International Journal of Computational Intelligence and Information Security, August 2011 Vol. 2, No.

Business Intelligence: Strategic decision making in Retail

Dr. Sumesh Raizada Professor, Jagan Institute of Management Studies, Sector-5, Rohini, Delhi
raizadasumesh@yahoo.com

Abstract
In competitive business environment, executives are required to plan strategies and take quick decisions according to rapidly changing market demands. Most organizations nowadays are linked electronically within its various manufacturing or sales units as well as with other supply chain members. This has resulted in flow of vast information and data, which is stored in data warehouse system of the organization. The stored information is later extracted, sorted and analysed for taking decisions. Business Intelligence is an IT enabled management tool that has enhanced the decision making capabilities of the working managers in varied industries, such as insurance, banking, telecom, retail and manufacturing. The present paper discusses the concept of Business Intelligence and explores its scope in Retail industry. Paper also investigates various issues that pertain to BI vendors and software applications. The paper concludes with probing its potential in Indian scenario. Keywords: Data mining, Decision Support, Business environment, Retail.

1. What is Business Intelligence? Introduction

Business Intelligence (BI) is the use of an organization's disparate data to provide meaningful information and analysis to employees, customers, suppliers and channel partners for effective decision making. It helps managers to identify their loyal customers, efficient employees, market environments, competitors as well as channel partners such as, suppliers, transporters, banks, distributors and service contractors. BI suggests the areas where efforts and resources of an enterprise can be directed and assists managers in formulating their sales, promotion or distribution strategies. [1]

Business intelligence is a software application used for gathering, storing and analyzing different data available in an organization and help managers in taking better business decisions. BI tools perform the diverse task of customer profiling, market segmentation, product profitability, statistical analysis and inventory analysis. Organizations also use business intelligence applications to forecast future business trends and strategies. [2]

1.1

BI Application in various Industries

Software vendors have developed various BI tools to suit different industrial and enterprise needs. Some of these operational areas are as below; [3] [4] Commercial Mail Communication

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Consumer Packaged Goods Financial Services Government organizations, Institutions and Defense Retail Healthcare Energy Hospitality Manufacturing Pharmaceuticals Transportation and Logistics Banks

1.2

How it is done? BI Development

The five key stages of Business Intelligence can be explained as per the following flow chart; (Refer Fig.1) [5] Data Sourcing

Data Analysis

Situation Awareness

Risk Assessment

Decision Support

Fig.1: Stages of Business Intelligence

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Data sourcing Relevant information is extracted from multiple sources of data such as text documents, e-mails, images, sounds, reports, tables, charts, web pages, etc. Thus all information available on the server of a business becomes a source of data mining. Data analysis This involves integrating and summarizing information, validating models and predicting sales and demand trends. Situation awareness It involves filtering out irrelevant information and organizing it in context of the current business. Risk assessment It consists of identifying the most suitable alternative for decision making as per the varying situations, timings and perceived risks. Decision support It provides regular updates on business environment, market and events, which helps in the objective assessment of various decision alternatives.

While developing a BI solution, various queries are raised and accordingly several alternatives are considered for taking appropriate decision. These queries are mainly related to business area of the client firm; [2] [6] Goal Alignment queries: What strategic goal of the organization will the BI tools address? Baseline queries: Does the organization have the capability of collecting, storing, monitoring and measuring important sources of information and data? Cost and risk queries: What would be the financial consequences of a new BI initiative compared to present costs? Customer and Stakeholder queries: Who will benefit from the initiative and who will pay? What kinds of customers will benefit directly from this initiative? Metrics-related queries: What metrics to use for each piece of information being gathered? Measurement Methodology-related queries: What methodology should be used for determining the best or an acceptable way of measuring the required metrics? Results-related queries: Who should monitor the BI program to ensure that objectives are being met?

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BI model development in an organization is also influenced by the following considerations: [6] Customers: How to understand customers preferences and needs? Competitors: What strategies may be formulated to continuously evaluate and counter the activities of competitors? Business Partners: How & when to inform vendors on sales and production plans? Environmental factors: What are various economic, social and legal factors that might affect the performance of an organization? Internal Operations: How to monitor the performance of internal operations such as inventories, production or sales? Key Performance Indicators (KPI): What targets are fixed by the management for comparing with the actual performance related to sales, inventory, market share, etc.?

