Chapter 1: Introduction to Business Intelligence

Objectives: After completing this chapter, you should be able to:

1. list and describe the three components of the pressure-response-support model

2. describe the major factors that influence today’s business environment

3. list some of the major responses taken by organizations4. define the strategy gap5. define business intelligence (BI)6. identify the major objective of BI7. list and describe the four major components of BI 8. list the benefits of BI9. define OLTP and OLAP10. describe why it is imperative to have BI as a strategy11. define competitive intelligence12. explain how BI can provide and help sustain competitive

advantage in an industry13. describe the major types of BI users14. describe many BI success stories as illustrated in the business cases in the notes and online resources in the notes and lectures

I. Introduction (Section 1.2, page 8)

Moneyball, a film about baseball and data analytics.http://www.huffingtonpost.com/2011/08/03/second-moneyball-trailer-_n_917707.html

A. What is Business Intelligence?

B. Business Intelligence (BI) is an umbrella term that

includes architectures, tools, databases, applications, and other methodologies aimed at getting current, historical, and predictive views of business operations for purposes of making better business decisions.

C. Common functions of BI technologies are reporting, online analytical processing (OLAP), analytics, data mining, business performance management (BPM), benchmarking, text mining, and predictive analytics.

D. BI methodologies enable managers and analysts throughout an organization to quickly and easily access data so as to gain performance/competitive advantage.

E. The process of BI is based upon transforming data to information, then to decisions, and finally into actions.

F. If you make decisions or support those who do make decisions, then BI is for you!

G. Because BI aims to support better business decision making, a BI system can be called a decision support system. DSS – A conceptual framework for a process of supporting managerial decision making usually by modeling problems and employing quantitative models for solutions analysis.

H. BI is the perfect mix of IS and DS! (ISDS)

I. Applebee’s Study: From Barbara Wixom, TeraDataU(5:26 minutes)

File name = Course Outline – Chapter 1 – ApplebeesThe student password is Big Data.

http://www.teradatauniversitynetwork.com/teach-and-learn/library-item/?LibraryItemId=219

1. Problem Definition – What were some issues facing Applebee’s Restaurants?

2. Solution?

3. Benefits?

4. What can you learn from this?

II. A Brief History of BI, page 9

A. BI is rooted in 1970s reporting systems which provided static, pre-determined, canned, two-dimensional reports, having no analytical capabilities.

B. In the early 1980s, EIS (executive information systems) emerged and provided for expanded computerized support to top-level managers and decision makers. These capabilities included dynamic, multidimensional reports, forecasting and prediction, trend analysis, drilling down to details. This was facilitated by the fact that dozens of commercial products were developed through the mid-1990s to provide these capabilities.

C. In the mid-1990s, new capabilities were added to the EIS capabilities and appeared under the name BI. (The term BI was then coined by the Gartner Group, the world’s leading information technology research and advisory company)

D. By 2005, the analytical capabilities were more powerful (included artificial intelligence) and continue to improve in 2010 (Microsoft PowerPivot).

E. Various Tools included in BI – See Figure 1.2 Evolution of BI on page 9.

F. Managers need the right information at the right time and in

the right place.

(You will see many examples of BI successes in this course. We will refer to Table 1.2 on page 13 for detail applications.)

OPENING VIGNETTE: NORFOLK SOUTHERN USES BUSINESS INTELLIGENCE FOR DECISION SUPPORT TO REACH SUCCESS, PAGE 4

Problem?

Solution?

Results?

Answer Questions for the Opening Vignette 1-5 on page 5

What can we learn from this vignette?

III. Using Business Intelligence to Excel

A. BI for knowing your audience (Advertising)

DatabaseFootball.com advertises that they provideinternet viewers with statistics, awards, history, and

more on every player and team to have played in the NFL, AFL, AAFC, and APFA. They want to solicit advertisers (advertising revenue) for their website.

Question: What potential advertisers do they solicit?

Solution: They need to know their audience, so they hire Quantcast.

Quantcast: ‘It’s your audience, we just find it.’®

Quantcast provides media companies the data needed to define their audience (including traffic counts, audience segments, demographics, etc.). This data is used to deliver effective and consistent campaigns.

www.quantcast.com/databasefootball.com

So – WHO are there advertisers?

B. DirecTV – Want to have some insight into the growth or decline of your subscriber base? CHURN RATE is for you!

Churn Rate, for any given period of time, is the number of participants who discontinue their use of a service divided

by the average number of total participants. (For Instructors, that would be our DROP rate!)

