1 Business Intelligence Software 1 Running head: BUSINESS INTELLIGENCE SOFTWARE Business Intelligence Software Customers Understanding, Expectations and Needs Adis Sabanovic Thesis for the Master s degree in Business Administration, Spring 2008
2 Business Intelligence Software 2 Executive summary Modern companies operate in incredibly complex and dynamic environments. This is clearly characterized by constant changes in technology and in various market forces as well as by enormous amounts of data and information that need to be gathered and analyzed every day. Governmental regulations and ongoing competitor pressures, among other external and internal factors, are issues that managers and decision makers in a company must take into a consideration when making decisions. The need for BI systems is growing stronger and businesses in various industries demand such tools that will help them stay on the edge in order to be competitive. Hence the purpose of this paper is to find out what their companies desire when choosing a BI system to work with. What are their needs and what do they expect and understand from this technological system that will hopefully make them work easier and gain their knowledge about the business they operate in. A web questionnaire is aimed at 67 Swedish companies from various industries and the answers have been summarized and analyzed in different cross tables for comparison reasons. Respondents from the Manufacturing industry were those with the highest response rate. A model called The PET-model of BI implementation was created, as a result of the theoretical findings, and this model is used to finalize the results and the conclusions of this paper. Key words: BI, Business Intelligence, Business Intelligence Software, Competitive Intelligence, Decision Support Systems
3 Business Intelligence Software 3 TABLE OF CONTENTS 1 INTRODUCTION BACKGROUND THE DEFINITION OF BUSINESS INTELLIGENCE BI wide ranging Business Intelligence Software Why BI software Some categories of BI Tools BI software in organizations Expectations and needs of a BI software Common issues regarding BI usage Market of BI solutions today DEFINITIONS LIMITATIONS METHOD CHOICE OF METHODOLOGY RESEARCH PHILOSOPHY CHOICE OF THEORY THEORETICAL FRAMEWORK BI SOFTWARE CLASSIFICATION End user query, reporting, and analysis Advanced analytics ANALYTICAL APPLICATIONS Logical integration Interactive reports Integrated information Addressing of a Business domain TYPES OF BUSINESS INTELLIGENCE SYSTEMS Model driven BI system Data driven system Communication driven system Document driven system Knowledge driven system Web based system REAL TIME BI SYSTEM HOW REAL TIME BI SYSTEM WORKS Time importance when working with BI THE DIFFERENT USER GROUPS OF BI BI PLACEMENT IN THE ORGANIZATION The special dept. model of intelligence The advisory model of intelligence The professional model of intelligence The top down model of intelligence The Integrated Intelligence Model The down up model of intelligence The departmental model of intelligence SOME BI TOOLS ON THE MARKET TODAY SUBSOFT BRIEF PRESENTATION THEORY MODEL CREATION EMPIRICAL METHOD RESEARCH STRATEGY TIME HORIZON DATA COLLECTION METHOD POPULATION SAMPLE SELECTION RESEARCH CONDUCTION BI RESEARCH PLAN DATA ANALYSIS RESEARCH QUESTIONS RELIABILITY AND VALIDITY ANALYSIS EMPIRICAL FINDINGS CRITIQUE ANALYSIS CONCLUSIONS SUBSOFT COMPARED TO THE RESEARCH FINDINGS THESIS CONCLUSION PRACTICAL RELEVANCE DISCUSSION LIST OF REFERENCES APPENDICES APPENDIX 1, (SWEDISH) APPENDIX 2, (ENGLISH) APPENDIX 3, QUESTIONNAIRE RESULTS APPENDIX 4, QUESTIONNAIRE APPENDIX 5, INDUSTRY ANSWERS... 92