The purpose of BI software is to assists managers in gaining extensive knowledge of the factors that affect the companys overall performance and advice him on various decision alternatives.

2. BI Scope in Retail
Retail industry offers massive scope for Business Intelligence applications considering the huge customer base with varying needs and preferences as well large numbers of stock keeping units (SKU) that are sourced through different suppliers. Retailers have to be always alert to the changing market trends, competitors actions, government policies, global economic environment and customer requirements. Depending upon these factors, Retail executives have to plan their sales, merchandise and procurement. They have to keep track of their fast and slow moving products, decide price and promotional strategies and satisfy the customers by offering best services.

Business Intelligence assists Retail Managers in taking quick and effective decisions on issues pertaining to following; [7]

Inventory levels Pricing and promotional strategies Future demand for the merchandise Impact of incremental price change on demand The floor plan or store layout

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Customers likely response to specific promotional program Location of retail outlets The number, size or color of each SKU Discount and other schemes Number of employees and their placement Selection of suppliers and business partners

Vendors develop BI software to suit different Retail applications, such as;

Merchandise intelligence: Product planning, assortment, size, space, price, promotion, and discounts.

Customer intelligence: Automation, optimization, and customer basket analysis.

Operational intelligence: IT portfolio management, labor optimization, and real estate site selection.

BI system generate reports on lost sales, stock-outs, excess inventories and customer responses, collected from the POS (point of sale) or through surveys. It helps executives in taking decisions, based on scientific data rather than on the intuitions.

With web based BI tools, employees can now access wide ranging information and business solutions from a centrally held data. Several MIS (management information system) reports are generated that enhance decision making capabilities of retail managers. Some of these reports are; [8]

Vendor Performance Analysis Inventory Control Product Movement and the Supply Chain Demand Forecasting Incentive Reporting Royalty Program Lost Sales Analysis Full Lifecycle View of Products Market Basket Analysis Supplier Vendor Performance Index Out-Of-Stock Analysis Item Ageing

Retail applications offer numerous challenges to BI vendors of developing software that suits specific business area such as inventory control, vendor selection, stocks or sales management. There are millions of stock keeping units (SKUs) across large number of outlets, which are sourced through vendors spread all over the globe. Besides, retailers have to constantly evaluate their own performances for different time periods say days,

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weeks or year. Managers also need almost real-time analysis of demand and sales to plan shelf display, promotion and procurement. Another challenge posed by retail industry is its fast changing market environment and customer preferences. A new fashion and product becomes stale and outdated within few weeks, thus making merchandise assortment extremely difficult. As most retailers nowadays have global supply chains, managers have to take procurement decisions for short life inventories much in advance, which involve huge risks. Efficient BI software is therefore required to suggest most cost effective purchase decision based on available data and future demand.

With new innovations in communication technologies, some BI vendors have developed mobile versions of their applications. Retail Managers can now get details of every transaction on real time basis through their main systems. They can access data even when they are on move and can compare their budgeted KPI with the actual performance through their PDA (personal digital assistant) device.

3. BI Vendors
Globally Business Intelligence market has grown 13 percent in 2007 with revenues exceeding US $5.1 billion. Some of the leading vendors of BI solutions worldwide are; [9]

Business Objects: It is a market leader and has now been acquired by SAP. Provides applications such as formatted reporting and self-service report creation.

Cognos: Now owned by IBM, has high proportion of enterprise-standard BI platform deployments.

HP: Have low market share compared to other established vendors such as IBM.

Information Builders: Suited for supporting operational reporting.

Microsoft: Provides applications based on its Office and SQL server products.

Microstrategy: It provides OLAP architecture and object-oriented metadata modes.

Hyperion: Hyperion now acquired by Oracle provides combination of BI platform and analytic applications.

SAS: It dominates in advanced analytic solutions and packaged analytic application

programs.

3.1

BI Selection of Vendors and Applications

Evaluating a BI vendor and an appropriate solution is extremely challenging for the decision-makers. Firms must place priority on data quality, customer service and decision support provided by the BI solution providers.

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Apart from evaluating features and functionality, cost-effectiveness, ROI (return on investments), overall architectural support and the core capabilities of BI application provider should also be considered.

The capabilities on which BI firms are generally evaluated are as follows;

Enterprise performance management (EPM): Focus on key performance metrics and ways to align company goals with the users group.