A. Problem? Reduce churn rate. High volume of calls. Needed a better response. Disparate data mart.

B. Solution? Save Team contact customers who wanted to cancel within 3 hours to try to convince them to stay. Centrally managed DW updated in real time.

C. Results? Benefits? 25% customers kept service

C. Classic Book, ‘Competing on Analytics’ Author Tom Davenport speaks on YouTube about ‘The future of Baseball’ (9:01 minutes)

http://www.youtube.com/watch?v=g1T9TkPCgaw

D. New Orleans Saints use BI = success!

E. See SAS Institute success stories http://www.sas.com/success/

F. What can we learn from these Case Studies?

1. All case studies illustrate the following:

a. Information flow does not meet the needs of those making decisions. (Possible reasons: late, incomplete, inaccurate, not accessible to all, etc.)

b. The technology does not meet the need to make fast decisions, evaluate large amounts of data, and facilitate collaboration.

2. The solution is a technology called BUSINESS INTELLIGENCE. BI is based upon the use of a data warehouse and provides a means of achieving a strategic advantage.

3. The MAJOR GOAL of this COURSE is to show how it is done!

III. Changing Business Environments and Computerized Decision Support (Section 1.1, page 6)

A. The business environment is ever-changing. To survive, companies must develop adequate measures of business performance and processes and recognize the need for computerized support through the use of BI to facilitate the necessary responses. In short, companies must use data to support informed decisions.

B. The authors developed “The Business Pressures-Responses-Support Model” to describe why companies are embracing computerized support. Figure 1.1 on page 6.

C. The THREE Components of the Business Pressures-Response-Support Model:

1. PRESSURES/FACTORS that exist in the business environment facilitate change in an attempt to handle challenges and, thus, create opportunities. Business pressures result from today’s business climate. The FACTORS that facilitate change are:

a. Markets - examples:(1) Globalization – You can find suppliers and customers in many countries, which means you can buy cheaper materials and sell more of your products and services; great opportunities exist. However, globalization also means more and stronger competition.(2) Booming electronic markets on the Internet

(3) Innovative marketing methods(4) Need for real-time, on-demand transactions

b. Consumer Demands – better quality products for a cheaper price, delivered to you quickly, less consumer loyalty today.

c. Technology-Related – IT changing so rapidly, businesses need to change with the times.

d. Societal – older population, more women in the workforce; you must respond to these consumer demands. Different needs create different demands. Government puts pressures.

2. ORGANIZATIONAL RESPONSES: BE REACTIVE, ANTICIPATIVE, ADAPTIVE, and PROACTIVE. Actions must be taken in order to counter the pressures and survive the business environment. For example, managers can use BI to diagnose the symptoms of the environmental pressures and, accordingly, implement the appropriate interventions. Managers may use new and innovative business models. Know the organization responses in Figure 1-1The Business Pressures-Responses-Support Model. (Other actions managers take are listed on pages 7-8.)

3. COMPUTERIZED DECISION SUPPORT – the responses to the business environmental factors are usually facilitated by computer support in the form of data warehousing, software tools for data analysis and

manipulation, monitoring conditions through the use of dashboards, etc.

D. The MAJOR Objective of BI and computer decision support: To facilitate a strategy for closing the GAP between the CURRENT performance of an organization and the DESIRED performance as described in the mission statements, objectives, and goals.

IV. The Architecture of Business Intelligence has FOUR Major Components, page 10. Data Warehouse, Business Analytics, Business Performance Management, and User Interface.

A. Data Warehouse (DW) – a special database or repository of historical and current data that has been collected and is of potential interest to decision-makers throughout an organization. DW is created by the technical staff. (Detailed in Chapter 2.)

(Consider this: In reality, most organizations maintain data that are heterogeneous in nature and not related. For example, an organization might have separate databases that handle customer relationships, employees, sales, production, inventory, finance, budgeting data, etc., probably created by different entities. In practice, these systems are often poorly connected or not connected at all. Decision-makers are hard pressed to answer simple questions like: "How much time did sales person A spend on customer C (employee data), what products didcustomer C purchase (inventory data), how much did

we sell to Customer C (sales data), was customer C happy with the provided service provided by sales person A (customer-relation data), Did Customer Cpay his bills (finance data)." While the information is available "somewhere" in different databases, the answer is hard to assess.

B. Business Analytics (BA) – is a broad category of applications used for analyzing data for purposes of helping business users make better business and strategic decisions. (See Chapters 3, 4, and 5)

1. BA interactive software tools (called middleware) allow users to access the data warehouse and create on-demand reports and queries and to conduct analysis of data. Two major categories of BA tools and techniques are: (1) Reports and queries, and (2) Data, Text, and Web mining and other sophisticated mathematical and statistical tools.

