MID-MARKET
Small and Smart
Business intelligence isn’t just for the big guys
anymore. As applications grow cheaper and easier to run, more small- and
mid-market CIOs are using BI to drive innovation and create competitive
advantage.
BY ALLAN HOLMES
Smart Tools and How to Pick Them
What to think about when looking at BI platforms and
applications.
Read More
More About BI
Learn more about using business intelligence to obtain competitive
advantage by reading a special
report.
Chris Boebel, the director of information technology at Delta Sonic Car
Wash Systems, had a big sales job on his hands.
Delta Sonic executives knew they could run the chain of car wash and
convenience stores more efficiently. They also wanted to boost sales. But
they had few tools with which to pinpoint their best-selling products,
most-popular car washes, top marketing promotions and the impact of those
promotions on sales in other parts of the business. For Delta Sonic to
keep growing, such insight into the business and its customers was
critical.
Boebel believed that a business intelligence (BI) application could
help unlock future growth for the Buffalo-based company. A BI system could
feed data on product sales and customer response to discounts back to the
finance and marketing departments so that executives could zero in on what
worked and what didn't.
But Boebel (pronounced BAY'-bill) knew winning approval from the
business for a BI application would require a deft negotiating touch. Some
business unit managers were likely to view BI as too expensive and
elaborate a solution for a midsize company. Many Delta Sonic executives
were wedded to decades-old, mostly paper-based reporting systems and would
need to buy in to the promise of the new technology. Boebel would also
have to overcome the sentiment that BI was only for the big
boys—megacorporations with nationwide or global operations that manage
tera- or petabytes' worth of information.
But after months of attending BI conferences, talking with numerous
vendors and creating a presentation that showed how a simple BI Web tool
could help the car washes to staff more efficiently, Boebel was ready. His
careful research and early test results helped him line up support with
the CFO, operations manager and some key business unit leaders to argue
for a bigger investment in BI. In 2004, he got an OK from Delta Sonic's
family owners to invest $250,000 in Cognos' 8 BI application; this was a
large investment for a company with annual revenue of $200 million, as
reported by Hoovers. In the spring of 2006, after deploying some simple
analysis of convenience store sales—showing which promotions were
increasing beer sales and why, and which brands of cigarettes were the
biggest sellers—Boebel and his team expanded the system to other business
units such as the car wash and oil change business. The information
gleaned from the convenience stores and car washes—based on knowing which
promotions work best and generate sales of other products and services
plus the ability to better track cashier statistics to prevent losses—have
returned enough to recover half of the initial investment. "It's really
paid off," Boebel says.
Delta Sonic is part of a growing trend. An increasing number of small-
and mid-market CIOs are justifying the cost of BI applications to the
business by showing how the insight into customer behavior these tools
provide can be harnessed to drive incremental revenue to the bottom line.
Also driving the adoption of BI by this market are less costly
applications. BI no longer requires an expensive and complicated set of
solutions to access and organize the necessary data, database and storage
applications (see "Smart Tools and How
to Pick Them").
"That adds up to a significant IT investment," says Jim Baum, president
and COO of data warehouse appliance provider Netezza. Instead, the new BI
tools can provide an appliance-based approach that works within an
existing IT infrastructure, which is easier to operate and maintain—and
cheaper, he says.
In short, BI isn't just a technology for megacorporations anymore.
"BI is showing signs that it is picking up for the midlevel market,"
says Greg Belkin, a research analyst at Aberdeen Group. "The midlevel
market is under a lot of pressure to think out of the box so it can
compete against the big guys."
For the midlevel market—companies with revenue between $100 million
and $1 billion—making the argument for BI can be harder than at larger
companies. BI can be a relatively large investment (the investments
for the small- and mid-market companies CIO spoke to were in
the low six figures). It demands a serious time commitment from a smaller
IT department that is likely overtaxed by user requests. But the business
case for BI can be compelling, say small- and mid-market CIOs. While
there is no research on BI's returns in the mid-market, anecdotal evidence
from IT executives suggests that careful investments can pay off. They
say a successful implementation relies on four ingredients: negotiating
up front with business colleagues about how to invest in BI; establishing
quick wins to build trust; giving users a stake; and making sure data
is clean before launching an application. In that way, these IT leaders
have established BI applications that are beginning to generate more
ways to drive sales and curb costs.
"It's taken us time to get people used to it, but it has been
worth it," Boebel says. "It's really beginning to show up
in sales and cost savings. More will come over time."
One of the most difficult transitions for mid-market companies is that
of making the leap to become a large business with more than $1 billion
in revenue. Investing in bigger staffs to support that level of revenue,
managing over an increasingly large geographic area and competing against
businesses that have even larger budgets and better brand name recognition
are just some of the challenges. So some mid-market CIOs have turned
to BI as part of a strategy to grow and better compete as their companies
bump up against bigger and better-financed operations.
