Competitive Advantage

Through Business Intelligence.

Umar Mukhtar Banday Fizza Shabir TBS, Kashmir University.

Table of Contents

INTRODUCTION:………………………………………………….……………………...……………………………………….………3

FIVE GENERIC COMPETITIVE STRATEGIES:.........................................................................4

A Low Cost leadership Strategy:........................................................................................................4A Broad Differentiation Strategy:......................................................................................................4A Best-Cost Provider Strategy:...........................................................................................................5

FACTORS: ……………………………………………………………………………………………………………………………..………6

Threat of new competition: …………………………………………………………………………..6 Threat of substitute products or services: …………………………………………………………...6 Bargaining power of customers (buyers): …………………………………………………………..6 Bargaining power of suppliers: ……………………………………………………………………...6 Intensity of competitive rivalry: ……………………………………………………………………..7 INTRODUCTION TO BI: ………………………………………………………………………...…..7

CONCEPT OF BUSINESS INTELLIGENCE: ………………………………………………...…….7

GAINING COMPETITIVE ADVANTAGE THROUGH BI: ……………………………………….8

BUSINESS INTELLIGENCE IN ACTION: ………………………………………………………...12

CONCLUSION: ……………………………………………………………………………………….14

BIBLIOGRPHY: …………………………………………………………………................................15

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INTRODUCTION:

“The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the one you possess today”

Garry Hamel & C. K. Prahalad

To survive in the running stream of quickly changing, rapid competitive global market, volatile consumer behavior and rapidly shortening product life cycles, business enterprises today need to develop competitive advantage. The tale of competitive advantage and development in information technology has certainly changed, how managers throughout business see the role of Information Systems. Where it was once perceived to be only part of the operating of a business, there is now an increasing recognition of the value of information. Furthermore, it is recognized that information is a depreciating asset and must be treated as a resource that the organization could/should use in its business. (Robson, 1997,p. 188)

The concept of competitive advantage lies at the center of understanding a firm's performance in competitive markets. The above average performance in the long-run can only be created by creating a sustainable competitive advantage. Porter's idea about competitive advantage can be used to analyse how Information Systems affect the performance of a corporation by changing the relationships within the five forces that shape its competitive environment. During the last decade, the approach to business management across the entire globe has deeply changed. Researchers Gangadharan and Swamy (2004) identify new and complex factors that are emerging which will force enterprises to operate in entirely new ways. Organizations are witnessing environmental changes characterized by vague organizational boundaries and fast-paced change. As a result firms need appropriate decision support infrastructures in order to face these challenges.

“Nothing focuses the mind better than the constant sight of a company who wants to wipe you off the map”

Wayne CallowayFormer CEO, Pepsi Co.

The subject matter “Competitive advantage through business intelligence” can be understood better by dividing the subject matter into its roots i.e. by understanding competitive

advantage and business intelligence separately. The term competitive advantage was first used

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by one of the stalwarts of strategic management Michael E. Potter in his article “How competitive forces shape strategy” (Porter, How Competitive Forces Shape Strategy March/April1979). In this master piece he tried to look at business organisations through the prism of competitive advantage. As per Michael Potter Competitive advantage is about being different. It means deliberately choosing to perform activities differently or to perform different activities than rivals to deliver a unique mix of values (Porter, Competitive Advantage 1985). The term competitive advantage is the ability gained through attributes and resources to perform at a higher level than others in the same industry or market (Chacarbaghi and Lynch 1999) “A firm is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player” (Clulow, Gerstman andBarry 1 January 2003) . In other words we can say competitive advantage is the ability of a company to outperform others because its managers are able to create more value from the resources at their disposal.

FIVE GENERIC COMPETITIVE STRATEGIES:

Porter suggests that in order to have competitive advantage we need to have edge over competitors. Without a sustainable competitive advantage, a company can do is "harvest" the windfall i.e. skim off the largest profits it can for as long as it is able to do so. Porter postulates two basic types of competitive advantage: cost leadership and product differentiation. These two basic types of competitive advantage, combined with the scope of the activities open to a particular firm, lead to Five basic strategies for pursuing competitive advantage (Porter,Competitive Strategy: Techniques for analysing industries and competitors 1980).

