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usiness intelligence (BUis the_ industrial equivalent of military

intelligence.As military_ commanders are dependent on a

constant flowof relevant andunderstandable infonnation to

plot strategiesand tactics so. too. do captainsof industry need adequate information toachieve their commercialgoals. Inboth cases,knowledge isnot only an instrument of power,it is _ntial insurance against disaster.

Theship hadonly two lookouts at the time of the collisions, andneitherhadbinoculars.-J.Hall, "Seventy Years Ago ...," MId-60uthM.gulne, 11 Apri l 1982.

Thewirelessoffice of theTitanic had receivedsevenicebergwarnings the dayof the disaster, one fromtheAtlantic TransportshipMesabaat 9:40p.m. Ousttwo hours before the Titanic wasstruck), which said Inpart It saw"much heavypack ice andagreatnumberof larger Icebergs" In the Titanic's vicinity.According to the Titanic Historical Society: "This warningwasnevergivento the captainof the Titanicandyet this position ofIcewasdirectly Infront of the Titanic's courseas laid out byCaptainSmith."

reprintlKl fromNlIWMlllJagtllT¥nt (Spring 1983)

by lewis J. Perelman

TheValue of Business Intelligence

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SPECIAL SECTION ON CORPORA TE INFORMA TlON:

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So, the cost and value of BI are highly

dependent on the talent, skill, and

"intelligence" of corporate managers. Indeed.

the central purpose of BI is to promote ad apt ivelearning by the corporation. Not just learning

for learning's sake. but learning that increasesthe ability of the organization to adapt to the

threats and opportunities of change. Therefore.

the mission of BI is not only to inform, but to

educate.

the capacity and motivation to take effectiveaction to solve real problems.

the trained "instinct" of selective destruction or

disregard of extraneous or redundant messages;

and

the "know-how" to research and' discover newinformation;

the skills of observation, induction, and

deduction from available messages;

the ability to discover and define the relevantquestion;

management. The most critical resource that

management has to allocate to BI is

management's own time.The Coat of InformlltJ on

The cost of acquiring information onany subject rises exponentially as the research

becomes more exhaustive. Itthe purpose of BIwere that of scholarly research (that is, to add

to the store of human knowledge). then the

value of each increment of new information

would be simply equal to the cost of

acquisition. No investment in Bl would ever be

superfluous. because the value of the

information discovered never would be less

than it s cost.

But the value of BI is measured not by

its information content. but by itsactuarialvalue; thus. the incremental cost of BIeventually exceeds its actuarial benefits. So."excessive" investment in BI is quite possible

(and, at least, approximately measurable).

But evaluating BI is not quite this

simple. Information is measured by its value,

the degree of difference it makes, to th e person",ho receives it. The same piece of information

which may seem superfluous in relation to agiven subject may appear invaluable when thesubject is revised or perceived differently. Who

defines the subject-and who perceives theincremental message-largely determine the

value of the information received.

All this leads to a remarkable and

crucial fact: The value of Bl to the corporation

is highly dependent on the quality of the

human resources involved in the process.

Therefore. the value of BI is not absolute, but

is based to a large degree on having peoplewith:

Any increment in BI has a cost, and thecost is evaluated in relation to the

resulting reduction of risk. This

relationship is not linear, but is subject to

"diminishing returns." Just as zero-risk isunattainable, perfect BI is infeasible, Thismeans that the first part of creating a BI system

is a managerial decision to define how much

resource investment in BI is enough, This is

similar to deciding how much insurance is

enough. The impor tant difference between the

decision to purchase BI and the decision topurchase other forms of risk insurance is that

the ordinary insurance decision is purely a

financial one. That is, management need notthink about the insurance policy again until it

comes up for renewal. or unless a major claim

is made. But BI is valueless without the

continual involvement and attention ofmanagement-top management and line

Put another way, in a competitive

economy-and the pressures of populationgrowth, resource scarcity, and technological

change make the wor ld economy ever-more

intensely compennve--every threat is someone'sopportunity and every opportunity is sorneone'sthreat. The threat of rapidly increasing oil

prices created the opportunity for the Japaneseto increase exports of small. efficient cars to the

U.S.; this opportunity for the Japanese

simultaneously became a threat to American car

makers. High interest rates are a threat to thehousing industry. but a lucrative opportunityfor lending institutions. And so forth.

What makes any development a threat

or opportunity is how a finn positions itself torespond. The impact is only partly a matter of

luck-the odds of any change being a threat or

an opportunity are not simply 5O-SO . To the

unprepared organization, change will usually be

perceived as a threat. Thus, business

intelligence is a process which increases the

opportunity value and decreases the threat

value of change.TheActuarial Valueof Information

The value of BI is the value ofknowledge. How does an organizationdetermine whether it has too much or too little

BI? How does it assess the benefits and costs of

BI?The value of BI certainly cannot be

measured simply by the am oun t of information

generated. Few organizations suffer from a

shortage of information. As the Titanic case

illustrates, the value of business information is

primarily its ac tuasia! value. BI cannot

guarantee that the threat of disaster will beeliminated, but it can alter the degree of risk.

