Saturday, August 29, 2009

Does BI require business process re-engineering?

I met up with a senior executive of a large firm last week. This firm is in process of rolling out BI intiative enterprise wide. He asked us a question about changes required in their business processes to ensure sucessful roll out of BI initiative. This question took all of us by surprise. We all were ready with our answer of how BI can help them increase revenue, profitability and reduce cost. This type of question shows maturity of an organization to adopt technology like BI. After the meeting, I didn't have any doubt what so ever about readiness of this organization to roll out enterprise wide BI Initiative.

Today many BI initiatives fail as they do not systematically address the business process changes required to capture business value of BI. It is common for BI vendor value propositions to emphasize business benefits such as profitability, responsiveness, customer intimacy, information sharing, flexibility, and collaboration. But investing in BI to achieve such business benefits may actually destroy business value unless those attributes can be defined in operational terms and realized through business processes that affect revenues or costs.

Many companies use BI to improve customer segmentation, customer acquisition and customer retention. These improvements can be linked to reduced customer acquisitions costs, increased revenue, and increased customer lifetime value, which translate to increase in profitability. However, a BI investment that improves demand forecasting will not deliver business value unless the forecasts are actually incorporated into operational business processes that then deliver reduced inventory or some other tangible economic benefit. In other word, the business benefit "Improved forecasting" is useless unless it is somehow converted into incremental after-tax cash flow.

To capture the business value of BI requires organizations to go well beyond the technical implementation of a BI environment. Specifically, organizations must engage in effective process engineering and change management in order to capture business value from BI.

BI systems delivers lot of useful information such as most profitable customers of your organization, fast & slow moving inventories, Good & bad suppliers, product cost & profitability. If you do not integrate this information with your management processes and operational processes such as ERP & CRM then you will not derive any value out of your investment in BI systems.

Process engineering is very essential for successful BI roll out. Process engineering identifies how BI applications will be used within the context of key management and operational processes that drive increased revenue and/or reduce cost. It provides a map of which processes must change and how they must change in order to create business value with BI applications. Thus, it lays the foundation for change management because process changes drive changes in individual and organizational behavior.

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