Information delivery and information discovery (IDD): Simplifies the business decisions allowing users to access, format, analyze, navigate, and share information across the organization.

Information management (IM): Improve data quality, enable end-to-end data lineage and ensure consistency across the business.

Most customers have multiple operating and warehouses systems in addition to having mixed hardware infrastructure. They, therefore needs an independent BI application that fits into their existing enterprise infrastructure and standardize data management processes. While selecting BI software, it is essential to consider its impact on profitability of a business because of high costs of implementation and maintenance. Hence organizations should look for those BI vendors who can provide access to all available types of information with a simple, user-friendly interface at a reasonable cost. They must prefer vendors who have a proven track record and the expertise to deliver cost effective benefits.

Organizations should consider the following major issues while selecting a suitable BI tool or vendor; [10] Usability: Organizations should be selective about the Business Intelligence programs and buy only those features which they actually require, thereby saving on expenses. Requirement of metadata: In order to filter the relevant data from the vast available information, a metadata is created, which adds to costs. Customer must identify the amount of data that will be sufficient for its needs and current business requirements Consulting: Many BI products require substantial consulting and service projects as part of their application process. Customer should look for the BI software that are user-friendly and operate without expensive consulting. License, Upgrades and Maintenance: Business intelligence software requires maintenance fees for support, upgrades, improvements, etc. beyond the initial expense for the license. Those companies that only charge a flat fee per year with no maintenance fee may be considered by the buyers.

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Resume Building: Organizations should select the BI vendors or products, not by their popularity or clientele but on the basis whether they align with the corporate needs, goals or budgets.

4. BI Applications Various Issues and Problems

BI applications at times are not able to fully serve the purpose for which they are installed in the user systems. The cause of failure may be either due to poor development or because of improper use of software. The problems that are generally faced by the vendors in developing a BI solution or by the users in applying it into practice are; [11]

While developing and implementing BI projects, IT and EDP people of the organization are mostly involved, with very less interaction of the actual users of those applications. Hence, several minute but vital details of business operations are left out, which later creates problems for the users.

At times companies incorporate BI tools without any specific goal or with conflicting objectives. The resulting software is thus unable to provide accurate decision support.

BI Projects, which forms the basis of software development, at times are incomplete and prepared without much detailing and customization.

BI applications integrate different department and channel partners, such as marketing, materials, accounts and suppliers. Inadequate inputs and support from them generally create difficulties in selection of appropriate BI tool.

The IT personnel who are involved in the development process do not understand the organization's business operations and often make mistakes.

Solutions from a BI tool should provide actionable and relevant data. At times the BI tool produces data that is voluminous and irrelevant.

As market environment change, company must re-train and update its knowledge and data sources. The BI tool and the data warehouse have to be re-trained so that they are ready to provide future intelligence. This incurs recurring costs for the users.

Organisations often complain that BI applications are not user friendly and are difficult to use, possibly due to low competencies among staff members. The high cost of BI implementation therefore does not fully get recovered.

Some BI customers have different BI solutions across multiple departments, which do not integrate with each other. So they have to spend extra on training of their staff.

Many BI projects exceed their budget, due to addition of more data integration or software tools during the process of BI development. This is probably due to changing customer needs or because of not clearly defining the goals initially.

At times large companies focus on only their largest customers, instead of considering the market needs and environment in totality. The BI solution thus developed provides them with limited information and decision support.

At times the data generated by the user or his data sources are not of the required quality, thus the resulting BI solutions also appear to be inferior creating dissatisfaction among all concerned.

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One of the biggest technical challenges for the developer is to prepare a suitable BI project and select appropriate technology for it. BI vendor must therefore align data and information to suit specific business requirements and choose the right tools or technologies for them. They must also keep into consideration the technical abilities and experience of the users.

5. Business Intelligence in India

According to IDC's India BI Software Market Report, June 2007, the India BI software market is expected to grow at a CAGR (compounded annual growth rate) of 35.9 percent (2006-2011)). SAS India is the leader in the BI application software market with a 25 percent market share for FY 2006. In India, SAS has a strong customer base with companies like Novartis, Standard Chartered Bank, GE Capital, Citibank N.A., Hindustan Unilelever Ltd., Pfizer, Goodlass Nerolac, ICICI Bank, HDFC Bank, Reserve Bank of India and GlaxoSmithkline.

