The Key Importance of Business Intelligence - Literature review Example

TABLE OF CONTENTS Abstract 2 1. Introduction 3 2. Background of Business Intelligence 4 3. Business intelligence concepts 5 3.1 Sourcing of data 5 3.2 Analysis of data 5 3.3 Assessment of risks 5 3.4 Awareness of situation 5 3.5 Support of decisions 6 4. Chain of business intelligence 6 4.1 Database and transaction 6 4.2 Data warehouse 6 4.3 Mining data 7 5. Importance of business intelligence 7 6. Characteristics of business intelligence system 8 6.1 web-based intelligence 8 6.2 Real-time characteristics 9 6.3 Business analytics and business applications integration 9 7. Business intelligence and competitive advantage 10 8. Conclusion/future Implications 11 9. References 13 Abstract Business intelligence can be defined as the systems and tools that play a central role in the organization particularly in the strategic planning process. These systems and tools enable the management of the company to perform key functions of gathering, storing, accessing and analysing the company information and data which can later be used for business decision making process. Among the areas where business intelligence is widely applied in the company include customer support, customer profiling, segmentation of the market, research studies aimed at enhancing the company’s presence in the market, statistical analysis, product profitability, analysis of the distribution channel and inventory analysis. The purpose of this report is to highlight the key importances of business intelligence. Among the specific issues that will be explored include why and how business intelligence is used in the organization and its benefits to the organization with a greater emphasis on how business intelligence enables organizations to gain a competitive advantage in a competitive business environment. 1.0 Introduction Ortiz (2002, p.11) noted that the contemporary business environment is characterised by increased competition. In order to operate effectively and gain a competitive advantage over other businesses as well as succeed in the modern intense competitive environment business organizations must have adequate and quick access to business data and information which can guide them into making central business decisions which can catapult business into greater heights. Ortiz (2002, p. 12) observed that in order to have reliable and adequate information to achieve the desired goals as stipulated in the organizational mission and vision an intelligent system is paramount in every organization in order to provide the needed support to the company in key decision making processes. For organizations to survive in the contemporary competitive business environment an effective Business Intelligence System (BIS) must be integrated in its process. According to Watson & Wixon (2007, p.96) business intelligence can be viewed as techniques that are computer-based and used in the identification, extraction and analysing of data related to business processes in the organization. Such data include revenue generated from sales by departments or products or the associated incomes and costs involved in the business processes in the organization. Hence, business intelligence systems supplies decision makers in the organization with the required information or data they may need to streamline, add or eliminate certain business process in the organization. It is imperative to note that business intelligence revolves around comprehension of information and knowledge generated from the data gathered through different business intelligence systems. 2.0 Background of business intelligence The advent of information technology can be attributed to the emergence of the business intelligence topic. The Gartner Group first coined the term business intelligence in the 1990s even though some concepts widely applied and associated with business intelligence were in use in the 1970-1980s. Ortiz (2002, p 13) reiterated that business intelligence aids in the maximization of returns as well as minimization of business risks through proper management of business data and information. As mentioned there above, business intelligence is widely applied in customer support, customer profiling, market segmentation, market research, statistical analysis, product profitability, distribution analysis and inventory analysis. Business intelligence has evolved through three generations. Reporting and Host Based Query generation is the first one (Ortiz (2002, p.13). In this generation “batch applications” are integrated in the information systems in order to provide business people with adequate information on different business processes (Ortiz, 2002, p. 14). Due to lack of analytical capabilities, the first generation stage of business intelligence evolvement proved hard and difficult to use in the organizations. The business user was also required to have adequate knowledge and experience working with computers in order to be able to interpret data effectively (Lawton, 2006, p.14). The second generation of business intelligence evolvement was characterised by data warehousing. This aspect of the second generation of business intelligence was advantageous over the first generation because it provided the business user with consistent and clear information which could be easily understood by business people (Lawton, 2006, p.14). Furthermore, data warehouse was more comprehensive and summarized business information in a way that could be understood easily. Lawton (2006, p.15) noted that Business Intelligence System (BIS) was the product of the second generation and it had several advantages as compared to the first and the second generations. First, business intelligence system supported the information consumers and information providers as well as providing delivery and access to business information. Second, business intelligence system provided a platform through which a wide range of business information could be supported a part from just aiding in the storage of business information. Third, business intelligence system provided solutions which were pre-packaged as well s supporting current information on business processes in the competitive marketplace. 