London Drugs Ltd., a chain of large drug and electronics retail stores that has taken western Canada by storm, has always been pretty much of a mystery to analysts and competitors. Privately owned by Brandt Louie, a Chinese-Canadian who is one of Canada's richest men, even the company's annual revenues are a closely held secret. (In 2002 Maclean's magazine estimated revenues from various Louie holdings–of which London Drugs is by far the largest–to be around $4 billion.)
Perhaps even more surprising: Up until a few years ago, much of the success of the company's retail stores–and some of their problems–were a mystery to Louie and the company's managers as well. "You could see things in a big-picture way, but with 1,500 items in the stores, you couldn't hope to see how each item was doing in each store," says Laird Miller, CFO of London Drugs. Enter implementation of a business intelligence (BI) strategy. "We began introducing BI about five years ago," says Miller, who took over as finance chief about the same time. "We started in finance, and then moved to HR payroll and to an employee portal. It's amazing the light it has shone on things that were always there but you didn't see them before."
As an example, Miller reports the firm's BI system revealed the fact that a certain product had been gathering dust on shelves in stores and warehouses, but no one had noticed. "It's the kind of thing that might have been noticed by individual store managers, but no one would have seen it as a company-wide issue," he says. "You could have done it without BI, but you would have had to build a separate application or put a group of accountants–God help you–in a room and have them bang away."
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What is business intelligence exactly, as opposed to the legions of other smart software? BI, basically a systemic approach to business analytics, allows users to get the information they need about operations across functions and across departments. Where BI differs from BPM, or business performance management (read enterprise performance management, EPM, or corporate performance management, CPM, depending on which provider or consultant you are talking with), is its focus on only current or historic data. "It's a term that encompasses all the tools and applications that allow a company to gain more insight into the operations of the business," says Tobin Gilman, director of product marketing and enterprise performance management at PeopleSoft, a leading BPM/EPM/CPM vendor. "Where BI typically looks at historical data, BPM looks forward, driving results by making sure that each department is meeting the metrics that have been established for it."
PAVING THE WAY FOR BPM
While BI has in various guises been around for nearly two decades, it is still just making its way into the operation of companies big and small–behind, in fact, the penetration of the more trendy but also more organizationally challenging and potentially disruptive concept of BPM/EPM/CPM. The irony, according to BI proponents: BI can actually pave the way for more dramatic BPM projects down the line. "BI is a good steppingstone towards EPM," says Gilman. "And BI has a role to play in an EPM system."
Philip Say, manager of ERP financial offerings at SAP, another leading business systems software vendor, agrees: "Put simply, there is a lot of anxiety over BPM initiatives, because it is a very powerful change agent. BI is viewed as less complicated, because it's less apparent to the end user. It basically ties together a vast array of systems across the company and lays a foundation for analytics across the company."
This is certainly how Northwest Airlines Corp. viewed it. "We started looking at BI in '98-'99," recalls Darrell Haskin, manager of finance applications at the giant Minneapolis-based international airline. "Our need was to get information into the hands of decision makers, but this was not easy to do, as most of our data was locked up in legacy systems, and extracting it was a task for 17 people." In the end, the company opted for a solution offered by Brio (purchased last year by Hyperion), which provided data access and reporting tools. After starting out with accounting, the system was eventually expanded to cover all 10 controller offices in the company's 10 operational groups that include such areas as technical operations, cargo and maintenance. "Everyone's very happy," reports Haskin. "Instead of waiting a couple of weeks for 17 people to develop a Cobol report, the groups' controllers can now all get their data themselves right away."
JUST IN TIME IMPLEMENTATION
As it turned out, the changeover in early 2001 couldn't have been timed better. When the 9/11 attacks hit later that year, airlines were clobbered by the prolonged collapse in air travel, and many, like Northwest, were compelled to make severe staff cuts in all departments. "Our BI program didn't so much free up personnel as allow our remaining personnel after 9/11 to do more," says Haskin.
Now the company is looking at expanding its BI program to budget and planning. "We're filling in the circle a little bit more towards a full BPM solution eventually," says Haskin.
Not everyone sees BI as a path that leads directly to BPM, however. Besides the many companies that have been using a BI strategy for years without ever going the next step to BPM, there are still others that believe integrating the two from the start is the best approach. In any case, this has been the approach at Volvo Commercial Finance, the finance subsidiary of Volvo North America. "Our approach has been to introduce BI and BPM in tandem in some areas. For example, in sales," says Michael Jordan, senior financial reporting analyst at the company, which handles financing for trucks, aerospace and heavy equipment. "We can use BI to validate the data that we're getting, and then we run to BPM. As I see it, BI is more of an internal thing–giving us better internal systems. BPM takes us outside to drive our deals and our customers. [It] empowers the employee to go out there with the data, instead of having to rely on us in financial."
Unlike BPM–which can involve significant costs, not just for software and hardware, but also for retraining executives and employees–a BI strategy comes relatively cheap. John O'Rourke, senior director for product marketing at Hyperion, says the cost of setting up BI in a typical finance department of a midsize company with fewer than 30 users would be "less than $100,000." Not surprisingly, the decision process that precedes introducing BI seems fairly simple. In fact, a couple of companies admitted that no return-on-investment analysis was even required. "Relative to the types of investments we make each year in the airline industry," says Northwest's Haskin, "the BI investment was relatively small. Our business case was just that this was a necessary decision for competitive reasons."
So if the system is relatively cheap and implementation is much less involved and disruptive of a company's traditional way of doing business than implementing a BPM solution might be, what holds companies back? Malfunctioning BI is worse than no system at all. "If it's poorly organized, BI can lead to a bullwhip effect, where a problem can run up the chain," warns SAP's Say. "Systems, organizations, processes can quickly become unbalanced. For example, if a report gets printed out Monday morning and someone runs off to a manager and he takes it to senior management, it can almost become a Monty Python sketch. From our experience, successful implementation of BI occurs when there's a clearly thought-out plan for senior executives about what they want to see about the operation of their company, and about where the information is needed."
BI is also not something one can just buy, install and forget about. "You're always working with each department to figure out what they need, always tinkering and adding information," says London Drugs' Miller. "It's something you're never quite done with."
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