A Low Cost leadership Strategy:

Appealing to a broad spectrum of customers based on being the overall low cost provider of a product or service. Cost leadership is the easiest strategy to understand, but difficult to achieve. The firm sets out to become the lowest cost producer in its industry rather than one of several firms competing for that position. It must seek out and exploit every source of potential cost advantage. Typically, cost leaders sell a basic product or commodity and are concerned with pursing economies of scale and absolute cost advantages. While the product may be relatively unsophisticated, the company must comply with the industry norms i.e. the product and/or service must be perceived as acceptable and comparable to its competitor's. A cost leader must therefore maintain some degree of parity with its competitor's performance in other areas while out performing them based on price.

A Broad Differentiation Strategy:

The second generic strategy is differentiation. Seeking to differentiate the company’s product offering from rivals’ in ways that will appeal to a broad spectrum of buyers. Here a firm seeks to be the best performer in its industry grouping along some dimension or dimensions of the product or service other than cost. This attribute of its product / service must be something that a majority of its customers perceive as important, and the company must position

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Low cost leadership strategy

Broad differentiation strategy

Focused Low cost strategy

Focused differentiation

strategy

Best cost provider strategy

itself uniquely to meet those needs. Its singular position will then be rewarded by a premium for its distinctive product or service. The premium is paid for the company's uniqueness, although the company must also maintain some degree of parity with its competitors cost levels in order that the cost of "uniqueness" does not begin to exceed the premium that the customer is prepared to pay.

A Best-Cost Provider Strategy:

Giving customers more value for the money by combining an emphasis on low cost with an emphasis on upscale differentiation; the target is to have the best (lowest) costs and prices relative to producers of product with comparable quality and features.

Market Niche Strategy(Based On Lower Cost):

Concentrating on a narrow buyer segment and outcompeting rivals by servicing niche members at a lower cost than rivals.

Market Niche Strategy(Based On Differentiation):

Concentrating on a narrow buyer segment and outperforming rivals by offering niche members a customized products or services that meets their tastes and requirements better than rivals’ offerings.

Each strategy has fundamentally different approach, to create and sustain competitive advantage. Usually a firm will need to make a choice about which it will pursue. Implementing

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differentiation and cost leadership strategies simultaneously is usually impossible for a company. For example, it is difficult to be a cost leader while pursuing a differentiation strategy because differentiation costs money. Although simply reducing costs may not adversely effect differentiation, a cost leader will eventually reach the point where pursuing a cost advantage will inevitably mean a sacrifice of scope. Further Michael Porter explains that in order to develop above mentioned strategies we need to look at some factors and these factors are:

FACTORS:

Threat of new competition:

Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend towards zero.

Threat of substitute products or services:

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. Note that this should not be confused with competitors' similar products but entirely different ones instead. For example, Pepsi is a substitute for Coke as, if the price of Coke were to rise above the price of Pepsi, it is possible that the Coke drinker would substitute Pepsi for Coke.

Bargaining power of customers (buyers):

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

Bargaining power of suppliers:

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The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or Be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, charge excessively high prices for unique resources.

Intensity of competitive rivalry:

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

INTRODUCTION TO BI:

Business Intelligence (BI) is a broad category of applications and technologies for gathering, providing access to, and analyzing data for the purpose of helping enterprise users make better business decisions. The term implies having a comprehensive knowledge of all of the factors that affect the business. It is imperative that firms have an in depth knowledge about factors such as the customers, competitors, Business partners, economic environment, and internal operations to make effective and good quality business decisions. Business intelligence enables firms to make these kinds of decisions.

Concept of Business Intelligence:

Business Intelligence can be defined as the process of taking large amounts of data, analyzing that data, and presenting a high-level set of reports that condense the essence of that data into the basis of business actions, enabling management to make fundamental daily business decisions. It can be defined as a way and method of improving business performance by providing powerful assists for executive decision maker to enable them to have actionable information at hand. BI tools are seen as technology that enables the efficiency of business operation by providing an increased value to the enterprise information and hence the way this information is utilized.

According to Zeng et al. (2006), Business Intelligence is “The process of collection, treatment and diffusion of information that has an objective, the reduction of uncertainty in the making of all strategic decisions.” Experts describe Business Intelligence as a “business management term used to describe applications and technologies which are used to gather,

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provide access to analyze data and information about an enterprise, in order to help them make better informed business decisions.”