2. Data Mining – a set of data analyses and statistical methodologies that look for hidden patterns in data which can be used for predicting future behavior (described further in Chapters 2-6). Data mining replaces human intelligence because of its ability to handle massive amounts of data.

Application Case 1.1 Location, Location, Location, page 11Hoyt Highland Partners worked with an urgent care clinic client. The case describes a BI technique for data mining – cluster analysis.

What is the problem?

Solution?

Result/Benefits?

C. Business Performance Management (BPM) – uses balanced scorecard (BSC) methodology to link objectives with factual measures. In the process, an enterprise must define, implement, and manage their business strategies. The objective of BPM is to optimize the overall performance of an organization. (Detailed in Chapter 3).

D. User Interface: Connects Analytics to Strategy through the use of dashboards and other information broadcasting and visualization tools.

DASHBOARDS provide a comprehensive, at-a-glance view of corporate performance/health through visualization graphics (like the instruments on your car’s dashboard). The dashboards ordinarily contain key performance indicators (KPIs), trends, and exceptions/outliers for different aspects of the business operations. (See example in the notes of Figure 5.8)

Case Study: See Overview, and examples from Finance, Sales, Procurement, Work Force Development

http://download.boulder.ibm.com/ibmdl/pub/software/data/sw-library/cognos/demos/od_ibm_cognos_analytic_applications_integrated_demooverview/

E. The Benefits of BI – lies in its ability to provide accurate information when necessary.

1. A survey of 510 corporations (Eckerson, 2003) provided the following list of benefits:

2. Thompson (2004) reported the following:

3. Most benefits mentioned are intangible, therefore managers don’t always insist on a Cost-Benefit justification for BI.

4. There are common application areas in BI. One such application, using predictive analytic tools, can result in cost savings.

F. The BENEFITS AND BUSINESS VALUE of BI

1. Assessing the business value of BI is complex because of the intangibles.

2. The major benefit of BI to a company is the ability to provide accurate information when needed, including a real-time view of the corporate performance and its parts.

3. Organizations are being compelled to capture, understand, and harness their data to support decision making in order to improve business operations.

4. Business cycle times are now extremely compressed; faster, more informed, and better decision making is therefore a competitive imperative.

5. Managers need the right information at the right time and in the right place.

6. Know Table 1.2 Business Value of BI Analytical Applications, page 13.

a. list business questions to be addressed

b. for each business question, state the analytic application used (this is the tool for addressing the question) and the associated business value.

Example: Fraud detection: Fraud? Time and cost saving

Application Case 1.2, Alltel Wireless: Delivering the Right Message, to the Right Customers, at the Right Time, page 13. A data mining application using predictive analytic tools is described in this case.What is the Problem? Need for centralized, data-focused solution to increase # of new customers & keep existing ones

Solution? Acxiom’s PersonicX – clustered the data on U.S. Households based on specific consumer behavior and demographic characteristics. (behavior – ex.: are you paying your bills?; how often do you use your phone?) (demographics – age, race, gender, etc.)

Results? Could target new customers and keep existing ones

Benefit? Increased customers and ROI

G. Automated Decision Systems (ADS), also known as Decision Automation Systems (DAS) – An ADS is a rule-based system that provides a solution in one functional area (of, say, finance, marketing, manufacturing, etc.) to a repetitive managerial problem, usually in one industry.

Examples: Provide a credit score,Accept/deny a loan application,Determine price of a store item,Recommend item to purchase^^ These are automated decision systems

Application Case 1.3, Giant Food Stores Prices the Entire Store, page 14. This case shows an example of applying ADS to a problem that every organization faces – how to price its products or services.

What is the Problem? 30 year-old rules for pricing and promotion, not documented, in someone’s head or kept on paper

Solution? DemandTec for pricing decisions to help predict the demand based on various price levels

Results? Benefit? Agile in pricing; competitive; profitability; tangible and intangible benefits

VI. Transaction Processing Versus Analytic Processing (Section 1.4, page 17)

A. BI is not OLTP

1. OLTP - Online Transaction Processing System handles the everyday transactions of a company’s on-going business.Example: Suppose you purchase a two pairs of shoes, a purse and a wallet. The salesperson will scan the bar code of the items and sales data (item codes, item descriptions, quantity purchased, sales tax, total amount of purchase, ID of salesperson, store location, etc.) are transmitted to a database where sales data and inventory are updated. Suppose also that you swipe your debit card to pay for the purchase. Transactions are saved in a database.