3.0 Business intelligence concepts There are different concepts applied and used in the business intelligence process. They include; a. Sourcing of data In this stage, data is extracted from multiple sources through the use of business intelligence systems. The multiple data sources may include finance, production, sales and marketing. The users of the information are then presented with clear information which can be integrated and transformed for purposes of analysis (Lawton, 2006, p.15). b. Analysis of data This is another concept widely applied in the business intelligence process. Through the use of different techniques of data analysis the information or data collected in the first stage above is converted or transformed into knowledge. Among the techniques used in this stage include visualization, reporting, data mining and modelling (Lawton, 2006, p.15). The data analysis stage enhances the understanding of the managers towards their business which enables them to make better decisions that can drive the business forward amidst stiff competition. c. Assessment of risks Business intelligence process enables the managers to identify any threats and opportunities in the market which provides the business people with an adequate response mechanism to overcome the threats and other business risks in the market. d. Awareness of situation Effective decision making process depends on a deeper understanding of the situation on the ground. In business, this involves the understanding of the reality of different issues such as the number of competitors in the market, the dropping or increasing sales volumes, the threats and opportunities in the market (Lawton, 2006, p.16). Thus, business intelligence systems aid the decision makers with rich and adequate information that can help in developing a richer awareness of the situation in the process of making key business decisions. e. Support of decisions The business data available in the hands of the managers is the primary tool used in making wise business decisions. Business intelligence provides the managers with the required information through which they can make and support their business decisions in order to achieve the business goals and objectives. 4.0 Chain of business intelligence 1. Database and transaction Business intelligence begins with databases and transactions collections. Database can be defined as the collection of information which can be selected and stored in data pieces using the computer (Imhoff, 2006). Hence, data stored in the database is organized by files, records and fields. 2. Data warehouse The data and information about different transactions that takes place in the organization within a particular period is stored in the data warehouse. Data warehouse provides the business users and managers with adequate information that shows the picture of the business. 3. Mining of data This involves the use of the collected data to direct and predict business behaviour in the future. Through the use of different search patterns data mining helps in the identification of important and useful information that can be used to enhance a particular business process. 5.0 Importance of business intelligence According to Vinaene (2008, p. 28) business intelligence systems have evolved through three generations. This means that business intelligence is an important concept in the contemporary business environment. One of the importances of business intelligence is that it helps in finding patterns that are useful in the organization such as stock prices and sales in the organization in order to show whether the organization has a favourable position in the market (Vinaene, 2008, p.29). The second importance is that business intelligence helps managers in organizations to make accurate decisions by using current information and data available to them. Hence, trends of business processes which are established through the application of statistical analysis reflects the key role of business intelligence because the established trends are ten used in making any kind of decision projected to drive business forward. According to Wells (2008, p.31) statistical analysis used in business intelligence is an important tool that helps managers and business people to establish trends of different business aspects in their organizations such as increase in revenues with time as a result of increase in sales volumes. The statistical analysis technique used in business intelligence can also be used to predict a combinational pattern which involves the combination of different products in the organization. For example, the manager can use business intelligence techniques to establish whether the sales of soda are high when combined with chips or whether the sales of chips are high when combined with sodas or not. Hence, business intelligence techniques and tools such as statistical analysis and systems are useful in the business because they provide the real picture of the business situation on the ground (Imhoff, 2006). Such information is then used by managers to make decisions on whether to increase the stocks of a particular product which combines easily with another product. 6.0 Characteristics of business intelligence system There are three main characteristics of the business intelligence system. They include web-based, real time as well as how the business intelligence system integrates with business analytics and business applications. 6.1 Web-based intelligence Vinaene (2008, p.32) noted that web-based intelligence is the characteristic of business intelligence brought about by the advent of web technologies and the internet. The advent of the two technologies have revolutionised the manner in which contemporary business transactions are undertaken. Web-based services have enabled information users in different business organizations to analyze business data from any part of the world as long as there is internet (Vinaene, 2008, p. 33). For example, the executives of Standard Chartered Bank in London can easily access and analyze business data from Kenya through the use of web-based services which are internet enabled. Decisions can then be made on how to improve the bank’s business in Kenya using the data collected and analyzed through the use of web-based services. 6.2 Real-time characteristics Neckopulos (2008) defined real time business characteristics of business intelligence as the ability to receive and deliver business data within the required time period for easier decision making. It therefore means that business intelligence systems are fast as compared to other means of sourcing for business data or information because users of the information such as managers and strategic analysts in the organization are availed with up to-date information that can be used effectively in making current decisions to drive the business forward. 