At Delta Sonic, for example, business executives wanted a better idea
of what was—or wasn't— driving sales so that strategic business decisions were no longer a
case of trial and error. Executives at Clif Bar, a $480 million manufacturer
of nutrition and snack bars, began considering BI after its two largest
competitors were acquired by multibillion-dollar global corporations.
Blue Mountain Ski Resort got into BI after an investment company bought
it and planned to more than double its size by investing nearly $1 billion
into the business over five years. And the midsize financial services
firm JBHanauer saw BI as a key to its survival as it watched other mid-market
financial institutions go out of business or get bought by the large
financial houses. "We're one of the last surviving middle players,"
says Charlene Barnes, CIO and executive vice president. BI, she says,
"is strategic to keeping us alive."
Given the competitive environment in which today's companies operate,
BI and data warehousing consistently top the CIO's list of planned spending
priorities, according to a July 2006 survey of CIOs by Merrill Lynch.
"Organizations of all sizes are struggling with very similar problems,"
says Aberdeen's Belkin.
Companies are also creating more and more data. Netezza's Baum says
his clients' data doubles every year. And with more customer data coming
in from e-commerce activities, and technologies such as RFID providing
more specific data on individual consumers, companies have information
mountains to mine for what drives sales.
For mid-market organizations, using an Excel spreadsheet to inform
strategic business decisions just isn't cutting it anymore.
BI can be complicated and expensive. So for mid-market companies, with
smaller IT budgets and staffs, convincing the business to invest in
a BI application can be daunting.
That's why John Gowers, director of IT for Blue Mountain Ski Resort,
says one of the most important steps in convincing the business to embrace
BI is to start off with a relatively small investment, show a return
and then expand the program from there. It's the plan he followed when
50 percent of the ski resort was purchased by Intrawest in 1999. (The
Fortress Investment Group purchased the resort in 2006.)
Blue Mountain has multiple lines of business, from hospitality services
to retail to equipment rental. Intrawest's ambitious plan for Blue Mountain
included raising the number of skiers visiting the resort on an annual
basis from 300,000 to 700,000, increasing lodging units from 200 to
1,400 and taking the number of restaurants and boutiques from a handful
to as many as 70. To manage that kind of growth and complexity, Gowers
knew he needed BI applications to collect some basic information to
manage the company's revenue and investments. He wanted to help the
business determine which investments were yielding acceptable rates
of return, how sales of certain products and services affected the sales
of others at the resort and how to manage an expanding inventory of
capital, including equipment and accommodations.
In February 2002, Gowers began working with Datavision to construct
a simple BI tool to track property management and point-of-sale transactions.
He kept costs down by using an older, free version of Datavision's Applix
TM1. Using Applix as the back end, Gowers paid Datavision $40,000 to
build an ETL (extract, transform and learn) interface tool to manipulate
and display the data. The application allowed the resort to track sales,
such as ski rental revenue, beverage purchases and the number of lodging
nights paid, on a per-skier basis. Sales could also be tracked by day
and time. In the past, the resort had no way to measure sales other
than in the aggregate, and those sales were stored in disparate business
unit databases. This meant it took days, sometimes weeks, to collect,
collate and distribute the data to executives. The resort thus had less
time to develop special marketing campaigns to drive business during
slow periods or to respond to unexpected upticks in business.
Within months of implementing the BI tool, Gowers was able to show
the restaurant, ski rental and lodging businesses when their sales dipped
or increased. Working with marketing, these businesses now could increase
sales by knowing when to push incentives to customers. Sales for the
resort's hospitality business have increased 67 percent in the past
four years, an increase Gowers attributes in part to better business
intelligence. In 2005, he used this earlier success to persuade business
unit leaders to invest $50,000 in a more up-to-date version of Applix
to make it easier to incorporate new products and services.
The updated system soon paid off. For example, the ski shop typically
would run out of ski boots on weekends, limiting revenue from lift ticket
sales and ski rentals. Simply put, the resort had too many big boots
and not enough midsize boots, which resulted in fewer rentals. The shop
needed to shift its boot buying patterns to meet demand. But how best
to do that?
Gowers turned to the updated BI application. He ran an analysis of
the rental data to determine how to pay for more purchases of the midsize
footwear by reducing purchases of large-size boots. The project started
last winter, and by the end of the season, the ski shop had increased
rental revenue by as much as 15 percent without raising its boot budget.
By not turning away skiers, Gowers says, the resort had more satisfied
customers, which, while hard to measure, certainly means more repeat
business.
"In that particular case we showed a quick return," he says,
"generating more revenue by making more intelligent decisions on
how to run the business. As you do that, everybody begins coming to
you with ideas, which only builds more support."
A quick success can showcase the advantages of BI. But an essential
ingredient to getting buy-in is making the results accessible to business
unit executives, midlevel managers and frontline salespeople so they
feel empowered by the new technology.
For Clif Bar, that meant finding an application that sales representatives
could easily use in the field, says Richard Boragno, VP of finance,
accounting and IT. It also had to provide them with a simple sales story
to help the company build a more intimate relationship with clients.