Business intelligence aims to support better business decision-making. Thus a BI system can be called a decision support system (DSS). BI uses technologies, processes, and applications to analyze mostly internal, structured data and business processes while competitive intelligence gathers, analyzes and disseminates information with a topical focus on company competitors. Business intelligence understood broadly can include the subset of competitive intelligence.

Experts view BI in different ways. Data warehousing experts view BI as supplementary systems and is very new to them. These experts treat BI as technology platform for decision support application. To data mining experts BI is set of advanced decision support systems with data mining techniques and applications of algorithms. To statisticians BI is viewed as a forecasting and multidimensional analysis tool. The interconnected linkage of supply chains, markets and businesses is posing a new challenge to all enterprises. The path to business insight as pointed out by Shari and Fisher (2003) follows the process of integration of data from disparate internal and external data sources, applying analysis tools and techniques to understand the information within the data, making decisions, and taking actions based on this gained insight. BI denotes on the one hand an analytic process that transforms internal and external data into information about capabilities, market positions, activities, and goals that stands for information system concepts like OLAP, querying and reporting, or data the company should pursue in order to stay competitive. On the other hand, BI mining that provide different methods for a flexible goal-driven analysis of business data, provided through a central data pool. BI system has emerged from the central part of this strategy for long-term sustainable success.

In general sense we can say Business intelligence (BI) is defined as the ability for an organization to take all its capabilities and convert them into knowledge, ultimately, getting the right information to the right people, at the right time, via the right channel. This produces large amounts of information which can lead to the development of new opportunities for the organization. When these opportunities have been identified and a strategy has been effectively implemented, they can provide an organization with a competitive advantage in the market, and stability in the long run (within its industry).

Gaining Competitive Advantage Through BI:

No matter how good its products or innovative its services, no organization can perform to its full potential without an adequate planning structure in place. Allowing enterprises to allocate their most precious (and finite) resources—money and people—in response to changing

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conditions and objectives, today’s enterprise planning solutions facilitate a dynamic planning process that both promotes best business practices and spawns new ones. These solutions provide the enterprise planning tools that organizations need to maximize their resources and execute their business strategies.

BI tools allows business managers to apply data mining techniques and various algorithms to raw sales, marketing, and service data to predict customer churn, the most effective cross-selling techniques, and brand uptake, among other activities. While previous generations of BI tools required technical experts to create reports, today’s tools allow business managers to design their own reports, rapidly drill down into data, and explore any interesting trends. As a result, managers can quickly transform raw data into actionable intelligence, and rapidly deploy customer-facing teams accordingly. For example, BI dashboards can schedule optimal field force itineraries, guide in-progress marketing campaigns based on initial results, identify high-value sales leads, alert call center managers to service problems in near–real time, and help employees become more productive.--R1

Business Intelligence enables organizations to make well informed business decisions and thus can be the source of competitive advantages. This is especially true when firms are able to extrapolate information from indicators in the external environment and make accurate forecasts about future trends or economic conditions. Once business intelligence is gathered effectively and used proactively then the firms can make decisions that benefit the firms.

Experts view BI in different ways. Data warehousing experts view BI as supplementary systems and is very new to them. These experts treat BI as technology platform for decision support application. The ultimate objective of business intelligence is to improve the timeliness and quality of information. Timely and good quality information is like having a crystal ball that can give an indication of what's the best course to take. Businesses realize that in this very competitive, fast paced and ever-changing business environment, a key competitive quantity is how quickly they respond and adapt to change.

In this era of cut-throat competition Business Intelligence holds an important place for any business as it reveals the position of the firm as in comparison to its competitors, changes in customer behaviour and spending patterns, The capabilities of the firm, market conditions, future trends, demographic and economic information, the social, regulatory, and political environment besides what the other firms are doing in the market. Information is often regarded as the second most important resource a company has (a company's most valuable assets are its people). BI provides many benefits to companies utilizing it. It can eliminate a lot of the guesswork within an organization, enhance communication among departments while coordinating activities, and enable companies to respond quickly to changes in financial conditions, customer preferences,

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and supply chain operations. BI improves the overall performance of the company using it. A few of the benefits delivered by Business Intelligence are briefly described below:

Pursue The Right Opportunities:

Many companies turn to BI to determine how to most effectivelydirect their sales forces. For example, one leading manufacturer that regularly receives a massive list of all local construction projects, wanted to understand which of the thousands of sales opportunities its 25-person sales force should pursue, to have the best chance of closing deals and generating maximum revenue. To answer that question, this company implemented BI tools to predict which sales opportunities will produce maximum revenue, and then automatically e-mail a BI report, which identifies the 10 sales opportunities each person should pursue to its highly mobile sales force. As part of this initiative, Innoveer defined relevant manufacturing industry metrics, identified the data necessary to track them, and helped implement the required infrastructure improvements. The result: By directing its existing sales team to focus on the most lucrative opportunities, this manufacturer has already increased its revenue by 20 percent.

