Business Intelligence

China is becoming less of Outsourcing threat to India

I truly believe that it is all in the mindsets!  The systemic model creates the mindsets and they create further opportunities.  Chinese system has created a phenomenal manufacturing engine.  The mindsets in that country are tuned to domination in that area.  They have the brights for dominating the services market.. but the mindsets may be absent... the mindsets that created the Silicon Valley and continues to drive innovation from that small corner of the world.  I am sure even New York can provide all those resources.. but can it provide the mindsets?  Probably no.  Same with China vs India in the services.

As language, attrition and intellectual property (IP) protection continue to haunt the multinationals, the myth associated with China as key challenger to India for offshore supremacy is diminishing gradually....

As language, attrition and intellectual property (IP) protection continue to haunt the multinationals, the myth associated with China as key challenger to India for offshore supremacy is diminishing gradually.

A recent Forrester report ‘China’s Diminishing Offshore Role’ stated that while China’s percentage of global delivery model (GDM) resources for the top services firms such as Accenture has dropped, there has been far greater investment into India and the Philipines.

Based on interviews with a mix of 10 MNCs, Indian, Chinese and Japanese services firms as well as government officials the report states that “while Chinese services firms are supporting a vibrant local IT market, China has not achieved the offshore growth that people expected".

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"Beers and Diapers" urban legend of Business Intelligence

Here is an interesting "beers and diapers" story that has become like an Urban legend in the BI echelons:

Some time ago, Wal-Mart decided to combine the data from its loyalty card system with that from its point of sale systems. The former provided Wal-Mart with demographic data about its customers, the latter told it where, when and what those customers bought. Once combined, the data was mined extensively and many correlations appeared. Some of these were obvious; people who buy gin are also likely to buy tonic. They often also buy lemons. However, one correlation stood out like a sore thumb because it was so unexpected.

On Friday afternoons, young American males who buy diapers (nappies) also have a predisposition to buy beer. No one had predicted that result, so no one would ever have even asked the question in the first place. Hence, this is an excellent example of the difference between data mining and querying.

The story goes on that, once the correlation was uncovered, it was easy to back extrapolate from the effect to the cause.

* Young American males frequently indulge in ritualised carousing behaviour with friends of Friday nights.
* Carousing usually involves the consumption of beer.
* Most young American males only buy diapers after they have fathered offspring.
* Offspring acquisition is a known carousing inhibitor.

So the proud new father is walking around the store on Friday afternoon. He knows there is no way that he is going to get out of the house to join his mates at the bar. However, there is nothing to stop him from drinking beer at home. All he needs is to be reminded of that fact. After seeing the results of the data mining, Wal-Mart moved the beer next to the diapers and beer sales went up.

Sadly though, as the writer suggests, it isn't true! But there are some die-hard fans of this story who have used it to great effect in their presentations and they are not going to stop doing that in a hurry!

  Technorati : beers and diapers, walmart

Consulting: What is it?

After so many serious and on topic posts, I thought of having some humor on this blog. I found this interesting poster. It apparently is from despair.com

Centrality of Measures in Managing Businesses

It is often said that what you cannot measure you can't manage!  That is true to a great extent!  Very often the processes and activities in a company are followed using the costs and the revenues without ever getting into the measures that could indicate the health, progress and direction of those processes and activities.  That is the first step in the journey towards a potent BI environment!

How should the measures be like?

- Should include Qualitative and Quantitative
- Should be lagging and leading
- Should be financial and operational
- Should be able to help measure processes at all levels: Strategic, Tactical, and Operational.

The other end of creating measures is to create a plethora of measures that every manager cannot or will not follow!  Measure is not a status symbol - that more the merrier!  Measures should be sharp and fine enough to help you effectively measure and manage your business.

Every business has a different set of measure set to help manage it.  Therefore, it is important and prudent to look at other businesses that are very similar to finetune your measure catalog.

Measures on their own do not create magic.  They are the means and NOT the end!  Which essentially means that they drive the business alignment.  Strategic intent needs to be aligned to the operational activities.  Measures act as the glue to achieve this alignment.  Starting point, therefore, if you are a Public company needs to be the Shareholder Value!  Shareholder Value is what drives the growth and longevity of a business corporation.

Now, having understood the importance and centrality of appropriately discerned measures created in a way that they align themselves to the overall strategic intent, we need to also know the tools that help us monitor them.  Two most important tools that help the companies are - Dashboards and Scorecards.  In the subsequent posts we will talk about Dashboards and Scorecards in more detail!

China and India BI/BPM markets to grow by over 20%

The markets in BI and BPM in China and India will grow tremendously in the next decade or so. China will outstrip Korea as the second biggest BI/BPM market! Both India and China will grow at over 20% CAGR!

