Automated Business Intelligence

Transcription

1 Automated Business Intelligence What Is Automated Business Intelligence? Automating business intelligence takes the important basic concept of business benchmarking to a level of greater sophistication for executives seeking improved decision support tools. This analysis provides the means to understand why a firm s business performance is favorable or unfavorable. Business intelligence As a Concept Business Intelligence or BI (also known as benchmarking) is a proven way to improve decision making by turning bits of data into a meaningful diagnosis of strengths and weaknesses in a company. This is the first step of Profit Improvement consulting. Managing with BI has been defined as: The process of continually comparing and measuring to gain information which will help the organization take action to improve its performance (source: The American Productivity and Quality Center). Comparing key financial and operating metrics with similar type organizations can quickly pinpoint competitive weaknesses, as well as business improvement opportunities. BI is the second most widely used tool by senior managers (Strategic Planning is first), employed by over two thirds of them (68%), according to a recent survey of executive managers. 1 This popular and insightful management concept has survived the many changes and fads that have occurred in management. BI continues to prove its worth as a valuable tool that companies actually use to build strategies and action steps for performance improvement. Copyright 2007 Gerke & Associates

2 1 Management Tools Survey, 2001, Bain & Co. Copyright 2007 Gerke & Associates 2

3 The Evolution All clients have a variety of needs and constraints for meeting those needs. Consultants will work with you to find the appropriate automated business intelligence solution most appropriate for your situation. The table below shows various methods of collecting and delivering business intelligence results, and their corresponding benefits. Results Delivered Through: Data Collection Using: Paper Report Customized Software Paper Forms Low cost Easy input and useful reporting tailored to your needs On Line Data Fast Good for periodic Collection turnaround updating of of final information product On Line Dissemination Broad delivery of results, can leverage your intranet or website The Premium Approach for fast and fresh information Increasing Automation Most business intelligence in the past has been through collected paper surveys, with paper reports eventually being developed and disseminated. Technology has brought automation to business intelligence, either through customized software or via the Internet. The cost of technology has declined significantly in recent years, meaning that solutions that were very expensive a decade ago are now surprisingly affordable and equally powerful. The benefits of having automated business intelligence are numerous. Here are a few key ones: Easier input and output, meaning it is more likely to be used Very fresh data, especially with on line data collection and dissemination Does not require the user to do calculations and ensures consistency Provides a vehicle to disseminate best practices along with performance comparisons Copyright 2007 Gerke & Associates 3

4 How Can BI Help My Company? Rapid Determination of Key Problem Areas Automated BI can help in quick identification of key areas (both financial and operating) that deserve management attention. Having well designed custom reports are important in focusing on the exceptions rather than typical performance. Consider the section of an actual screen shown in the diagram below. Beyond the basic calculation of certain sales ratios for this retailer, it also shows the percentile ranking for this retailer s performance for each of the ratios. For example, in this case a video store s labor expense is very high and at the upper end for the chain This is an example of an actual screen on income statement items developed for video retailers (by the way, we have the capability to do BI in virtually any type of industry). Copyright 2007 Gerke & Associates 4

5 Additional screens, in the case of video retailers, provided information on key performance ratios. Solutions to Problems Dozens of best practices for continuous improvement can be incorporated in management Discussion Ideas. These can be brought up easily on screen (for example, they can pop up when the percentiles values are clicked on). Clicking on the number 99 for the percentile ranking for labor brings up this screen with multiple ideas on ways video retailers can reduce labor costs. This is a great approach for share groups to organize and disseminate best practices concepts among the participants. Since Gerke & Associates is a management consulting firm and developing these best practices is our specialty. Goal Setting Goal setting can be accomplished through back calculation methods to put business intelligence data to work improving operations. Here, the video store manager is seeing what labor % of sales he needs to reach to be at the median for the chain. This also can be tied directly to the business intelligence screen ratios or percentile values. Copyright 2007 Gerke & Associates 5

6 Reports are tailored to each client s needs and this is just one of the many ratios that can be included. Typically, the report includes a mixture of financial and operating ratios. A video retailer, for example, is interested in videos rented per transaction, revenue per square foot, gross margin dollars per hour open, average rental fee per video, and so forth. Different sets of ratios were developed for warehouse distributors, agricultural producers and other industries. Do Automated Business intelligence Tools Really Work? Yes! The results from using automated business intelligence tools can be a dramatic continuous increase in profitability and reduction of operating costs, as in this actual case. Over a decade, this subsidiary of a Fortune 50 consumer products company was able to reduce operating costs by an average of over 5% per year, which more than offset the market driven reductions in margin. Gaining this type of business intelligence can result in significant improve improvement in operations and profitability. Copyright 2007 Gerke & Associates 6

7 % of Sales Gross Margin % Operating Cost % Net Profit % FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 Fiscal Year Joe Weston is a senior consultant at Gerke & Associates, Inc., a management consulting company in Columbia MO. He was a VP Sales & Marketing and CEO in the retail and wholesale channels of a consumer products industry. Copyright 2007 Gerke & Associates 7