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.
CIOs are hardly flush with cash these days, but they are interested in BI—very interested. 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. This democratization of information access helps users back up with hard numbers business decisions that would otherwise be based only on “gut feelings.”
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.
Otherwise tight-fisted CIOs are spending money on BI software because its relatively low investment yields fast payback, says Larry Downes, strategy consultant and author of Unleashing the Killer App and The Strategy Machine. “[Unused data] is still a great source of untapped productivity and competitive advantage for most companies,” he says. Just how much data is going unused? Downes guesses companies are extracting value from only about 20 percent of their data.
Of course, the potential of any unused data is only as good as the quality of the data itself. The success of any BI implementation depends on having clean data to mine. Some companies are so gung-ho about BI that they’ve invested in multiple systems, which may be tough to integrate, says Forrester analyst Laurie Orlov. She says it’s not unusual for larger companies to have at least five BI platforms. She also warns of information overload, citing as a cautionary tale a CIO who said his 100,000 employees all have access to hundreds of dashboards, what Orlov calls a “firehose problem.”
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.”
FiberMark North America spent $4.5 million on ERP software from J.D. Edwards and $3.5 million on Oracle, but the manufacturer of specialty packaging and paper couldn’t easily get at the data. “Typically, ERP systems collect data wonderfully, but don’t report out worth a darn,” says Joel Taylor, director of IS. “We were desperate to get good information quickly.” Taylor spent less than $75,000 on QlikView—BI software from QlikTech that grabs FiberMark’s data from J.D. Edwards, Excel spreadsheets, and Oracle and Access databases, and stores it in the server’s RAM (eliminating the need for a data warehouse).
Now, instead of printing 1,000-page monthly sales reports for each of FiberMark’s 29 salespeople, Taylor’s staff has shown them how to access the data from the corporate intranet any time they want. “With a very short training cycle (15 minutes), they’re up and flying,” says Taylor. “They print four pages, not 1,000.” He says the system paid for itself in nine months in saved paper, toner, and printer wear and tear alone. More important, though, salespeople and executives can get at data that’s refreshed daily.
When Quaker Chemical began operating as a global entity in 1999, newly appointed CIO Irving Tyler suddenly had to create a single global view from 14 transaction systems. Tyler had already built data warehouses for U.S. and European customer and product information, so he decided to scale up into a global data warehouse, giving users access through an Internet-based BI tool from SAS. The whole process took three months.
He put plans for a three-year migration to a common ERP system lower on his priority list. “In reality, an ERP system is not very clever,” he says. “If we hadn’t put in the capability of business analytics tools for the data warehouse, we couldn’t operate globally. Because suddenly, a global manager responsible for sales and product results literally would have had to go to 14 sources for information.”
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. “It should jump out at you that the next $10,000 worth of spend with this vendor should be 5 percent less,” says Chet Phillips, a director of IT at Motorola. “When you’ve got tens of thousands of vendors, that’s an issue. You want that information to be pushed to you.” Motorola surpassed its goal of saving $2 billion last year, and Phillips says its BI tool was directly responsible for as much as $140 million of those savings. Motorola has now begun collecting procurement data from its manufacturing outsourcers. The idea is to ask suppliers to extend all negotiated deals to those business partners, who are then expected to pass along some of those savings to Motorola.
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, ¿a 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.”
Jelly Belly Candy knows plenty about the subjective business of pleasing palates, but when sales dropped off after the Sept. 11 attacks, the company wanted more to go on than gut feel to determine why. “Because we just had paper, we couldn’t analyze efficiently what was going on,” says Dan Rosman, director of IT. Using BI, Jelly Belly confirmed its suspicion that many Mom-and-Pop candy stores—which represented half of the company’s business—were closing in the face of competition from the likes of Target and Wal-Mart. That justified Jelly Belly’s decision to increase staff handling its national accounts from four to 10. While the specialty store business has dropped 11 percent from 2001 to 2003, national business has increased 17 percent.