In the report, completed in June, IDC projected that the BI and BPM market in China will grow at a compound annual growth rate (CAGR) of over 20 percent, nearly tripling to US$107.1 million in 2010, from US$37.6 million this year.

Korea, a relatively mature BI market, is expected to grow at a relatively slower pace, according to IDC. The combined BI and BPM market potential is projected be worth about US$100 million by 2010.

By the end of the decade, China alone will contribute about 17 percent to the Asia-Pacific market, excluding Japan, for BI and BPM. IDC forecasts the Australia and New Zealand markets will remain unchallenged as the largest in the region.

Besides China, IDC expects India to also grow at a CAGR of more than 20 percent. The Asia-Pacific regional market, excluding Japan, will grow at 13.5 percent over the next five years to reach US$630 million in 2010.

Sharon Tan, senior analyst for application tools software at IDC Asia-Pacific, told ZDNet Asia on the sidelines of a business optimization conference Thursday that BI and BPM adoption in China is still at a relatively immature stage. The average Chinese business uses such tools for relatively basic functions.

However, this is expected to change in the near future, Tan noted. "We see [businesses in China] going up the 'food chain', deploying BI and BPM to help grow their enterprises," said Tan.

According to the Malaysia-based analyst, businesses in China may not have collected enough data yet to derive the true value that BI and BPM tools can offer. As the volume of data increases, enterprises will be able to use the data to gain better business insight, she added.

The main adopters of BI and BPM in China have been telcos, said Tan. On the other hand, the take-up of BI and BPM in China's manufacturing sector is "not as large as expected" even though the country has a large manufacturing base, she said. While Tan did not indicate when this sector is expected to significantly adopt BI and BPM, she pointed out that it was "only a matter of time".

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Glossary of BI related terms

Here is a useful glossary of BI related terms. 

BI should "grow" up to become Performance Management!

Most of the corporations are stuck at the level of getting just the correct data in place.  What is, however, required here is the ability to link the operations with the strategy - more importantly the Shareholder Value. 

This does not mean tracking the Shareholder Value by month and taking short-term decisions that may be sub-optimal in the long run, but looking at long term continual growth in the Shareholders Value!  Here is a case I have made for the importance of Performance Management and the overall context in which Business Intelligence should be looked into!

WORLD BUSINESS IS CHANGING

There was a time when a company was happy to keep evaluating its internal performance and introduce programs to improve its output and quality.  That was good for the growth of the company and its profitability.  However, with changes occurring in business globally, interdependence between different businesses and economies has made comparisons and external benchmarking imperative!
Today, what Infosys does in India profoundly affects the fortunes of Accenture from US (by the way, Revenues of Accenture and Infosys are USD 16.60 Bn and USD 1.73 Bn; while the Market Capitalization for both is USD13.43 Bn and USD19.26 Bn respectively!). 

EXTERNAL FORCES HAVE BECOME CRITICAL

Michael Porter  says;

"The essence of formulating competitive strategy is relating a company to its environment"
"….competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors"

Need was for a mechanism that could include the effects of external forces on a business.  Michael Porter came up with "Five Forces Model".  He identified five generic forces that act upon businesses world-wide in ways that are fundamental to their existence and sustenance!

These forces are:

     Threat of New Entrants (Potential Entrants)
     Threat of Substitute Products or Services (Substitutes)
     Bargaining Power of Suppliers (Suppliers)
     Bargaining Power of Buyers (Buyers)
     Rivalry among Existing Firms (Industry Competitors)

SHARE OF INTANGIBLE ASSETS IN VALUE CREATION

In a study by Accenture , 33% of the C-level executives said that they do not measure the performance of their intangible assets.  Of all the Executives surveyed, 55% felt their "Ideal Company" conducts comprehensive and proactive management of relevant intangible assets and/or intellectual capital, while over 65% felt that their OWN company does this rarely or at random.
About half (50%) of the C-level executives thought that stock market rewards companies that invest in intangible assets and/or intellectual capital (assuming adequate disclosure of these investments)!

MERGERS AND ACQUISITIONS & IT

According to Thomson Financials' Q4 2004 report, USD 1.516 Trillion worth of Mergers and Acquisitions occurred. Often the companies that come together due to these M&A activities are on disparate IT systems.  The different accounting policies and principles (Generally Accepted Accounting Principles - GAAPs) also make it difficult to get one version of truth!

This scenario increases the cost to get a comprehensive view of the corporation as a whole and effectively manage.

"We found that those companies with more effective integration in such areas as IT Planning and Management, IT Operations and Application Delivery were more likely to achieve better financial results from the merger, and were also more likely to describe the merger as a success."

PERFORMANCE MANAGEMENT IS THE KEY

A basic but important and critical shift needs to occur in the management's paradigm if strategy is to be managed successfully - from "Doing Things Right" to "Doing the Right Thing"!  It does not help if you race up the ladder while it is hanging against the wrong wall!!