4 Business Intelligence Software 4 LIST OF TABLES TABLE 1 - WORLDWIDE BUSINESS INTELLIGENCE TOOLS REVENUE BY SEGMENT, TABLE 2 PET MODEL S PURCHASE FOUNDATIONS IN THE MANUFACTURING INDUSTRY...56 TABLE 3 - PET MODEL S PURCHASE FOUNDATIONS IN ALL INDUSTRIES COMBINED...59 TABLE 4 - PET MODEL S EMPLOYMENT FOUNDATIONS IN ALL INDUSTRIES COMBINED...59 TABLE 5 - PET MODEL S TASK FOUNDATIONS IN ALL INDUSTRIES COMBINED...61 LIST OF FIGURES FIGURE 1 - WORLDWIDE BUSINESS INTELLIGENCE TOOLS REVENUE SHARE BY REGION, FIGURE 2 CLASSIFICATIONS OF BI SOFTWARE...1 FIGURE 3 - REAL-TIME BI PROCESSING COMPONENTS...1 FIGURE 4 LATENCY IN BUSINESS INTELLIGENCE DECISION MAKING (HACKERTHORN, 2003)...1 FIGURE 5 REAL-TIME BI; ACTION TIME VS. IT COSTS (WHITE, 2003)...30 FIGURE 6 DIFFERENT BI USER NEEDS IN THE HIERARCHY (SOLBERG SØILEN, 2008)...1 FIGURE 7 THE SPECIAL DEPARTMENT MODEL OF INTELLIGENCE (SOLBERG SØILEN, 2008)...1 FIGURE 8 THE ADVISORY MODEL OF INTELLIGENCE (SOLBERG SØILEN, 2008)...1 FIGURE 9 THE PROFESSIONAL MODEL OF INTELLIGENCE (SOLBERG SØILEN, 2008)...1 FIGURE 10 THE TOP-DOWN MODEL OF INTELLIGENCE (SOLBERG SØILEN, 2008)...1 FIGURE 11 THE INTEGRATED INTELLIGENCE MODEL (SOLBERG SØILEN, 2008)...1 FIGURE 12 THE DOWN-UP MODEL OF INTELLIGENCE (SOLBERG SØILEN, 2008)...1 FIGURE 13 THE DEPARTMENTAL MODEL OF INTELLIGENCE (SOLBERG SØILEN, 2008)...1 FIGURE 14 SUBSOFT MODEL OF INTERNAL AND EXTERNAL FACTORS (SUBSOFT, 2008)...1 FIGURE 15 THE PET MODEL OF BI IMPLEMENTATION...1 FIGURE 16 BI RESEARCH PLAN...52 FIGURE 17 SURVEY RESPONDENTS REPRESENTED FROM DIFFERENT INDUSTRIES FIGURE 18 PET MODEL AFTER THE ANALYSIS...1
5 Business Intelligence Software 5 1 Introduction This Chapter describes the definition of Business Intelligence, why we choose to use it and also anticipated problems when using it as well as the purpose of this thesis. For the start, a short historical background about the term Business Intelligence is presented. 1.1 Background In the modern world of today the access to information is greater than ever before. In many cases the information flow is overwhelming and it sometimes leads to valuable information losses. Company leaders and other decision makers are trying to overcome this problem by investing in various sophisticated computerized solutions, also known as Business Intelligence Systems. But it is not only in the modern world that Business Intelligence Systems have been appreciated for their great capabilities of creating a better understanding of one s working environment. In 1958, the term Business Intelligence is used for the first time in an article called A business intelligence system by Hans Peter Luhn. Luhn was describing how to automate the process of collecting and sorting information from documents using current photo-printing technology. He was saving information on magnetic tapes and driving it through a process of auto encoding and auto abstracting programs to later sort it in different pattern storages. Processed information would then be put into a comparison area and sorted into three main categories: who needs to
6 Business Intelligence Software 6 know, who knows what, and what is known (Luhn, 1958). Already in 1958, Luhn had discovered the importance of information processing and that all greater information flows contains even greater value for the one who has the ability to turn it into knowledge. However, in his article Luhn admits that the type of equipment used for processing information, in late 1950 s, was in early stage of development and that a great deal of research has yet to be done to perfect the information processing technique. Ever since Luhn introduced us to Business Intelligence terminology, the importance of knowing how to turn information into knowledge has grown tremendously, especially among today s modern business leaders and other decision makers around the world. 1.2 The definition of Business Intelligence Today, after many facelifts and makeovers of BI there are quite many definitions. In many cases the same definition will be used for other terms such as; Competitive Intelligence (CI) or Decision Support Systems (DSS). A more recent definition of the term was coined by The Data Warehousing Institute (TDWI), a provider of education and training in the data warehousing and BI industry; and is as follows(loshin, 2003, p. 6): The process, technologies, and tools needed to turn data into information, information into knowledge, and knowledge into plans that drive profitable business action. Business intelligence encompasses data warehousing, business analytic tools, and content/knowledge management.