2. These transactional data are housed in operational databases.

3. Most operational data in Enterprise Resources Planning (ERP) systems – and in its complementary siblings like supply chain management (SCM) or customer relationship

management (CRM) – are stored in an OLTP system, which is a type of computer processing where the computer responds immediately to user requests.

3. OLTP systems are efficient for transaction processing but inefficient for the end-user ad hoc reports, queries, and analyses.

Example of OLTP: Louisiana Crash Data File Name = Course Outline - Chapter 1 – CrashFormDataMap

B. BI is OLAP

1. OLAP – Online Analytical Processing Systemsutilize informational data that are transferred from operational databases into data warehouses for analysis and decision making purposes. (ex. Laws – should you wear a helmet on a motorcycle, etc.)

2. OLAP is processing for end-user ad hoc reports, queries, and analysis.

3. OLAP is an approach to quickly answer multi-dimensional analytical questions.

4. The output produced from an OLAP query can be displayed in a table format where the rows and columns each represent the values of a variable and the table entries represent counts. (slicing and dicing the data)

5. We will use OLAP in MS Excel 2010 with PowerPivot to create tables this semester.

Example: Alcohol Involvement (row) by Number of Vehicles Involved (column)

Today users can analyze their own data from DW used in OLAP systems. In the past, before technology enabled business intelligence, managers relied on IT staff to generate predetermine reports on a scheduled basis from OLTP systems.

Example: All pertinent CRASH data are saved in DW for OLAP.

VII. Intelligence Creation and Use and BI Governance (Section 1.3) page 16

A. Despite clear tangible benefits, BI initiatives are becoming a strategic imperative!

1. There are fewer barriers to the marketplace allowing for new competitors; these competitors are able to find better and cheaper suppliers, resulting in improved quality and reduced costs.

2. Globalization, along with the use of the internet, provides competition even to the major players (PC manufacturing, automobile manufacturing, consumer electronics).

3. Competitors are able to get their products and services to customers almost anywhere (through readily available shippers like FedEx, UPS, DHL, etc.)

4. CONCLUSION: Companies must be ADAPTIVE and AGILE in order to meet the competition head on.

‘Competing on Analytics,’ Davenport, T.H. (2006): ‘It’s virtually impossible to differentiate yourself from competitors based on products alone. Your rivals sell offerings similar to yours…How to pull ahead of the pack? Become an analytics competitor: Use sophisticated data-collection technology and analysis to wring every last drop of value from all your business processes.’

B. Intelligence Creation Requires Four Things:( see first paragraph under BI Governance, page 16.)

1. Identifying and prioritizing specific BI projects

2. Using ROI (return on investment) and TCO (total cost of ownership) measures to estimate cost-benefit ratio.

3. Addressing the costs of maintaining all software applications

4. Collecting measures from the user community on how BI impacts decisions

C. BI Governance refers to defining and implementing an infrastructure and strategy that support the businessgoals.

1. BI governance provides measurementsfor gauging success.

2. Matney and Larson (2004) identified the

following four components of BI governance:

a. BI governance committee (for project direction, alignment, and prioritization)

b. BI lifecycle (to ensure consistent project delivery and meet end-user expectations)

c. End-user support (ongoing improvements to user effectiveness and empowerment)

d. BI review (evaluation of maturity levels and tracking metrics)

3. A major governance issue is who should serve as decision makers involved in prioritizing BI Projects.

4. The two critical partnerships required for BI governance are:

1. A partnership between functional area heads and/or product/service area leaders (Middles)

2. A partnership between potential Customers and Producers (representatives of the business side and representatives from the IT side).

E. Intelligence and Espionage

1. Competitive Intelligence (CI) involves tracking what your competitor is doing (i.e.: tracking public court documents, patent filings, etc).

2. Espionage - Ex. American film “Duplicity” about two corporate spies starring Julia Roberts.

3. Vast amounts of data must be gathered and then needs to be cataloged, tagged, analyzed, sorted, filtered, and must undergo a host of other operations to yield usable information that can impact decision making and improve the bottom line.

4. The importance of these topics increases every day as companies track and accumulate more and more data.

5. Competitor Analysis is used for strategic planning and has several forms:

a. Industry Analysis

(Example: Wal-Mart may choose to be a ‘low-price industry leader’ and monitors production, delivery, change in vendors, etc. in order to maintain lower costs for themselves, thereby hindering competitors from entering the market themselves)

b. Capitalizing on a Market Niche

(Example: Harrah’s Reward Program for Customer Loyalty) See Video: http://www.sas.com/success/harrahs.html

4. BI is used to SUSTAIN your competitive advantage.Jeanne Harris “Competing on Analytics” http://www.youtube.com/watch?v=lSBtOBHjhGg

VIII. Successful BI Implementation (Section 1.5, page 18)

A. There are some issues that must be addressed in order to be successful in implementing BI initiatives. (Know your USERS and emphasize ALIGNMENT)

1. A company must appreciate/address the different classes of potential users. They need to know what personnel are most likely to use BI.