Performance Management involves acquiring insights into how the business is performing and how it will shape in the future.  The entire performance of a corporation is encapsulated in its stock price.  Stock market prices a stock with respect to its fundamental and intrinsic value.  Actually, it is the change in the Shareholder value of a company with respect to the Investors' expectations of Shareholder Value that decides the direction of the price.  Let us see how.

Suppose your company's current Stock Price is $20 and the Opportunity Cost of Capital is 15%.  In 5 years, your Future Value will be roughly $40.  Now, as long as the company keeps returning 15% return on shareholders' equity, the price will grow to $40 in 5 years.

However, if the return is more than 15%, then your current price will increase to equalize the discount factor to the current opportunity cost (15%).  On the other hand, if the return falls, then the current stock price will take a dive to again balance the opportunity cost to discount factor parity!

In case the opportunity cost in the market (when boom comes) goes up to 20% instead, even then your current stock price will fall to $16!

Hence it is important to manage the Shareholder value of your company! 

MANAGING SHAREHOLDER VALUE

Alfred Rappaport gave a model to help derive and calculate the Shareholder value of a company.  He used six main drivers to come to the Value.

Managing Shareholder Value involves not only calculating the Value once using these drivers but also constantly monitoring the relationship going forward.  This requires installing a reliable, robust, efficient and an "honest" system of managing the leading and lagging drivers.

Based on this PricewaterhouseCoopers identified 7 drivers - Sales Growth, Operating Margin, Cash tax rate, Working Capital Investment, Fixed Capital Investment, Competitive Advantage (Forecast) period, and Cost of Capital.

Accenture in one of its studies  says this about rationale to build World class Performance Management capabilities:

"The ability to consistently drive insight about business performance is one of the most important leadership responsibilities for finance executives. It is also one of the most difficult responsibilities to fulfill on an operational basis. Success in creating business performance management capabilities requires finance executives to move beyond the boundaries of their organizations to influence the systems, decisions and actions across the enterprise."

PLANNING AND FORECASTING IS A MAJOR PIECE

Corporations expend significant amount of resources in annual and periodic planning, budgeting and forecasting.  Reason? Disparate systems, distributed information, offices, and people, and inadequate information flow mechanisms!  Significant number of companies still do their planning on Excel!

Hackett Group's study says:

"…a company, with $1 billion in revenue, typically spends 25,000 man-days per year on planning and measuring performance."

If this can be reduced, it free up significant amount of resources for an organization and instead focus on other initiatives!!

For example, Sprint, the US telecom provider, has been able to reduce its budgeting cycle to two months from over 4 months budget cycle!

Further research by Accenture and Cranfield School of Management  says:

"…companies who have addressed planning and forecasting issues have consistently outperformed their sector averages. These companies have seen an average share price growth of 116% over three years (101% sector average), 221% over five years (167% sector average) and 373% over ten years (280% sector average)."

Budgeting and Planning - Need to revisit the allocations framework!

 

Traditionally, Budgeting drives planning and forecasts. Budgeting is inextricably linked to the Investment Management and Cash Management at the center. I have not studied many corporates to confirm this but based on my discussion with a friend on how it worked in J&J and Enron, this seems to be true. So Cash & Investment Management process actually follow the same pattern as the Budgeting process does.

Investment/Cash Management and therefore, Budgeting is based on the DCF Asset Allocation formulae between independent projects dictated by ROI, irrespective - mostly - of the division they happen in.

My argument: What if we focused not on projects and their budgets but rather divisions as businesses?? And look at the question of who-gets-what from the classic retained Earnings vs Distribution of Earnings lens? Rather than every division being forced to let go of its earnings to a common pool as a rule - should it be a conscious (decentralized?) decision whether the earnings should be retained within division or distributed to central pool (shareholder)?

Take the case of the old PricewaterhouseCoopers audit vs consulting practices - Audit floated Consulting through its earnings and soon Consulting was more profitable. So who has greater say in the earnings - Audit or Consulting or Center (comprising both)?

Should divisions be managed as Businesses floated by a Venture Capital (corporates - read central pool) fund? The equity being initially more with Center and then increasingly with Division as the profitably increases. More incentive for the division to remain profitable as its freedom depends on it! So a portion of the "budget" or plan is centralized and a portion is division's decision?

Rather than budgeting between projects we manage profitable business ventures (combination of projects + division) - profit potential contributed by projects from various divisions to the central pool and common profit statement?

 
  Technorati : Budgeting, Planning

Hyperion Steps up in the BI market!

This is interesting.  A lot of consolidation seems to be occuring in this BI market where Hyperion and COGNOS - the financial apps leaders are turning to the IT side to beef up their product line and also looking at the decision makers in the IT organization as opposed to the Finance organization. 