7 Business Intelligence Software 7 The characterization of the term Business Intelligence or BI, as it will be referred to throughout this paper, is basically still the same as in the early 1960 s but the significance and understanding of BI has changed as technology has improved, organizations have decentralized and the complexity levels of new information have increased BI wide-ranging The popularity of the term Business Intelligence has grown rapidly in the last decade. As mentioned earlier the definition of a BI software is yet somewhat open-ended and may differ from author to author. BI gives the impression of being a multifaceted term that can refer to processes, techniques or tools to support the making of faster and better decisions (Pirttimäki & Hannula, 2003). Expectations of what a BI software is supposed to perform, or accomplish, is even more differently understood by the users. In many cases, corporations are already using some kind of BI tools or solutions but have chosen to call them differently, e.g. Management Information Systems (MIS), Decision Support Systems (DSS), Executive Information Systems (EIS), et cetera. (Pagels-Fick, 2000) It is also common that companies, unknowingly, use small parts of a complete BI system, e.g. CRM- Customer Relation Management (CRM) and Knowledge Management which focuses exclusively on customers and knowledge while a complete BI system primarily deals with information (Solberg Søilen, 2005).
8 Business Intelligence Software Business Intelligence Software Business Intelligence (BI) software is used as an effective reporting and analyzing tool to better understand a company s organizational surrounding and environment and it gives managers basic data for decision. There are some main and very basic objectives that a BI tool must accomplish. These are to generate better information than your rivals do, to analyze that information and make sound choices, to make those choices quickly and to convert strategic choices into decisive actions (Vine, 2000) Why BI software There are many reasons for why a company should use business intelligence or decision support systems. Eckerson (2004) has, in his research, found that BI systems do not only help decision makers to make better and more efficient decision but that BI also helps the entire organization to improve Return on Investment (ROI) profitability, gain customer/supplier, as well as employee, satisfaction, et cetera. He also points out that if one BI system is implemented throughout the entire company, there is a single version of truth which helps the company to avoid misunderstandings and gets everyone going in the same direction (Eckerson, 2004). Loshin (2003) points out how Customer Relationship Management is improved and how certain risks are decreased by analyzing supplier/consumer activity and reliability, providing insight into how to rationalize the supply chain. BI can also help the companies to evaluate organizational costs and to improve logistics management, lowering the operational costs and decreasing the investments
9 Business Intelligence Software 9 required to make sales. Another areas of usage for BI is evaluation of customer lifetime value, short term-profitability expectations and using this knowledge to distinguish between profitable and non-profitable customers to increase profitability (Loshin, 2003) Some categories of BI Tools Most companies today use a set of different BI tools, instead of focusing on only one. The reason for that may be simple; different users prefer different types of BI tools. The tools may differ in reporting, ad hoc queries, OLAP, et cetera. BI tool vendors are doing their best to meet all those requirements allowing organizations to standardize on using one single tool and on one single vendor (DM Review and SourceMedia, Inc., 2005). Below, a list of some major categories of BI tools is presented: Production Reporting Tools: Used by professional developers to create standard reports for groups, departments or the enterprise. End-User Query and Reporting Tools: Used by end users to create reports for themselves or others and require no programming. OLAP Tools: Enable end users to "slice and dice" data dimensionally to explore data from different perspectives and time periods. Dashboard/Scorecard Tools: Enable end users to view critical performance data at a glance using graphical icons and drill down to analyze detailed data and reports if desired. Data Mining Tools: Enable statisticians or business analysts to create statistical models of business activity.
10 Business Intelligence Software 10 Planning and Modeling Tools: Enable analysts and end-users to create business plans and simulations against BI data. Planning tools supply dashboards and scorecards with targets and thresholds for metrics. (DM Review and SourceMedia, Inc., 2005) BI software in organizations When a company s business information is isolated in different BI tools the information risks to disappear and to never be used again. Many companies are therefore trying to tie the information together to create one overall strategy (Rådmark, 2007). Different suppliers of BI solutions are offering a too wide range of products as decision makers are only requiring one product that will give them a better overall picture of the company s activities and the surrounding environment. In the early days, BI software s focus was on the technical solutions and on the business analysis process that would provide the decision makers with information needed. Nowadays a BI-software must focus on making the information available for more people (workers) in the organization and making it more usable (Rådmark, 2007). Most companies are using different systems that control the information torrents, but only those who use BI can exploit the crucial information from different sources and decide what information to use. The leaders or decision makers are more interested in that specific information than in what technology is used exploiting it. It is about the management information rather than technology, because when the technical side is in focus the attention is