Had the captain of the Titanic been informed ofthe iceberg hazard, and had the ship's lookouts

been equipped with binoculars, the chances of

the disaster would have been reduced-but not

eliminated.

"information '- _ ....by lie y . w e . til 01

cIIIIe. . nee " m 10 !he" . ,. ." _110 It.••

"What 1M... . any~amn.toropportunity '- how a finnpoeMloM I IMIf to_,oncl...To til.u n p . . perM__ no

change will ueudy be

,-rcetved ... th.-at."

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The ability of a corporation to learn is Finally. analysis is concerned withlimited by the ability of itsemployees to learn. causality-with why things happen-and.The sad truth is that the human resources hence. with the crucial management problem of

available to the contemporary U.S. corporation how to make or prevent things fromhappening.are. for the most part. inadequatelyprepared to Analysis includes the formulation of problems.learn. to create. and to innovate. Although this the identification of alternative solutions, andpreparation should be the function of the the assessment of the value of alternative future .nation's schools, it will t ake decades for t he outcomes. Applied to management decisions. .needed educational reforms to produce results. analysis leads to the appraisal of alternativeInthe meantime. private and public employers courses of action and, hence. becomesthewill have to invest in developing their own backbone of planning.human resources t o compensate for the The effectivenessof these four functionsshortcomings of the education system. is enhanced by integration within an overall BIThe Functions of Business Intelligence process. Evaluation is necessary to ensure that

While training is the sine qua non the organization learns from its own experience.of business intelligence, the success of the grows in its productivity and effectiveness.andactivity also depends on establishing certain does not fall into the trap of continuallyprocedures for evaluation. scanning. forecasting. reinventing the wheel. Scanning is needed toand analysis. These functions take place in any make sure that decisions are made withwell-managedorganizations. but are not always awareness of current realities. All managementplanned and integrated in a coherent process. decisions require some forecast of future

Evaluation addresses the question conditions. since decisions necessarily aim at

ofwhat has happened within the organization. achieving some result in the future. AndThe focus is on bistory . and the purpose is to analysis is needed to assure that problems aremeasure the effectivenesswith which the realisticallydefined and accurately understood.organizationhas pursued its objectives. Of course. Bl is only a part of. and not aEvaluation consists of four parts. First. some substitute for. an overall process ofstrategicdescription of the program. project .or activity planning and management. Therefore.Bl needsbeing evaluated. Second. some means for to be part of a larger"plan for planning." Thismeasuringeffects of the program. Third. a is essentially equivalent to the organizationalcomparison of the measured effectswith some developmentproblem of building a strategicset of criteria or objectives. Finally. results of corporate culture.the evaluation are communicated to those Key Requiremtlnts of a Successful 81responsible for makingdecisions. Process

Scanning, or monitoring. responds to A successfulBI process would havethe need to know what is happening in the the followingcharacteristics:pre sen t. both inside and outside the Process, not products. The value oforganization. The primary purpose of scanning Bl is in the process of learning. not in theis to gather and sort current information. quantity of information produced. Products areScanning includes continual intelligence- valued to the extent they contribute to thegathering activites, such as reviewing learning process, not as ends in themselves.

periodicals and attending conferences. as well Two-way communication. Likegoodas ad hoc investigationsof topics of strategic militaryintelligence. BIis based on two-wayrelevance. flowsof communication. In the militarysetting.

Forecasting (projection or futures there is no functional distinction between aresearchl tries to answer the question. what wil l user and a supplier of intell igence.Everyhappen in the future? Forecastingdeals with . soldier may be called upon to supplyany or all of four aspects of the future. First. "intelligence; every soldier requires informationthe possibility of future events or trends. '" to achieve militaryobjectives. Furthermore. inSecond, the probability of future events or \ practical intelligenceoperations. there are fewtrends. Third. the conditional relations among . unilateral sources of information. Advancedevents and trends-if one thing happens. then intelligence usually requires somewhat else willor willnot happen? And fourth. exchange of information-"horsethe preferences people have for various future trading"-among sources.alternatives.

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PitfallsA BIprocess which fully satisfied all

the conditions described in the precedingsection would be close to ideal" Ifwe cannotcreate an ideal process in the real world. thenext best thing is to avoid the worst mistakes,and to create a BI process which is productiveand capable of continual improvement. Thefollowingare pitfalls which have trapped the BIprocess in many organizations. making it into abureaucratic, overhead burden rather than aproductive "bottom line" contributor.

Insularity. Rather than developing anextensive external and internal network, theprocess is excessively confined to a small circle,in terms either of users. sources, subject matter.geographic location, or "worldview."

Isolation from decision·makers.Information is delivered to line managementfiltered through severallayers of staff. orcirculatedin closed staff loops..Responsibility

of the BI process is delegateddownward andoutward from centers of control.

Infrequency. BI communications areannual. or biannual. or ad hoc. rather thanestablished on a continual monthly, weekly, oreven daily basis. Hence. timeliness.participation. and line management ownershipare lost.