Working with Clif Bar's sales reps, Boragno searched for a Web-based
BI application they could take to grocery store clients to show how
each Clif Bar product was selling, how individual sales tracked over
time and how sales per customer broke down in real time. The application
had to have a simple interface that had a few easily understood icons.
Sales reps couldn't be fumbling with the application in the field, where
they typically had little time in front of clients and no easily accessible
tech support. "They had to be able to fully understand it in about
a two-hour training session," Boragno says.
He also asked two sales reps to help evaluate the vendors competing
for the contract. "You have to look at it through the lens of a
sales rep," Boragno says. "You're trying to solve their pain.
To know what you are solving, you need to analyze their symptoms, understand
what they need. If it is too complicated to use, it will lead to confusion
and distrust" of the IT department's ability to deliver.
In 2002, on the recommendation of the sales force, for $85,000 Boragno
chose to buy the enterprise search application FAST Radar, supplied
by FAST. The application provided sales reps with historical and real-time
sales for each grocery store outlet Clif Bar supplied. The data allowed
reps to show clients how many Clif Bars they were selling over specific
time intervals and which were selling the most, allowing Clif Bar to
keep those bars on shelves to increase sales for Clif Bar and the grocery
store. As a result, Clif Bar reduced its sales forecasting variance
from 30 percent to 15 percent. After a decline in sales in 2004, the
company rebounded in 2005 with a 25 percent increase in sales, which
Boragno attributes partly to the new BI system.
That success led Boragno last year to expand the FAST application to
include the ability to input expense forecasts to support the quarterly
sales forecast process. Doing so ended the use of Excel templates, saved
time and eliminated errors.
By combining the reps' sales forecasts with historical sales figures
that are matched with promotions and adjustments for seasonal sales,
the finance department cut the amount of inventory on hand from 77 days
to 35 days, saving the company $2 million a year in reduced spoilage
and interest costs.
What did Boragno learn from the experience? "Don't get all the
bells and whistles right away," he says. "Keep it simple.
Choose [an application] that can grow with you."
A BI application is only as good as the data it is using. If a company's
data has errors or differing nomenclature and standards for products
collected over decades, then be prepared to spend a lot of time cleaning
up the database.
Last year JBHanauer's Barnes began implementing a BI application to
track financial adviser and firm performance. It also allowed branch
managers to track how different investments were selling at their office.
Barnes knew clean data was critical to the effort and that there were
inconsistencies in JBHanauer's database. For example, the firm had classified
the various categories of municipal bonds, corporate bonds, preferred
securities and other investments in different ways based on who conducted
the transaction. Also, trades that had been canceled were being counted
as having gone through, exaggerating the number of buy orders. While
cleansing data, Barnes suggests CIOs work with business unit heads to
determine how much data should be included in analyses. Is it of value
to include two years', five years' or 10 or more years' worth of the
data? "Those kinds of things turn into significant challenges,"
she says. "It makes you analyze just how far back to go when including
historical data. Is it helpful to go back a million years?"
Barnes recognized that the inconsistent data could undermine the BI
initiative. After a thorough manual analysis of any common discrepancies,
the data was cleaned up automatically. Barnes says the process took
two programmers two months, a significant amount of resources for a
company JBHanauer's size. But it was a task that had to be done to make
the application useful.
In November 2005, Barnes purchased the Cognos 8 BI package for an undisclosed
sum, and in October 2006 the first phase of the application launched
across the company. Now, every morning when branch managers turn on
their computers, the first application they see is a report on the previous
day's activity in their office. Managers receive five separate reports,
including a 45-day moving average on sales, which categories of investments
are selling the best, how each financial adviser is performing and how
the office's performance compares with other branches'. Branch managers
use the reports to understand their product mix and identify selling
problems or opportunities. "They are asking questions that they've
never thought of asking before," Barnes says.
Just how much the system will improve JBHanauer's bottom line and keep
it competitive with the multibillion-dollar investment houses remains
to be seen. But Barnes notes that in October, when the application was
launched, JBHanauer had its best month in 18 years. Was it a result
of a good marketing, a hot market or a direct result of the BI application?
It's too soon to be sure, but Barnes does know this: The BI application
"did allow us to know this simple fact [immediately]."
Success generates enthusiasm and, therefore, support for BI throughout
the company. Once that happens, it's time to start thinking out of the
box.
At Delta Sonic, Boebel is looking to incorporate outside sources of
data into the BI application to help the company manage staffing more
efficiently. He hopes to include National Weather Service forecasts
as one of the factors store managers use to plan staffing levels. For
example, by knowing when and how much snow is forecast, as well as how
long temperatures will remain below freezing (which means salt stays
on the roads longer and cars remain dirty longer), Boebel can correlate
that data with past statistics on car wash sales and snowfall to determine
the number of cars that will likely come through Delta Sonic's car washes,
avoiding the prospect of having too many workers or not enough.
Boebel has many other ideas for using BI. The only thing holding him
back, he says, is convincing managers to use the application more. "But
that will come in time as we show what can be done," Boebel says.
"This is just the start."
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