2. The reason for using BI must be planned and aligned with the company’s business strategy and mission. BI is not just an exercise for the IT department. It must serve to improve the business operations by making decisions more data driven.

B. The BI User Community, page 18

1. BI has a large and diversified user community. One of the most important aspects of a successful BI is that it must be of benefit to the enterprise as a whole. This implies that there are likely to be a host of users in the

enterprise—many of whom should be involved from the outset of a DW investment decision.

2. Not surprisingly, there are likely to be users who focus at the strategic level and those who are more oriented to the tactical level.

3. Companies successful in BI need to appreciate the different classes of users. These users help guide in building the DW and selecting the appropriate tools and software applications.

C. Appropriate Planning and Alignment with Business Strategy, page 19

1. Need a framework for planning BI initiatives.

2. Gartner group (2004) defines four components of the planning and execution of BI initiatives:

a. businessb. organizationc. functionalityd. infrastructure

3. Should include integration of several BI projects across the organization and with business partners (idea sharing).

4. There should be constant oversight and accountability. You should start BI and establish a BICC within the company if you have:

a. strategies and objectives are properly aligned with the reasons for DW and BI

b. IT department can implement hardware and software capable of implementing the objectives

c. user community is aware of initiatives and are motivated for operationalizing initiatives

5. BICC – BI Competency Center(See page 19 for BICC functions.)

D. Real-Time, On Demand BI is Attainable, page 20

1. Ordinarily BI uses large amounts on static data that are extracted, cleansed, and loaded into the DW at various intervals of time. This traditionally was done nightly in extract/transformation/load (ETL) batch update.

2. There has been an extraordinary demand for instant access to data. As a result, Real-Time BI applications have emerged.

3. Business Activity Management (BAM) bypasses the DW entirely and uses Web Services or other monitoring means to discover key business events.

3. Examples:

a. You charge/debit and your transaction is declined.

b. You buy a book from a local bookstore. When you check out, the book is scanned, and a Supply Chain Management (SCM) application automatically places an order for more books because that item inventory fell below a certain threshold.

c. Equifax uses a Customer Relationship Management (CRM) application that notifies customers by email if the balance on any credit card exceeds a certain balance.

d. DirecTV – the Save Team contacts customers within 3 hours of canceling their service and offers incentives to win them back.

E. Other issues to consider when implementing BI

1. Developing or Acquiring BI Systems

2. Justify and Prioritize by way of Cost/Benefit Analysis

3. Security and Privacy of Employees Needs to be Protected

4. Integration of Systems and Applications

IX. Major Tools and Techniques of BI (Section 1.6, page 21)

A. The six major categories of decision support tools are: data management, reporting status tracking, visualization, strategy and performance management, business analytics, social networking (Table 1.3, page 22)

B. Recently there has been a major surge in BI software and application providers. Some of these company names will become quite familiar after completing this book: Teradata, MicroStrategy, Microsoft, IBM+Cognos+SPSS, SAP+Business Objects, Oracle+Hyperion, and SAS.

C. BI tools are being developed for easier use by small and large companies alike, becoming critical for survival.

D. Gartner (Jan 2009) Worldwide Survey of 1527 CIOs http://www.gartner.com/it/page.jsp?id=855612

A July 2006 IDC study found, for example, that the market for BI tools was about $5.7 billion in 2005 and is growing at an annual rate of about 11–12 percent. Users don’t spend this sort of money on something unless it’s important! (This study can be

downloaded as a PDF file from http://download.microsoft.com/download/0/5/1/051389A2-FB6E-4AF0-B844-1FDAE6060514/WW-BI-Tools-2005-Vendor-Shares.pdf

Application Case 1.4, The Next Net, page 23. a) The ubiquity of cell phones, GPS devices, and wireless personal

digital assistants (PDAs) is resulting in the creation of massive new databases.

b) Reality mining is a new breed of data mining to analyze these new databases and create a much better and deeper understanding of customers’ behaviors and movements.

End of Chapter Application Case, “Vodafone Uses BI to Improve Customer Growth and Retention Plans”, page 26.

Problem:

Solution:

Results:

Answer Questions 1-5 on page 27.