The role, contributions, and drawbacks of the various business intelligence tools
Business intelligence tool in recent times have greatly assisted business organizations in fashioning out effective strategies that would position their organizations in meeting their objectives and goals by adequately utilizing its resources to cope with the environment they operate in.
An organization need to carry out a vibrant, pragmatic and effective strategy for it to adequately compete in an industry with high dynamic level of ways of conducting business, and high level of uncertainties and risks. Thus, to have that strategy that would give the organization a niche over its rivals, business intelligence tools are used by reorganization in supporting their strategic planning and strategic management. These business intelligence tools on their own does not give total solution to business problems, but assist the organization strategy in effectively accomplishing the set objectives and goals in the most efficient way. There abound different business intelligence tools, these include data mining, data warehousing, OLAP etc. it then r e quires that the right tool is utilized in supporting an organization in its strategic information management. Such business intelligence tool should be selected and utilized after an adequate study of the organization, and how effectively the tool would be used in assisting the organization’s strategy in meeting its objectives and goals. According to Vriens (2004), “Due to the increasing complexity and dynamics of the environment the need to produce relevant ‘actionable’ intelligence is increasing as well. Because, of , for instance, increased global competition, (speed and impact of ) political changes, and rapid technological developments”. With the rapid changes and stiff competition the selection of the right business intelligent tool would go along way in bringing about effective strategic management. It is then germane that the “Data Mining modeling technique is one that have in mind the main task of the project and its relation to main divisions of Data Mining tools according to the type of the problem” (LIS, 2001).
This essay write up would carry out an analysis of the roles, contribution and drawbacks of utilizing business intelligence tools in an organization’s strategic management information.
Roles And Contribution Of Business Intelligence Tools To An Organization’s Strategic Management
Business Intelligence tools, such as data mining, data warehousing, OLAP etc, support an organization in its strategic management plans. This, they do by providing the organization with the necessary data in which its strategic plans are based upon. Effective strategic management, which entails immediate strategic planning and long-term forecast plans, has to depend on the availability of vital information for it to adequately meet the organization’s objectives and goals. This information needed to support the strategic management of an organization is derived from the database provided by different business intelligence tools. Database derived from business intelligence tools, such as Data Mining (DM), forms the bases on which strategic management information are derived for planning for an organization. According to Thearling (1995), “Database marketing supports a variety of business processes. It involves transforming a database into business decisions”. For building a new catalog for a retailing business, the historical database of customers would be utilized; this will include information on their location, zip code, sex, age etc. database marketing software would use these information to build a model of customer behavior that would generate a mailing list of customers most likely to respond to a new catalog. The catalog built, would enable the marketing organization to strategize in line with the information derived from the data mining process. This goes to show that data mining business intelligence tool is a supporting tool for strategic planning and not a solution-proffering tool for business problem (ibid). The importance of generating vital information for effective decision making through the aid of business intelligence tool, is further buttressed by Vriens (2004), “To (re-) formulate their strategy, organizations need to collect and process information about their environment- about, for instance, competitors, customers, suppliers, governments, technological trends or ecological developments”.
In the formulation of business strategy the business intelligence tools role for information generation entails the scanning of the environment in order to maintain the adaptability of the organization to the industry and the system in which it operates. This is a necessary function for a viable system for an organization, and it makes it bale to adapt to the changes in the environment in which the organization operates.
Data mining tool is used in making an organization extract information that is hidden and previously not known to the organization and its competitors. This information derive forms a good basis for planning and having competitive advantage over competitors. According to Chopoorian et al (2003), “Data mining applications, as such, can optimize business conditions by providing answers to key bottom-line questions. Savvy corporations already use data mining to develop marketing strategies, target mailings, coupons, advertising messages, adjust inventories, minimize risk, and eliminate wasteful spending. It enables managers to answer business questions that historically have been too time consuming to re solve or find, predictive information that was once overlooked because it resided outside traditional business expectations”.
Data warehouse is another vital business intelligence tool. Inmon (1993), cited in Vreins (2003), defines data warehouses as “a subject oriented, integrated, nonvolatile, and time variant collection of data in support of management’s decision”. Data warehouse aid organization startegic process by garthering those scattered data that are in database. This include databases that involve transactional databases, finanncial databases, personnel databases etc. according to Long & Long (2002: 425), cited in Vriens (2004), the improtance of data warehouse to organization startegic process is that data which are not integrated and thus contain redundancies and hard to access, these are copied to a data w arehouse and reorganized into a format that gives decision-makers ready access to valuable, time-sensitive information.
