A primer on business intelligence

Thanks to technology, companies are accumulating unparalleled amounts of data. Being a data pack rat can be a good idea in an economy where companies succeed or fail based on their ability to use information to anticipate changing business conditions and to make smart decisions quickly. But collecting reams of corporate data only makes sense if meaningful insights can be extracted from it, which is a heady challenge. Business intelligence (BI) is an umbrella term for a variety of technologies that work together to make sense of all those bits and bytes about sales and customers. It can help companies increase revenue or cut costs by providing executives with solid insights they can act on to make faster, more effective market decisions.

How does BI work?

Business intelligence systems centralize data from multiple sources, such as point-of-sale (POS) systems, financial systems, CRM systems, call centers, data warehouses and the Web. BI software is used to analyze that data to help better understand business operations.

What technologies fall under BI?

Technologies you may already be familiar with, such as data warehouses and data marts, make up the foundation of business intelligence systems. Software for cleaning and categorizing data, known as ETL (extract, transform and load) tools, run under the data warehouse. Business analysts use online analytical processing software to answer big- picture questions such as, What's driving the increase in click-through rates on our e-mail campaigns? Data mining software excavates huge volumes of transactional data to uncover interesting connections, such as the link between an individual's dietary habits and how much money he spends in restaurants. Some companies develop their own sophisticated statistical models to make sense of disparate data. There also are applications for visualizing data.

How can marketers use BI?

To analyze sales, study customer and product profitability, determine which customers will be the most responsive to different campaigns, track campaign response rates and assess the efficacy of ad campaigns. For example, hamburger chain Hardee Food Systems Inc.'s saved significant advertising dollars by using its proprietary business intelligence system to monitor sales of a new hamburger that it was advertising on TV. When Hardee's business intelligence system showed that sales of its onion burger were weak, they replaced the television ad for the burger with commercials for alternative products.

Is BI the same thing as corporate reporting?

No. Corporate reporting simply spits out basic information about a company's operations. By contrast, good business intelligence systems provide context. A lot of corporate reporting tools masquerade as business intelligence, which has become a buzzword over the past few years. But true business intelligence tools will explain why sales were X last week and why sales were Y for the same week a year ago by taking into consideration factors affecting sales, such as the weather, promotions or competition. They will also help provoke specific actions, which corporate reporting doesn't.

What's the most important thing to remember when implementing business intelligence?

Don't get taken in by flashy software. Make sure that you're getting something that provides insightful, actionable information. To that end, before you build or buy anything, you must understand your company's strategic goals, its decision-making processes and the information you need to make better decisions aligned with those goals. Only then can you begin to build a business intelligence system that will provide you with insights relevant to your strategic objectives.