|Sign-Up for Free Exclusive Services:||Portals|||||eNewsletters|||||Web Seminars|||||dataWarehouse.com|||||DM Review Magazine|
|Information Is Your Business||Advanced Search|
The Information Fallacy
The Nobel Prize for Economics was awarded to George Akerloff, Michael Spence and Joseph Stiglitz for their pioneering work in the area of information economics in 2001. The premise of their research was that many markets are imperfect because information asymmetries exist in which one party to a transaction has more information than the other party. The subtext here is that information has value and that benefits can accrue to those who possess it.
The views of Akerloff, Spence and Stiglitz are simple but profound in that they challenged the fundamental economic assumption that markets had perfect information, i.e., that everyone had pertinent information.
Today, we find a striking parallel to the world of IT and business intelligence (BI) in particular. BI initiatives are often based on the false assumption that users know exactly what information they want and need. More specifically, we have observed that BI initiatives typically focus on existing information rather than on the set of information that truly influences decisions and their outcomes.
This latter set of information can have the most powerful impact on performance. Whether IT is embarking on or has completed a BI implementation, defining this information will help unlock the key to more effective decisions and give organizations a significant advantage.
Identifying BI information and analysis requirements depends largely on how one defines the purpose of BI and what organizational goals it seeks to support.
In the most general sense, the goals of an organization are fourfold and reflect two different time horizons - current and future. Goals are:
The purpose of BI should be to provide information that supports decisions behind all four goals. Viewed another way, BI should support decisions that not only help execute the current strategy but also validate whether the strategy itself is optimal and point to areas for refinement.
This information goes well beyond accounting and customer relationship management (CRM) data to include multiple perspectives:
The value of this information can be significant. At the consumer level, Amazon is a wonderful example. Amazon offers customers valuable information for making decisions on which books to buy. When we search for a book, Amazon gives us much more than the book's cover, price and availability. It provides user reviews and suggests other books, all of which inform our decision. Imagine if users within an organization had the same depth and relevance of information that Amazon gives its customers.
A mortgage client of ours provides an instructive corporate example. The client collected extensive information on customer transactions and Web site clicks. However, it was not able to understand why its offerings were not more widely accepted. Looking at the problem from a BI perspective revealed the need for greater insight on customer segments and behaviors, which ultimately helped it to achieve a multifold increase in originations and to identify new product opportunities.
What Do You Need?
BI implementations typically gather information and analysis requirements by asking users, "What do you need?" We have found that users typically assume they have the information they need and instead focus on two types of requirements:
As an example, the accounting department may want a BI system to automate a manually created report for allocating expenses, or the sales department may want a BI system to view sales for different types of accounts.
Both requirements illustrate a technology-versus-information mind-set.
Why do users not know or reveal all of their information needs? There are clearly many reasons, but three of the most common ones we've observed include the following:
There has been a greater push toward using balanced scorecards, which incorporate qualitative information. Scorecards, however, are not sufficient: they have yet to be used beyond the executive suite in any significant way. They often lack depth around what is driving performance, and they focus on measuring strategy execution rather than whether or not the strategy itself is correct.
Recognizing the Symptoms
How do you know if your organization is not collecting the right kind of information? From our experience, some of the more prominent warning signs are as follows.
Users keep asking for more reports. Users will hope that analyzing the same information in different ways will lead them to the answer. This rarely works well and points to a need to re-assess fundamental drivers behind performance instead.
The IT group at one client suspected this issue when users began severely straining IT resources with more and more report requests. All the while, profits continued to decline. Before investing more in BI technology, the client asked us to look at their true business drivers and information needs. We came up with powerful findings: only a third of the information they needed was collected and distributed, a third of the information they needed was not collected, and a third of the information they needed was collected but not accessible by users. The quality of information - not technology - was clearly the main issue.
Strategy keeps changing. When an organization's strategy doesn't seem to be working, certain managers quickly change direction. Most of the time, such rapid changes are a poor surrogate for understanding true business drivers and collecting related information. At some point, customers will abandon the company.
This situation was prominent at one of our other clients. When we determined what information was relevant to collect, particularly around the area of customer behavior and competitor offerings, the client was able to understand where to focus and quickly realized increased revenue.
Decision-makers rely heavily on anecdotes instead of facts. Information is not as easy to collect as the typical transaction, such as sales and expenses. In the absence of readily available information, there is a bias to rely on personal experience or anecdotes.
Identifying the Right Information
IT groups include terrific technologists but usually lack the strategic skill set to identify many critical information needs. Likewise, users often have deep process or functional skills rather than strategic skills. So how do BI teams - with IT and/or business line members - identify information that truly provides value to users?
To solve this challenge, the best course is to engage a strategic resource or adviser who can excavate and translate user needs. The BI team, along with this strategic adviser, should conduct the following critical steps:
Not all critical information needs can be embedded into a structured BI database for later reporting and analysis. Certain information may be too expensive to collect or too unstructured. In the latter case, other tools, such as portals, may be most effective. These are judgment calls that will have to be made. Nonetheless, focusing the lens more closely on true information needs will enable IT and BI teams to contribute to more certain decisions, more effective strategy execution, greater opportunities and, in turn, much better performance.
For more information on related topics visit the following related portals...
Business Intelligence (BI) and Strategic Intelligence.
Reuben Danzing is the lead strategist for C Squared Strategy LLC and author of its BusinessIQ approach. He may be reached at firstname.lastname@example.org.
Walter Callender is the founder and managing partner of C Squared Strategy LLC. He may be reached at email@example.com.