Emotional override. Organizationsbecome caught-up in wishful thinking and filterout information which challenges theiroptimism: alternatively. they become swampedwith pessimism and paranoia, S e e eve r y changeas a threat. and become paralyzed.

Mlsclaulflcation. Excessivesecrecyand classification of information leads to a"chilling effect," chokes off debate. insulatesthe organization from sources of innovation andcreativity. and ultimatelyends up increasing the

organization's vulnerability to risk.Ritual, not process. Where BI

becomes a bureaucratic ritual rather than anactive part of the process of management, itbecomes counter·productive. Emphasis onreports. products, and routine procedures ratherthan on knowledge, learning, and action aresymptoms of ritualization.

The corporate charm bracelet.Offices and titles become substitutes forprocesses and functions. Issues are edifiedrather than analyzed and managed. If consumerhostility is a problem, then create an Office andVice President of Consumer Affairs; ifenvironmental impact is a problem. then createan Office and Vice President of EnvironmentAffairs.Business Intelligence. EnvironmentalScanning. Issues Management. FuturesResearch, or other such buzzwords similarly

can become mere cosmetic charms on theorganizational bracelet.

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Internal and external networks. Thetwo-way communicationof BImust bridge

organizational boundaries. The BIprocess isbased on a network of information that extendsoutside the organization to reach vital sources,and inside the organization-crossing internalboundaries-to reach whoever can act toenhance the firm's competitive position,

Focus on near-termdecisions,linking tactics and strategy. PeterDruckerargues that the purpose of strategic planning isnot to plan future decisions, but to makecurrent decisions with understanding of their."futurity." The role of BI. then, is to increaseunderstanding of the long-range meaning ofdecisions made today, Just as BImust bridgeinternal and external realities. it must also linktactical with strategic decision-making.

Focus on Improving corporateperformance. The contribution of BI tocorporate performance is to reduce risk by

increasingdecision-makers' timelyunderstanding of threats and opportunities. In asuccessfulBI process, every task and project isevaluated against this goal.

Broad participation. BIworks byacquiring strategicallyrelevant information andby educating decision·makers. Since mostemployees are both sources of information an d

makers of decisions which can affect theorganization's performance, the broader theparticipation in the BI process, the morevaluable the results are likely to be.

Focus on line responsibility. Since BIexists only to enhance the quality ofoperational decisions. it is most successfulwhere it is perceived as primarily a lineresponsibility, carried out with staff support.This means in practice that line personnelconsciously dedicate a minimum portion of

their worktime to BI activities, recognizingthatBI is part of, not ancillary to, their "work."This also minimizes the overhead of BI bylimiting the staff role tocontinuous, long·termactivities which areessential to build andmaintain the BIprocess.

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"TIle _ntlel condlllon.of _ feIIu.. 01••

primarily n 01org.n_ velopment

.ndhu __

development."

This is not to say that organizationsinvolved in apparently slowlychanging, stableactivities can justify complacency. No comer ofthe world is insulated from turbulence today.Someof the most notable collapses haveoccurred in organizations which had longhistories of stability and success. But the scopeand qualityof the intelligenceneeds of"slow-track" organizations are likely to besignificantlydifferent fromthose of "fast-track"organizations.

In any case, the quality of anorganization's human resources is the mostcrucial determinant of its intelligencecapabilities. The cost and value of intelligencedepends greatly on the training, knowledge.and talent of the people involvedin theprocess. Thus, the essential conditions ofsuccess and failureof .BIprimarily are issues oforganizational development and humanresource development.

Good business intelligence is anessential ingredient of strategic management,but it can never eliminate the inexorableelement of luck in the successof an enterprise.BIcannot guarantee success, but it can makechance more favorable to success.

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"Paradigm paralysl s." The BIprocess, if it existsat all. becomes a means ofrationalization and reinforcementof the status

quo worldviewof the corporation. rather than aprocess for challengingroot assumptions andrenewingcorporate vision. Joel Buker callsthis the ''terminal disease of certainty,"Conclu.lon

Business Intelligence is a processwhich constantly seeks to answer four keystrategic questions: What happened? What ishappening now?What is goingto happen? Andwhy do things happen? The purpose of BIis toapply these questions to trends. events, andissues that affect the organization and itsprospects for achieving its goals,

There is no simple formula to determinewhat the ideal level of Bl is for anyparticular organization. The appropriate

scope of effortdepends on the nature of theorganization, its strategic interests, and itsenvironment; all of these willchange over time.Today, the global environment is turbulent andhazardous for all organizations. Nevertheless.strategic interests varywidely. U.S.organizations whose strategic interests haverequired them to place a high premium onintelligenceinclude finance institutions, theinsurance industry. firms involved ininternational trade, industries characterized byhigh rates of technological innovation, andcompanies engaged in the manufacture or retailsale of consumer products. These are areaswhere a broad range of environmental factorshas an impact on the organization's business,on both a short and long time scale. Also,these are organizationswhich are bothcompelled and able to make frequent, shortterm, tactical decisions in pursuit of their long

range objectives.

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GATHERING IT. GETTING IT TO DECISION MAKERS. GETTING IT USED