Improved Efficiency:

Innoveer client, a leading financial firm, utilizes desktop-based BI dashboards to provide account managers with color-coded feedback on a number of Key Performance Indicators (KPIs). These dashboards compare each account manager with their peers — including the number of clients contacted daily, the average time required to close a sales opportunity, projected quarterly sales, and customer satisfaction scores. This organization believes that these BI dashboards drive its salespeople to be more competitive with their peers, thus increasing their efficiency.

At the same time, the BI dashboards also simplify account managers’ roles. In particular, the BI-driven CRM interface provides just-in-time task suggestions to help close all open sales opportunities, as well as useful supplemental information, such as annual contract renewal alerts or service problems.

Increases Customer Satisfaction:

Many organizations are turning to BI to create a single view of each customer and ensure high levels of customer satisfaction. For example, a leading online information broker grew rapidly over five years via a number of acquisitions, which resulted in business divisions with disconnected sales processes and silos of customer data. Ultimately, customers grew dissatisfied because multiple salespeople from different divisions would offer inconsistent pricing and dissimilar product bundles, and furthermore, could not definitively confirm which licenses the customer had already purchased. To solve these problems, the company’s sales vice president wanted to create a “360-de-gree view” of each customer. For assistance, the company turned to

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Innoveer to help implement an out-of-the-box data warehouse, and consolidate three different reporting tools to one. As a result, the company can now more easily track sales activities across the entire organization, and coordinate sales and marketing efforts for maximum efficiency. These efforts have also enhanced up- and cross-selling activities, increased revenue, minimized customer turnover, and improved customer satisfaction levels.

Just-In-Time Intelligence:

One particular benefit from pursuing BI is the ability to standardize processes and terminology across the entire organization. For example, senior sales executive at a leading software company is wanted to generate more accurate revenue forecasts for the upcoming six–12 months. Yet each division employed different sales processes and tracked different metrics. To standardize multiple business units’ previously disjointed sales processes and terminology, Innoveer — after designing a BI plan — helped the company implement a single CRM application, which included a built-in data warehouse, plus BI tools. Today, having a consistent, company-wide approach to sales has improved business efficiency, and has also allowed executives to much more accurate predict revenue. ---R2

Just-In-Time Guidance:

In addition, the data warehouse now provides this company with just-in-time information to guide its sales expansion into new countries. By using BI, the vice president of sales can study the effectiveness of early efforts, test multiple approaches, and then refine headcount, sales processes, product focus, and target accounts. Previously, honing such efforts would have required guesswork, followed by 12–18 months of data collection and subsequent analysis. By using a single CRM application and bundled BI capabilities, however, this company has gained near–real time visibility into trends, to rapidly and effectively direct sales expansion.

The Data-Driven Advantage:

Maintaining a competitive advantage in today’s marketplace requires the transformation of data into actionable intelligence to continually improve customer-facing strategies. Accordingly, many organizations are now adopting BI tools to more effectively direct their sales,

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marketing, and service efforts. Even with out-of-the-box tools, however, organizations require a BI plan to consistently and efficiently transform raw sales, service, marketing, and customer data into useful information, beyond just creating a 360-degree view of each customer.An effective BI Roadmap begins by defining an organization’s precise business outcomes ;consistently utilizing related metrics, business processes, and data gathering techniques; creating an infrastructure to further ensure BI consistency; determining the required skill sets ;and implementing the project in stages, with each phase tied to achieving a specific business goal. By undertaking a BI plan, organizations can produce the actionable intelligence they need to de live insightful information to employees via BI dashboards and reports; make more efficient use of existing resources; ensure high levels of customer satisfaction; and direct employees toward those tasks and sales opportunities which yield maximum revenue.