I have believed that this is where SAP was strong.. and it somehow lacked the penetration in the Finance organization which brought tough competition from Hyperion and COGNOS!

Hyperion has focused almost exclusively on finance organizations, while Business Objects and Cognos have focused primarily on IT to support the sales, supply chain and HR functions with their BI tools. Of course, that began to change two years ago with the acquisition of Adaytum by Cognos (which led to Cognos' Enterprise Planning product) and more recently Business Objects' acquisition of SRC Software. These vendors all realize that they need to branch out from their comfortable niches, particularly as Microsoft, Oracle and SAP loom ever larger in their markets.

At Hyperion Solutions 2006, Hyperion emphasized the technical underpinnings of its recent System 9 release, and indicated future developments that should address IT architecture concerns. Among the notable developments is progress in integrating Hyperion Master Data Management (MDM) Server with its financial applications.

Hyperion's MDM is of the type that Ventana Research classifies as analytic master data management (A-MDM): it maps and rationalizes differences in dimensional hierarchies utilized by multiple applications and multiple users. This is a particularly critical requirement of finance organizations (and thus users of Hyperion's financial applications), which need to analyze alternative planning scenarios and to resolve organizational inconsistencies or discrepancies for financial reporting purposes. Cognos and Business Objects do not offer this capability, and it provides a compelling reason for finance organizations to consider migrating from Microsoft Excel. However, while Hyperion is making strides in integrating MDM Server with its native applications, its MDM Server still utilizes a manual, error-prone flat-file transfer mechanism for coordinating dimensionality with other enterprise systems (for example, the ERP-based chart of accounts). Moreover, Hyperion has yet to communicate a specific product roadmap for integrating MDM Server with its BI products (although it has indicated it intends to do that).

With a new management tool, Hyperion BPM Architect, Hyperion has extended some of the capabilities of its MDM Server as a common modeling environment for its financial applications, specifically Hyperion Planning and Hyperion Financial Management.

Perhaps the most encouraging news is that Hyperion is finally realizing the value of metadata integration. Hyperion System 9's semantic metadata layer (called Business Information Views) is on a par with Business Objects' Universe, Cognos' Framework Manager and Microsoft's Unified Dimensional Model. However, as in all BI vendors' metadata managers, there is potential for report errors and inconsistencies if best practices are not followed and enforced. Indeed, the lack of enterprise metadata management is one of the critical factors standing in the way of enterprise BI deployments.

Hyperion indicated, though, that it sees the value of a single metadata/dimension repository. Users should watch the evolution of this important architectural element, which is critical not only to integrated performance management but to enterprise BI as well.

Hyperion also indicated several upcoming developments in these promising areas:

    " time intelligence: Time periodization is perhaps the most difficult dimension to rationalize across applications and organizational functions.

Hyperion will deliver a common calendar catalog to provide time-based calculations across its applications. " search: Hyperion is working on a business language search capability specific to performance management and BI. However, it gave no indication whether this will integrate with the popular enterprise search engines. " decision audit: Hyperion discussed a decision management capability that would make possible the tracing of BI-supported decisions through its applications.

On the downside, notably still missing from Hyperion's radar screen are integration with business process management (BPM) and operational intelligence (OI) technologies; architectural integration resolution of its BI product line with its financial applications; and relationships with enterprise information management technologies from vendors (such as IBM and Oracle).

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BI Intervention should be a Program, not a Project and it needs Executive Sponsorship

 

There are many companies that implement BI yet the maximum benefits do not accrue to the management. The companies do not go to full length at getting the required benefits.

One of the reasons that most of the BI projects fail in their objectives is the Lack of Executive Sponsorship. For any BI intervention to succeed, it is imperative that three main people in the organization - the CEO, the CFO, and the CIO are in sync with each other. They should have a clear idea as to why they are indulging in a BI program. Very often, however, the BI effort is left to the CIO. I believe that the BI intervention needs to come from the CFO - if not from the CEO. He is the person who is directly responsible to the Shareholders. And if there objectives are to be met then the entire reporting system needs to be in line with the objective of Shareholder Value enhancement.

There are two types of reporting of data that occurs within an enterprise - Executive and Management (or Operational). The both should compliment each other. The objectives that are articulated in the former should find resonance in the latter!

BI is also the time when Operations can be dove-tailed into the strategic intent. It is imperative then to find the meeting ground. That exercise is not possible without the active participation or at least the blessings of the three main C-level players!

Finally, a Business Intelligence Intervention needs to be a PROGRAM... and not just a PROJECT. The difference?

Program is a series of projects and intervention in order to enhance an organization capability in a certain area/sector while a Project has a beginning and an end as it has a very clearly stated set of objectives and milestones that ought to be achieved! For example, the US Space Program is a Program. A Challenger Mission to space is a "Project" with a clear end in sight. US Space Program is an ongoing initiative.

 
  Technorati : Program, Project