Microsoft Corporation India has also established its presence in Indian market with the launch of its business intelligence accelerator for implementation in the banking, finance, manufacturing and retail sectors. UB group has been its important customer, which managed substantial saving by applying BI decisions in its operations.

Manthan Systems is another leading provider of specialized BI software solutions for the retail and consumer goods industries. The firm has successfully implemented BI solutions for major overseas retailers and is now cashing in on Indian retail chains. Its specialised software helps retail firms capture and process data to improve planning, anticipate changes and mine opportunities. The firm is serving leading global retail chains including Woolworths Germany Haggen Supermarkets Castorama Ecco Sko, McDonalds and Haggar Clothing Co. [12]

Other prominent users of Business Intelligence products are; Orange, Reliance Communication, BPL Mobile and Shoppers Stop.

As per recent estimates, BI software market is dominated by the financial services, banking and insurance with 35 percent share, followed by telecom sector (21 percent), manufacturing sector (15 percent) and services industry (10 percent) including the ITeS industry. Presently, the $450 billion Indian retail market is mostly unorganized with hardly three-four percent in the organized sector. With relaxation of FDI norms in last few years, the organized sector in India is growing at 8-10 percent per annum with almost all leading industrial houses entering into the retail market like Future Group, Birla, Reliance, Tata, RPG and Bharti. [13] [14]

By 2015, organised Retailers may shift focus on rural sector that commands a sizeable disposable income especially in states like Punjab, Haryana, Gujarat and Maharashtra. Already, ITC chaupal, HLLs I-Shakti, DSCL Haryali Kisan Bazaars, M&M Shubh Labh stores, TATA/Rallis Kisan Kendra and Warna bazaar are catering to rural population. [15]

With growing foreign participation and stiff competition in retail, BI has vast scope in the Indian Retail industry.

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6. Conclusions
India economy is growing at much faster rate than most of the other countries in the world. This has resulted in heavy investments in industries such as Organized Retail, IT-BPO, Pharmaceuticals, Insurance, Financial services, Automobiles and Telecommunication. Multinational firms with their innovative business practices and advanced technologies are making the Indian markets extremely competitive. As most of the firms nowadays have integrated IT systems in their processes, they have the basic awareness and infrastructure required for the BI applications. Sectors such as Banking, Insurance and Telecom have recognized the importance of BI possibly due to global presence. Indian Retail firms should also realize the need and utility of Business Intelligence in order to overcome the competition and to achieve revenue growth and profitability. Effectiveness of BI was tested during the economic crisis few years back, when reliability and accuracy of data became critical for decision making. [16] As global economy is one again moving towards the slowdown due to crisis in the United States, more firms shall incorporate BI into their operations. Indian Retail industry, being among the most affected during the previous economic recession, shall definitely look for strategic options provided by BI in the effective decision making.

.. References:
[1] [2] [3] [4] [5] [6] [7] http://www.businessobjects.com/businessintelligence/ http://encyclopedia.thefreedictionary.com/Business+Intelligence http://www.businessobjects.com/solutions/industry_solutions/ http://www.businessobjects.com/solutions/industry/retail/default.asp http://www.cmis.csiro.au/bi/what-is-BI.htm http://www.tech-faq.com/business-intelligence.shtml http://www.prlog.org/10123229-the-competitive-game-is-changing-for-retail-business-intelligence-forretail-industry.html [8] [9] [10] http://www.aberdeen.com/summary/report/benchmark/RR_BIinMERCH_GB_3387.asp http://www.cio.com/article/203900/Nine_Business_Intelligence_Vendors_to_Watch http://www.eweek.com/c/a/Enterprise-Applications/How-to-Select-the-Right-Business-IntelligenceVendor/ [11] [12] [13] [14] http://www.itmweb.com/f011906.htm http://www.cbronline.com/article_cbr.asp?guid=BE8BE7D0-CD23-48CC-9FD4-42EF5486A846 http://www.networkmagazineindia.com/200511/newsanalysis07.shtml http://www.ciol.com/Enterprise/News-Reports/Smart-business-analysis-for-Indian-retailindustry/9608106840/0/ [15] [16] http://www.indiaretailbiz.com/blog/ http://www.biztechreport.com/story/1156-business-intelligence-scenario-asia-pacific

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