11 Business Intelligence Software 11 rather on the applications instead of creating what is best for decision making through small and complex BI solutions.(lindström, 2007) Traditionally, BI takes place high up in the organizations hierarchy but in today s organizations there is a strong demand for BI solutions that gives all decision makers access to relevant information, regardless of the level in the organization. One problem, Rådmark points out, is that if there are several solutions in the organization, there is a lack in the common strategy and responsibility distribution. Since BI, in its best form, should cut through the whole organization, or the bigger parts of it, it is not possible to place responsibility on one certain function. Therefore, the problem that many organizations face today is that BI tools are requiring a change in the organizational structure to create the best possible environment to not isolate vital business information but rather to spread and distribute it throughout the whole organization (Rådmark, 2007). The possibility of bringing fast information and making in transparent is very important. It is not only economically effective but also a competitive advantage to be able to analyze information faster and more effectively than your competitors (Lindström, 2007) Expectations and needs of a BI software A research conducted by BetterManagement (division of a SAS institute Inc. which does researches about business management issues around the world) in 2005 showed that only nine percent of BI software users were always provided with all the necessary information from the BI software to make effective business decisions and that only 45 percent of the users did sometimes get all the
12 Business Intelligence Software 12 information they needed (Miller, Bräutigam, & Gerlach, 2006). These numbers indicate that many corporate leaders have high expectations on a BI software before purchasing it but in very few cases the decision makers will actually completely rely on the information extracted from the software. What was instead demanded, or needed, by the companies, according to the survey, were the following statements: 1. Improved quality of information available to them. 2. Access to relevant information in easy to use reporting interfaces for ad hoc reporting. 3. Assistance with interpreting and drawing conclusions from the information. 4. Access to relevant information in standard reports. 5. An overview of which data is available for analysis. 6. A formal assessment of their information needs. 7. Training on how to use BI tools. (Miller, Bräutigam, & Gerlach, 2006) Common issues regarding BI usage Companies that have started data warehousing projects or have purchased largescale data mining software suites often have very high expectations but also many disappointments related to failure in the way that data is conceived, designed, architected, managed and implemented. The vague understanding of what BI methods and products can do frequently results in a lack of a proper value proposition on behalf to the business sponsor (Loshin, 2003). Also the scope of
13 Business Intelligence Software 13 the project is not always fully understood which causes delays in delivery to the decision maker. Another issue that companies face when using BI is insufficient technical training of the users. This prevents company s developers and analysts from using software products to the full capacity and from doing what the vendors claim they do. Poor understanding of technology infrastructure also leads to disadvantages such as poor planning and scheduling which often leads to lack of trustworthiness in the results due to poor data quality. Some BI software users also lacks a clear statement of success criteria, along with a lack of ways to measure program success and this is inevitably leading to a perception of failure (Loshin, 2003) Market of BI solutions today According to a report from Datamonitor (leading provider of online database and analysis services for key industry sectors) the market for business analysis is increasing tremendously fast. The report shows that the value of the BI market will increase from four billion dollars in 2006 to an estimated eight billion in This means an annual raise is about 12,5%. The battle between small independent BI suppliers is losing attention while the focus is now on the big giants that are constantly buying smaller BI suppliers (Wallström, 2007). According to Gartner, the world s leading information technology research and advisory company, the market of BI solutions is basically shared between three mega-suppliers, Oracle, SAP and Microsoft who together own about 20% of the global market. Fusions between these mega suppliers and smaller ones are occurring constantly.
14 Business Intelligence Software 14 Today s BI tools have a broader area of usage and BI is not only about reports and analytics but also about real time dashboards and scorecards, predictive models, workflows, visualizations and searches. Basically, the market for BI tools consists of two segments, Query, reporting and analysis (QRA) and advanced analytics (Adv. An). (A more detailed explanation of the two segments will follow in the theory chapter). In 2006, as shown in Table 1, the BI tools market grew 11.5% and reached $6.25 billion in worldwide license and maintenance revenue. During that time there was no significant consolidations in the BI tools market (Vesset & McDonough, 2007). A huge number of mergers and acquisitions occurred between larger BI tools vendors and smaller software vendors. Table 1 - Worldwide Business Intelligence Tools Revenue by Segment, Revenue ($M) Share (%) Growth (%) QRA 4, , , Adv. An. 1, , , Total 5, , , (Vesset & McDonough, 2007)
15 Business Intelligence Software 15 In Figure 1 the geographic allotment of the BI tools market is shown. The Americas region has the largest segment of the market, followed by Europe, the Middle East, and Africa (EMEA) and Asia/Pacific. Figure 1 - Worldwide Business Intelligence Tools Revenue Share by Region, 2006 (Vesset & McDonough, 2007) (IDC, June 2007) 1.3 Definitions Business Intelligence Software, -System, -Application program that makes decision making more efficient and easier through different processes like information gathering, analysis, spreading of information and communication within a company. Business Process a complete series of activities in a company or an authority. Dashboard/Scorecard - a dashboard or scorecard is a graphical display that compares performance against predefined goals. A dashboard records actual
