Business Intelligence Putting together all of the pieces of the puzzle Business Plug-In B18 pages 466-482 Business intelligence (BI) refers to all of the applications and technologies used to gather, provide access to, and analyze data and information to support decision-making efforts

That is what we are trying to solve using business intelligence. Sun Tzu in The Art of War To succeed in war, one should have full knowledge of one’s own strengths and weaknesses and full knowledge of the enemy’s strengths and weaknesses. Lack of either one might result in defeat. Many businesses today say “how can I understand my competitor when I can’t even understand myself. That is what we are trying to solve using business intelligence.

The Problem: Data Rich, Information Poor With all of the data being captured and generated by SCM, CRM and ERP systems, as well as the other digital data being created and transmitted (spreadsheets, fields in database files, word processing documents, video clips, email and text messages, voice mail, etc.), businesses are facing a digital explosion. The amount of data generated is doubling every year Some believe it will soon double monthly Data is a strategic asset for a business, and if the asset is not used, the business is wasting resources. As businesses increase their reliance on enterprise systems such as CRM, they are rapidly accumulating vast amounts of data. Every interaction between departments or with the outside world, historical information on past transactions, as well as external market information, is entered into information systems for future use and access.

An Ideal Business Scenario An account manager, on her way to a client visit, looks up past proposals, as well as the client’s ordering, payment, delivery, support and marketing history. At a glance, she can tell that the client’s ordering volumes have dropped lately. A few queries later, she understands that the client had support issues with a given product. She calls her support department and learns that the defective product will be replaced within 24 hours. In addition, the marketing records show that the client recently attended a user conference and expressed interest in a new product line. With this information, she is prepared for a constructive sales call. She understands all aspects of a client’s relationship with her firm, understands the client’s issues and can confidently address new sales opportunities. For all of this to happen, an organization needs to make sure that it has information systems that can speak to each other using the same language, even if they are in different departments, buildings or geographic locations. If I have systems that can speak to each other and if I have the tools necessary to analyze this data and if I understand how to use those tools, then I can go from being in a situation where I am data rich and information poor into a situation where I am both data rich and an information millionaire

To improve the quality of business decisions, business intelligence tools and systems are used to make better, more informed decisions Predict sales and distribution schedules Determine correct inventory levels Forecast levels of bad loans and fraudulent credit card use Forecast credit card spending by new customers Predict machinery failures Determine key factors that control optimization of manufacturing capacity Predict when bond prices might change Determine when to buy or sell stocks Predict hard drive failures Predict potential security violations A few examples of using BI to make informed business decisions include: Retail and sales: Predict sales and distribution schedules Determine correct inventory levels Banking Forecast levels of bad loans and fraudulent credit card use Forecast credit card spending by new customers Operations Management Predict machinery failures Determine key factors that control optimization of manufacturing capacity Investments and Securities Trading Predict when bond prices might change Determine when to buy or sell stocks Information Technology Predict hard drive failures Predict potential security violations

Forecast claim amounts and medical coverage costs. Classify the most important elements that affect medical coverage. Track crime patterns, locations and criminal behavior Forecast the cost of moving military equipment Testing strategies for potential military engagements Capture data on where customers are flying and the ultimate destination of passengers who change airlines in hub cities: is there a new route that should be added? Predict what type of show is best to air during prime time and how to maximize returns by interjecting commercials Develop insights on symptoms and causes that result in illness and how to provide proper treatments. Insurance: Forecast claim amounts and medical coverage costs. Classify the most important elements that affect medical coverage. Law Enforcement Track crime patterns, locations and criminal behavior Government and Defense Forecast the cost of moving military equipment Testing strategies for potential military engagements Airlines Capture data on where customers are flying and the ultimate destination of passengers who change airlines in hub cities: is there a new route that should be added? Broadcasting Predict what type of show is best to air during prime time and how to maximize returns by interjecting commercials Health Care Develop insights on symptoms and causes that result in illness and how to provide proper treatments.

Having BI promotes understanding: Asking WHY? Organizations can use Business Intelligence to find the root causes to problems and provide solutions simply by asking “Why?” Once an organization has a clear understanding of root causes, it can then take effective action. Where the business has been. Historical perspective is always important in determining trends and patterns of behavior. Where it is now. Current situations are critical to either modify if not acceptable or encourage if they are trending in the right direction. And where it will be in the near future. Being able to predict with surety the direction of the company is critical to sound planning and to creating sound business strategies. Where has the business been? (historical perspective) Where is the business now? (modify or encourage to continue) Where will the business be in the future? (predict future direction)

DATA MINING The center of any business intelligence effort is data mining. Data mining: the use of advanced statistical techniques to analyze large amounts of data in order to find patterns, relationships and infer rules that might be used to predict future behavior. Uses query tools, multidimensional analysis, intelligent agents and various statistical tools Algorithms are applied to data sets to uncover inherent trends and patterns in the data.

Goals of Data Mining Classification Estimation Affinity grouping Trying to assign records to one of a predetermined set of classes. Estimation Determine values for an unknown continuous variable or estimate future values. Affinity grouping Determine which things go together. Clustering Segment a diverse/differing population of records into groupings with common characteristics Segmentation without having predetermined groups where the software determines the groupings.

Most common forms of Data Mining Cluster analysis Association detection Statistical analysis Statistical analysis: Travelocity could use statistical analysis to offer upgrades and cross-selling to customers booking vacations such as offering to sell golf passes or vacation park passes to customers booking airfares and hotels.

Cluster Analysis Cluster analysis – a technique used to understand the characteristics of a group. Classification uses a predetermined grouping while clustering looks at groupings determined by the software. CRM systems depend on cluster analysis to segment customer information and identify behavioral traits Segment by zip code, best customers or one-time customer. Segment customers by zip code. Companies look at demographics, lifestyle behaviors and buying patterns of the profitable segments of the population by zip code. If you are a high-end business and you are launching a marketing campaign, you are going to get the greatest response from those areas that best fit your business segment. Travelocity could use customer analysis to segment customers and create individualized offers based on buying trends and vacation spot availability.

Association Detection Association detection – reveals the degree to which variables are related and the nature and frequency of these relationships in the information Market basket analysis: trying to understand which products are commonly purchased together. Applications include : cross-selling products and services shelf-product placement.

Statistical Analysis A wide range of statistical tools that can be used to build various statistical models, examine the model’s assumptions and validity, as well as compare and contrast the various models to determine the best one to use for a particular business issue Various types of statistical analysis that might be performed include: Information correlations Distributions, calculations, and variance analysis Forecasting (most common form of statistical analysis) Time series analysis Prediction Various what-if analysis Kraft uses statistical analysis to assure consistent flavor, color, aroma, texture, and appearance for all of its lines of foods Kraft evaluates every manufacturing procedure, from recipe instructions to cookie dough shapes and sizes to ensure that the billions of Kraft products that reach consumers each year taste great (and the same) with every bite

Pivot Tables can help you see relationships in the data The business intelligence tool used by most organizations is Microsoft Excel and its data analysis functionality, especially pivot tables. By adding a Page Field to a Pivot Table, you can add another dimension of information: 3-D (rows and columns and layers). Creating a 3-dimensional Pivot Table in Excel is a means of conceptually building a data warehouse. Page fields represent the depth layer Pivot Tables can help you see relationships in the data