6.3 Integration with business analytics and business applications Vinaene (2008, p. 33) observed that business intelligence systems are characterised by analytics which includes the applications, skills, technologies and practices which enhance business planning by giving the information users about different aspects of the business (Vinaene, 2008, p.34). In this perspective, business intelligence systems enable managers to make effective business decisions by providing the managers with both business information and insight on how business information or data can be used positively to advance the interests of the company in the market. For example, Microsoft Corporation is in the process of developing business intelligence software with enabled business intelligence capabilities such as data integration tools, back-end data mart and front-end tools for business intelligence. Such tools are integrated into the applications such as Excel to enable information users to perform effective statistical analysis for their business (The Gartner Inc., 2006) As stated above, business analytic is an important aspect in every business because it aids and enables the statistical analysis of business data (The Gartner Inc., 2006). Business analysis is made possible by statistical analysis because it begins with data and the chain is completed with value as shown below; Information/data collection gathering knowledge execution output From the diagram business analytics aids in gathering of vital business information which is stored in data warehouse. Users of the information/data retrieve and analyze the information in order to gather knowledge on various aspects of the business as contained in the data. Such aspects may include trends in sales during particular periods of the year. After analysing and generating the required understanding and knowledge about the business information, the users of the data such as managers then execute appropriate actions aimed at improving certain business processes in the company. The outcome or output is the result of proper execution of decisions in the organization. Hence, business intelligence can be mapped and perceived as a value chain through the use of the business analytic technique which is firmly embedded in business intelligence systems. 7.0 Use of business intelligence to gain a competitive advantage Just to reiterate, the contemporary business environment is characterised by intense competition. This means that every business strives to find, reach and attain a competitive position as compared to other competitors. According to Neckopulos (2008) business intelligence is an important tool that can be used to gain a competitive advantage. Neckopulos (2008) pointed out that business intelligence can be used to enhance the understanding of customer preferences and needs. It is imperative to note that until when a business is able to understand the needs and preferences of its customer’s does it gear up towards gaining a competitive advantage. This is made possible through the business intelligence tools used for collecting and analysing business information. Additionally, business intelligence helps in monitoring the responses of other competitors in the market especially when a new product is introduced in the market. This is made possible by monitoring the actions of other competitors. For example, other competitors may also develop and introduce a close substitute of a product in the market when a particular company introduces its new products in the market. Business intelligence enables the businesses to stay focussed on the type and quality of products they should introduce in the market in order to gain a competitive advantage over the products introduced by the competitors. Imhoff (2006) noted that it is only possible once business intelligence tools are utilized in collecting/gathering and analysing competitors’ information. Furthermore, business intelligence is also vital in enhancing the understanding of the type of technologies; skills and knowledge an organization require in developing superior products. It is imperative to note that innovative products attract new and old customers and widens the customer base. This means that business intelligence enables the company to gain a competitive advantage by availing the necessary information about processes for designing, developing and creating innovative products which can compete effectively in the market place. The above benefits make business intelligence to be a widely sought technology in many organizations that can help to achieve and gain a competitive threshold in the market. 8.0 Conclusion From the discussion above, business intelligence can be perceived as a way of gathering balanced information. Employing and executing business intelligence systems in the organization does not only guarantee success in terms of improved organizational performance but it aids a business in gaining a competitive advantage in the market. This report has focussed on a number of issues related to business intelligence such as history of business intelligence, concepts applied in business intelligence systems, characteristics of business intelligence systems, importance of business intelligence in the organization and finally the application and usefulness of business intelligence in gaining a competitive advantage. 9.0 References Dasgupta, S & Vankayala, V. 2007 ‘Developing real time business intelligence systems: The agile way’ 1st Annual IEEE Systems Conference, Hawaii, USA April 9-12, 2007 (2006). The Gartner BI matrix. Gartner Inc., Available www.gartner.com Imhoff, C. 2006.” Three Trends in Business Intelligence Technology”. http://www.b-eye-network.com/view/2608. Jeanne W., Peter, W., & David, C. 2006. "Enterprise Architecture as a Strategy" Journal of Business studies, page 117. Lawton, G. 2006, ‘Making business intelligence more useful’ Computer, vol.39, no.9, pp.14-16 Neckopulos, J, 2008. Using Business Intelligence to Create a Competitive Advantage, Computer, vol.12, no.5 Ortiz, S., Jr. 2002, ‘Is business intelligence a smart move?’ Computer, vol.35, no.7, pp.11-14. Vinaene, S. 2008, ‘Linking business intelligence into your business’, IT Professional, vol. 10, no. 6, pp. 28-34. Watson, H., & Wixom, B. 2007. "The Current State of Business Intelligence", Computer Volume 40 Issue 9. Pp. 96-99. Wells, D. 2008. Business Analytics – Getting the Point, IT professional, vol.10, no 4, pp. 31-34 Read More