BI or bust?

Many businesses—especially those that sell to other businesses—extend credit to their customers. Goods and services are delivered, and payment is collected some time after the sale. The length of the delay between delivery to customers and collecting payment has a critical impact on cash flow through the business. Many companies rely on loans from a bank or other financial institution to provide working capital—the funds required to run the business while waiting for payment. During times when such credit is hard to get, or is only available at higher interest rates, delays in collecting payment from customers can be fatal to a business, starving them of cash. By closely monitoring payments from customers, enterprises can ensure they keep their cash flow healthy.

Business intelligence can be used in many ways to ensure that cash flow is not compromised. BI can be used to determine the historical payment patterns for individual customers, to monitor aggregate performance measures such as the collections effectiveness index, and to trigger alerts when certain key metrics are not met. For example, suppose Acme Widgets routinely pays within 30 days of receiving an invoice. But what happens if an invoice is misplaced and is outstanding for more than 30 days? How easy would it be for your company to discover the overdue invoice and make a timely follow-up? Business intelligence can be used to flag that overdue invoice on a manager’s dashboard or generate an automated alert that would result in timely action.

One of the outcomes from such a strong focus on cash management is the best-in-class performance on "days sales outstanding" (DSO). DSO measures the average length of time it takes for a company to be paid after a sale to a customer is made. Even during a recession, when it might be expected that customers would drag their feet a little on payment to boost their own cash position, best-in-class enterprises recorded a 1 percent improvement in DSO. All other companies in the survey reported that their days sales outstanding had deteriorated by 2 percent. That may not sound like much, but when a company is teetering on the edge, everything counts.

What technologies are important?

Aberdeen’s research found that best-in-class organizations use many business intelligence technologies more than all other organizations. In our survey, there was only one technology that laggards use more than best-in-class—the humble spreadsheet. Three technologies are significantly prevalent in best-in-class organizations when compared to laggards, however, as shown in Figure 4 (http://www.kmworld.com/downloads/57555/BICharts.pdf).

First of all, the higher usage of data cleansing; extract, transform and load (ETL); and other integration technologies is a direct result of the more complicated business problems that best-in-class companies are trying to solve. Whenever data from two of more source data systems need to be brought together and merged in some way, chances are some of those technologies must be brought to bear. ETL does exactly what its name suggests—extracts data from a transactional system, transforms data fields if necessary before loading it into a data warehouse so that BI tools can be used. That’s typically run as a batch process, but other integration technologies, such as an enterprise service bus (ESB), can be used to perform more rapid updates of management information if required.

Data cleansing tools are used to correct inaccurate data, frequently resulting from manual data entry, so that a consistent view of data can be delivered to BI users. For example, most of us would recognize that "General Electric" and "GE" are the same company. However, in practice there could be dozens of misspelled names and abbreviations that refer to the same company, each with hundreds or thousands of records listed under each. Data cleansing tools rationalize that data to provide a consistent view.

Aberdeen’s survey found that 57 percent of those leading companies can break down their staff costs by product and market segment. That requires integration of data from a number of functional areas—sales, human resources, marketing and product management. To be truly comprehensive, that information should be pulled from all operations worldwide, and typically would involve enterprise resource planning (ERP) applications, perhaps standalone CRM applications and, of course, spreadsheets. That takes a significant amount of time and resources, and often specialized technologies—such as data cleansing products—are needed to make it happen.

Enterprise (or corporate) performance management (EPM) software is also used far more widely by best-in-class companies. That is a class of software tool that helps to link corporate goals to business processes and the key performance indicators (KPIs) that a firm defines and monitors. Forty-seven percent of the organizations that use EPM software have changed their planning, budgeting or forecasting frequency since the start of the recession in September 2008. Using such software can allow organizations to plan more frequently (since less management time is needed to create or modify a plan), providing much needed agility during turbulent times when business conditions change rapidly, demanding an equally rapid response from management.

Prior Aberdeen research, "Executive Dashboards: The Key to Unlocking Double Digit Growth" (May 2009), has shown the relationship between dashboard adoption and improved sales, service delivery and customer issue resolution. In that research survey, it was found that best-in-class organizations adopted dashboards throughout the organization, not just for executive information. A well-configured, personalized dashboard, with regular refresh of data, is an excellent way to provide managers with the essential information they need to make key decisions in a timely way.

A sinking economy takes no prisoners. There is lower demand for many products, more intense competition for the sales opportunities that do exist, and pricing pressure from customers. Consequently, companies need to be focused and lean—that is, focused on the products and markets where they can be profitable, and paring back to a cost structure that has no fat.