BUSINESS INTELLIGENCE IN ACTION:

In this rapidly changing world consumers are now demanding quicker more efficient service from businesses. To stay competitive companies must meet or exceed the expectations of consumers. Companies will have to rely more heavily on their business intelligence systems to stay ahead of trends and future events. Business intelligence users are beginning to demand Real time Business Intelligence] or near real time analysis relating to their business, particularly in frontline operations.

Following are a few examples of some companies who have opted for the Business Intelligence technique:

1. Corporate Technologies’ Oracle Business Intelligence Practice is a dedicated line of business that helps organizations envision and build business intelligence solutions with OBIEE. Oracle focuses on delivering business intelligence solutions that leverage the power of OBIEE to turn raw data into relevant and useful information in the form of reports, dashboards, advanced analytics and key indicators. Our solutions empower users to make informed decisions and to act on critical business information. Oracle puts the power of its clients strategic data assets to work to provide breakthroughs – where information and people come together to increase competitiveness, sharpen performance and foster accountability – leading to more impact for employees, customers, partners and ultimately to provide greater value to the organization.---R3

2. BI for healthcare organizations promises to improve patient care by driving better decision making throughout your organization. When insight into clinical data is sound,

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informed, and complete, clinical decisions will be evidence based. BI is the commercial equivalent of evidence-based clinical decision-making. One uses clinical evidence to support diagnoses to develop care plans and to evaluate outcomes for patients. The data in any healthcare organization is spread across a number of systems (e.g., encounters, labs, pharmacy, membership, finance, claims, billing, etc.). BI extracts data from these systems and brings it into a centralized, secure, historical repository, which is organized for business users to slice, dice, sort out and sum it efficiently for use in making business decisions. The value of BI is in using the same data across the organization for a variety of decisions on clinical performance, business performance and strategic as well tactical initiatives. When ten people view data from ten different perspectives, its value increases exponentially through new insights, new answers as well as new questions.

3. Oil companies have always lived and died on BI, says Gary Lensing, VP and CIO for global exploration and production at the $32 billion Hess. "Data drives what we do, always quantifying where that value is." Hess and its competitors harvest data from inside and outside their four walls, plus they factor in wild cards such as war, weather and global politics. BI in oil and gas isn't a simple matter of buying a set of analysis tools and feeding data into them. Oil companies pass information through multiple layers of software, with nearly every employee focused on collecting and storing some kind of data. Exxon, for example, wants its geophysicists to know Fortran, C and Java so they can code their own, quick analyses. When Hess drills a well, Lensing says, engineers collect status data every 15 seconds. Typically, specialized applications for oil and gas—such as Geolog from Paradigm Geo-technology (to find patterns in seismic measures) or PDI Focal Point from Professional Data Solutions (to track gas station store sales in a dashboard)—have their own analysis capabilities. But to get a global view of company performance, that data must be fed into off-the-shelf BI analysis and reporting packages familiar to most CIOs, such as those from Cognos or SAS Institute. Then the companies add supply-chain information. SAP for Oil & Gas modules manages the supply chains at companies like Hess and Valero. Those companies also use at least some of SAP's analysis and storage applications, including Business Warehouse.---R5

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Conclusion:Enterprises today demand quick results. It is becoming essential nowadays that not only is the business analysis done, but also actions in response to analysis of results can be performed and instantaneously changes parameters of business processes. The paper explored the concepts of BI, its components, benefits of BI, technology requirements, designing and implementing business intelligence, and various BI techniques. As markets become increasingly competitive, the ability to react quickly and decisively is more critical than ever. Selecting, developing, and implementing the right BI infrastructure are complex and challenging tasks.

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Bibliography:

Chacarbaghi, and Lynch. CompetitiAdvantage: Creating and Sustaining Superior Performance by Michael E. Porter 1980, pp. 45. 1999.

Clulow, Val, Julie Gerstman, and Carol Barry. " "The resource-based view and sustainable competitive advantage: the case of a financial services firm"." European Industrial Training, 1 January 2003.

Porter, Michael E. Competitive Advantage. Free Press, New York, 1985.

—. Competitive Strategy: Techniques for analysing industries and competitors. New York: Free press, 1980.

Porter, Michael E. "How Competitive Forces Shape Strategy." Harvard Business Review, March/April 1979.

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