hard data," says Nucleus's Wettemann. "BI can let you run some quick numbers to justify that gut."

Track What's Hot and What's Not

To jump-start a campaign to reduce "red zone" inventory, TruServ used Business Objects to identify products that had been languishing in one of its 14 warehouses longer than 120 days. The company fed that information into supply chain software from JDA Software Group, which pulled the merchandise from the distribution centers and sold it to member stores at or below cost. That helped TruServ save $50 million in inventory carrying costs in 2002. Marketing managers at TruServ also use BI to identify where promotions are doing well and quickly redirect merchandise to those distribution centers from areas where the promotion is faring poorly.

Pick the Perfect PriceHitting on the price that maximizes profits has long been an art, but BI's ability to crunch data in short order is changing that. "We're able to put a lot more science into establishing suggested retail prices," says Mike Altendorf, vice president of IT at Ace Hardware. Although stores are encouraged to adapt pricing to their location, BI has helped Ace show store owners how much they could expect their gross margins to increase if they were to raise their prices to Ace's suggested retail. In many cases, it was more than $50,000 annually per store. Ace had hoped to increase its wholesale margin by $19 million in one year. It actually increased by $175 million.

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