by Robert D. Kugel CFA | 2012-03-26 | Article ID: V12-15 | Article Type: VentanaView
Business intelligence (BI) technology has progressed far beyond decision support systems that help executives and high-level managers choose the best course of action. Today, dashboards and scorecards are pervasive even in smaller companies. Organizations collect broader sets of data from a wider range of functional organizations and processes than ever before and apply more sophisticated analyses to these data sets. But most systems currently in use don’t provide the ability to act on all this information. To address this shortcoming, more powerful business analytics are becoming accessible to generalists. They include in-memory processing for faster analysis, predictive analytics to provide forward-looking scenarios for what may happen, leading indicators to anticipate changes and contingency planning to be ready to act when the changes happen. We see performance management, business intelligence and analytic applications becoming increasingly action-oriented over the next three years. Organizations seeking an edge on the competition should adapt their practices and processes to incorporate these capabilities.
Most organizations use analytics to make sense of the past. While this is useful, it is not enough. Addressing shortfalls and capitalizing on successes are a good first step, but these are essentially reactive approaches. More valuable to a line manager or an executive looking to steal a march on the competition is having a better understanding of what might happen in the future and being able to weigh the implications of potential actions. New computing architecture, notably in-memory processing, is making it easier for companies to explore the implications of future actions.
Predictive analytics helps enhance the accuracy of forecasts, often by detecting unseen causative factors. It enables companies to project more precisely future sales, expenses and operating results. Predictive analytics also makes it possible to establish a baseline set of expectations that can be used for early detection of departures from expected results. Leading indicators, especially in the areas of demand analysis, supply chain risk and cost projection, can enable companies to anticipate future changes in markets and gain additional time to alter strategy.
Contingency planning and what-if analysis give people the ability to make better decisions more consistently and with greater agility. This sort of planning makes it possible for executives and managers to react sooner and with greater confidence when conditions change, and even to determine how best to modify strategy or tactics in a volatile business climate. To date, however, most midsize or larger companies have found it challenging to do contingency planning because of technology limitations.
Information technology can be of substantial value to executives and managers in supporting their assessments and decision-making and in ensuring follow-through once a decision is made. The only uncertainty is how long it will take before businesses use technology to do this as a matter of course. We recommend thinking about this area of technology more strategically: Look beyond improving efficiency by automating processes or eliminating the need for middle managers to coordinate activities. Embrace as your primary goal innovation through products that help you look ahead, understand your options and take action as soon as you need to.