BI, in good times and bad

Business intelligence (BI) seems to thrive in tough economic times almost as well it does in good times. Based on a survey of IT and business leaders in Europe, China and the United States, AMR Research predicts that the global market for BI will be $57.1 billion in 2008, with the U.S. market accounting for $25.5 billion of the total. The growth rate is expected to be somewhat slower than in the past at about 5 percent, but increasing over the next several years.

Some of the resiliency in BI comes from the fact that businesses need to understand what’s happening whether their markets are rising or falling.

"A company that has insight into its operations and its customers has an advantage over companies that don’t," says John Hagerty, VP and research fellow at AMR Research. "That’s especially true during times when other indicators might suggest pulling back on technology investment."

During a strong economy, BI might typically be used to guide business expansions, while in a tight economy, the emphasis shifts to cost cutting.
Dan McGowan, senior VP and CFO of Envision Credit Union, a Tallahassee-based credit union, says, "It’s better not to wait until you’re faced with a crisis before doing something progressive. A well-rounded BI program should provide enough good information to offer actionable insight whether the trend is up, down or flat."

The founders of Envision acted in a progressive spirit 54 years ago when 10 local teachers pooled $70 in a cigar box to found the credit union, and that attitude has persisted for decades. Envision now has over $200 million in assets and more than 30,000 members, and serves five local counties.

Envision has been using IBM Cognos TM1software since early in 2007. (Cognos acquired Applix, the developer of TM1, in fall 2007, and was itself acquired by IBM a few months later.) TM1 provides performance management, including analytics, planning and scenario modeling.

McGowan, who used TM1 in a previous work environment, brought it to Envision to develop performance-monitoring applications. "We are constantly using BI to re-evaluate our institution’s risk/reward profile in the process of asset and liability management," he says.

Envision is able to look at its overall performance and that of particular lines of business. "We can get reports over different time periods with point-and-click ease, look at the income items, balance sheet, a six-year history for the same month and so forth," McGowan explains.

After watching demand for automobile loans decline, the credit union focused on other portfolios. "We were watching a downward trend in auto loans for an extended period of time," McGowan says, "so we ramped up our mortgage lending and credit card portfolios."

In an economic climate where many financial institutions are struggling with mortgage loans, Envision is enjoying solid growth. "We decided against issuing any subprime loans," says McGowan, "because we saw an inevitable downturn, and chose to avoid that level of risk."

In addition to helping monitor the big picture on investments, TM1 has benefited Envision in some smaller but pragmatic ways. For example, a monthly teller activity report that had been prepared manually, requiring about 20 hours of labor per month, is now automated using TM1. The new method requires only about 10 to 20 minutes per month.

"We have improved a number of processes using TM1, and we can see leaps and bounds in productivity improvement," says McGowan.

Some industries have been especially affected by the current economy and events within their sectors.

"Pharmaceutical firms have been hard hit by generic drugs, the lack of blockbuster drugs and new regulations," says Rob Rose, chief strategy officer at Cognos. "We have seen increased interest in BI as they turn toward business optimization for their key business processes."

Rose also sees changes in product mixes in grocery stores and retailers, as analytics in those industries indicate that customers are looking more to store brands to save money. "Industries have to deal with what the demand is and look for ways to accommodate," he says. "This places pressure on the top line."

"What companies focus on when things get tight is definitely squeezing out costs," says Mark LaRow, VP of products at MicroStrategy, which offers a variety of business intelligence solutions. "We saw this in 2001-2002, when our professional services group helped customers build reports on how to manage costs while preserving the upside in terms of growth."

Companies are also focused on measuring efficiencies during times of economic downturn. Ratios are one of the most powerful measuring tools for efficiency of all sorts.

"For example, questions such as ‘What is the sales volume for each square foot of store space?’ or ‘How much production is achieved in each square foot of a factory?’ are very useful in making strategic decisions about which assets to shut down," LaRow says.