Other business intelligence tools like the Online Analytical Processing (OLAP), Queries and data minign are used in accessing and analysing data in data warehouse.
OLAP is used for online analysis and manipulation of data. According to Chopoorian et al (2001), “the warehosuing process employs electronic means to merge data from cross-multiple platform sources, reformat it, and then structure it in a way to support developing a macro view of information for executive users a nd more detailed information to operational users”. The core two components of data warehouse include: the software and metadata. While the soft ware consists of tools that e xtract data from existing database, manage the new database, and retrive and analyze the data in the data warehouse, the metadata contains information about the organization in the dataware house (Phillips, 1997, cited in Chopoorian et al 2001). Data warehouse also aid in the perfromance of some marketing functions which include giving retailers a nd marketing enterprises the ability to merge pricing, inventory, finance, and customer database to increase profits, track customer trends, and target merchandise promotions. Wal-Mart have one of the world largest data warehouse which contains more than seven terabytes (trillion bytes) on different areas of point of sales, inventory, product in transit, market staistics, customer demographic, finances, and supplier performance (Chopoorian et al, 2000). This massive storage of database has assisted the organizatyion in its analysis on sales trend, inventory control and customer behavior. The outcome mof these analysis form a vital basis for it to effectively attain its objectives and goals.
Business Intelligence tools can be classified into four major groups ; in ter ms of ways they support an organization’s startegic process:
- Supporting specific methods for identifying, storing and disseminating startegic information needs. This include tools to visualize the variables and their causal relations relevant for specifying the information needs, e.g. supporting system dynamics software (vensim or powersim).
- Supporting the process of identifying strate gic information needs; such as different types of group ware or software supporting group model building. This application enables different users to anonymously discuss, brainstorm about, categorize, and vote on relevant intelligence topics.
Support specific methods used in analysis; such as SD software that enables competitive intelligence professionals to run simulations with certain data and thus, helps to e stablish their r elevance.
Support management of and collaboration in the process of analysis. Here, many databbases with intranet can be use for analyzing data for management information usage (Vriens, 2004).
Drawbacks Of Utilizing Business Intelligence Tools In Organization’s Startegic Information Process.
The wrong approach adopted in utiliziing business intelligence tools would result in a waste of resources and time expended in the process. Thus, it requires that the problem facing an organization is adequtely studied and understood by the practitioner of the business intelligence tools. And the right tool and right sequence of installation is adopted. The application of business intelligence tools requires a thorough study of the organization and its internal operations to make the process a success. According to Thearling (1995), “A database marketing software product will not succeed if it does not start with an understanding of real-world business problems”.
Again, the utilization of business intelligence tools requires users to have basic knowledge of statistics and its applications, and knowlegde of computer operations. Thus, it becomes very difficult for managers with no vast knowledge in these field to adequately benefit from the davantages associated with the utilization of business intelligence tools.
Business intelligence tools are not a solution to business problems in tiself; but a means to an end. In other words, these tools are used to augment the existing startegies put in place by an organization, and make it more effective in attaining the organization’s objectives and goals. “Statistics does not of itself solve business problems. Unfortunately, data minign is being touted as a business solution when it is simply the base technology upon which business solutions might be built” (ibid).
The contribution of business intelligence tools to an organization startegic process is of great importance. Through basic business intelligence tools like Data mining, Data warehousing, Online Analytical Processing (OLAP), Queries etc. the vital information needed for effective startegic planning is derived from databases. Aslo, these tolls gives the organization the meduim of transmitting its information across the organization. Data mining brings about those hidden information unknown to an organization to utilize this for its advantage, while Data wraehouse through its software collate those redundant data in the organization’s database and formultae a database useful for its planning process.
The utilization of business intelligence tools requires that it is structured to suit the organization’s problem. Hence, it requires that a great understanding of an organization is known to the experts and practitioners of these business intellgence tools for it to be effective in aiding the organization in strategic drives in meeting its objectivees and long term goals.
Chopoorian, John A. et al (2001), “Mind Your Business by Mining Your Data” in SAM Advanced Management Journal Vol. 66, No. 2
LIS (2001), “Knowlegde Discovery and Data Mining” http://dms.irb.hr/tutorial/tut_applic_ref.php (26/09/06)
Thearling, Kurt (1995), “From Data Mining to Database Marketing” DIG White Paper. October http://www.thearling.com/text/wp9502/wp9502.htm (29/09/06)
Vriens, Dirk (2004), “The Role of Information and Communication Technology in Competitive Intelligence” University of Nijmegen, The Netherlands www.bi-kring.nl/bi-kring/community/partners/contentlev/abk/01chap.pdf (29/09/06)