BI analysis can inspire companies to launch new business ventures. After using BI to realize that its strategy of selling product in small quantities to many different customers didn’t make sense, Quaker Chemical developed a value-added reseller (VAR) strategy for its small customers two years ago. In each region, the company sought a local partner with complementary, noncompetitive products already working with smaller customers. “That enabled us to get into this segment of the market in a way more in tune with our ability to serve it from a cost-effective point of view,” says CIO Tyler. Small customers now account for about 5 percent of Quaker’s business. Its goal is to bump that up to 25 percent by leveraging the VAR strategy.
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.
Jelly Belly’s bean experts use Panorama’s NovaView to access and analyze cost and sales volumes to identify unprofitable products. The company realized Carrot Cake jelly beans and the product mix known as Apple Orchard weren’t selling well, so the decision to nix them from the lineup was a no-brainer. Rosman says product review meeting times have been reduced by 75 percent because their data is accessible and easier to understand.
Retailers are also using BI tools to help identify home runs—and strikeouts—soon after they hit the stores. Belk, a chain of more than 200 department stores, first invested in Microstrategy’s BI tool in 1996. “We realized we had a tremendous amount of data but didn’t have the capability for exception reporting,” says CIO Roddy Kerr. As the company moved from buying for single stores to buying for the entire chain, efficient access to chainwide data became critical. Today, Belk can drill down to see how different styles, sizes and colors are selling. The company sends more than 400 e-mails every week to its trading partners, giving them a complete view of their sales results. With vendors literally on the same page, it’s easier for Belk to adjust orders according to actual demand. (To read more about demand forecasting, see “Future Results Not Guaranteed,” www.cio.com/printlinks.)
“We focus on the things that are selling both faster and slower—things that are doing extremely well to optimize those and things that are not moving as quickly as they should so we can get after them early and minimize the negative impact,” he explains. He adds that BI has increased Belk’s comfort with buying larger quantities. “It really helped us see what we can do with an item,” he says. “If we get behind it, it’s amazing how many pieces you can really sell.”
Sometimes, as TruServ knows, an item can sell too well. One of its buyers got such a great deal on a teak and wrought-iron park bench from China that TruServ priced it at $29.95. Stores said they wanted 17,000. The buyer upped the ante and ordered 40,000; then TruServ ended up selling 92,000. “It was a supply chain nightmare,” says Hastie. “Through BI, we saw this thing was about to explode the third or fourth week into the promotion. We got our buyers and import department scrambling to meet all the rain checks handed out to consumers.” Although TruServ had to source a lot of the extra benches domestically and eat the extra cost, the company ended up breaking even. “BI tells you how well a promotion is going way ahead of schedule, so you have time to react in front of the supply chain to make the promotion a success,” Hastie says. “If something’s selling faster than the forecast, we can make adjustments and order more.”
Pick the Perfect Price
Hitting 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.
A “price to win” initiative at competitor TruServ used BI to measure the impact of lowering prices in certain segments. “We gave away gross margin hoping to increase sales,” says Hastie. “It didn’t increase velocity.” So in a matter of three to four weeks, TruServ ended the sale. Hastie says that without BI, the company would have analyzed the data at the end of the quarter, reanalyzed it after the next quarter and continued giving away margin for six months instead of one.
At Fairchild Semiconductor, pricing its 50,000 products manually was such a chore that the company did it once a quarter. “It wasn’t necessarily consistent. And it certainly wasn’t mathematical,” says Bill Hall, vice president of interface and logic. “A lot of pricing in the past had been done with gut feeling.” Using a BI-powered dynamic pricing engine, prices are easily adjusted weekly, factoring in current worldwide market conditions, manufacturing cost, and capacity and current inventory. If Fairchild can’t produce enough of a hot-selling item, BI helps analyze the merits of raising the price, pinpoint where the item could be sold for the most short-term profit and identify which customers clamoring for the product are likely to generate the most long-term profit. CIO John Watkins says Fairchild spent “a couple million” on BI, but the investment has already paid for itself through better pricing alone.
Whatever uses CIOs foresee for BI, Nucleus’s Wettemann advises going for the easy payoff first. (See “Seven Rules to Rolling Out BI,” Page 85.) Quaker Chemical’s Tyler concurs. “Build a simple infrastructure,” he says. “You can always do more, but you can never do less. There’s a tendency to do something fancy.” It’s better to build something simple, get it into users’ hands, and let them tell you what more they need. “Don’t deliver reports,” he says. “Deliver tools.”