16 Business Intelligence Software 16 performance or behavior, like an automobile dashboard, while a scorecard measures that performance against objectives or goals. A dashboard tells how you are doing, a scorecard, how well. (Eckerson, 2005) Embedded Business Intelligence a business analysis that is built into different business programs and that does not exist as separate program. Neural Network an interconnected group of artificial neurons that uses a mathematical or computational model for information processing OLAP On-line Analytical Processing a technique for searching gathered data from databases while they are online. OLAP is used for sales analysis and decision making. OLAP can be used as an alternative to data warehousing and data marts. Portal - a web system that provides the functions and features to authenticate and identify the users and provide them with an easy, intuitive, personalized and usercustomizable web-interface for facilitating access to information and services that are of primary relevance and interests to the users. Real-Time BI - an organization s ability to react to business needs and changing business circumstances within a single day. (White, 2003) TCP/IP - the Internet protocol suite (commonly TCP/IP) is a set of communications protocols on which the Internet and most commercial networks run. SOA - Service Oriented Architecture is a search engine technology and the main integration component in an information system
17 Business Intelligence Software 17 Open Hub services - service used in analytical applications to distribute specific data 1.4 Limitations Due to the time that was provided for writing this thesis (6 weeks), working conditions were a little bit tough. Hence it shall be acknowledged that time was a limit. When contacting respondents for the survey, besides time, money was also a limit. More efficient ways could have been used when collecting respondents if the right amount of money was invested into certain databases on the Internet. In this thesis a model was created as a result of existing theories. The model is called The PET model of BI implementation and consists of nine different foundations divided into three layers. Better research conditions might reveal other interesting facts that can change the appearance of the model, improve it or in worst case scenario completely reject it. Not all questions that were put in the questionnaire were analyzed either. In the creation process of the questionnaire, some questions that could be related to the theory provided in this thesis were not asked. For example in the theory chapter, Real-Time BI system is described. But due to the limitations of time no analysis was made upon this subject.
18 Business Intelligence Software 18 2 Method In this chapter a presentation of how the research for this thesis has been conducted is given. It will give a better understanding of how the theoretical and empirical reasoning has contributed to the purpose. It will also describe the different methods used in this study. 2.1 Choice of methodology The aim of this paper is to present a basis upon which the reader can gain an understanding of how companies in various industries in Sweden relate to BI. Hence the central point of this thesis is to provide an argument for and analysis of what is expected from a complete BI Software Solution. Companies relation to BI Software Solutions will be measured and mean values will be calculated. The results will be presented in cross tables as well as in a model, which is based on the existing theories, to illustrate an overall picture of the companies relation to BI. Flowcharts and diagrams are also used to present the results. Hence a deductive approach, discussed more in the research philosophy part is applied. 2.2 Research philosophy The research problem of this thesis is built on existing theories, what means that the research approach is of a deductive nature. The opposite, an inductive
19 Business Intelligence Software 19 approach is not suitable for this research since the research is based on already existing theories. When working with an observable social reality and when the result of a research can be made to draw law-like generalizations, a research is produced with quantitative and deductive nature with a positivistic approach (Saunders, Lewis, & Thornhill, 2007). It is also likely that the existing theory about BI in this paper will be further developed and tested by further research. According to Saunders et al. (2007) this is also an indication that the research philosophy in this thesis is of a positivistic nature. The thesis aims to observe and study the companies points of view and their relation to BI. For that purpose a questionnaire is applied. A questionnaire is a kind of study that fits with a positivistic research approach and from the questionnaire the quantifiable data can be examined and analyzed. 2.3 Choice of theory Books that were used for this thesis all come from the library of Kristianstad University. Most of the electronic articles were either downloaded from various journals on the Internet or other online databases such as Emerald and The Data Warehouse Institute or from the Kristianstad University s First Class /Course client. There are many high-tech explanations of BI found on the Internet, in various books and in articles but the first thought when collecting information about BI and writing about it, for this thesis, was to build a appropriate and relevant theoretical ground to present an introduction of the subject on a very low technical level so that the readers will easily understand
20 Business Intelligence Software 20 what BI is and how it works. The idea was also to maintain the easy-tounderstand level throughout the thesis. Although in some parts it is essential to use complex terms and idioms necessary for the explanation of a matter.
21 Business Intelligence Software 21 3 Theoretical framework This chapter will provide the reader with information about how BI software functions and how we classify the different BI analytics tools available on the market today and what such applications consist of. In this chapter theories about the organizational structure and the placement of BI inside the organizations will also be discussed. 3.1 BI software classification BI tools are a part of the broader market called business analytics, which is illustrated in Figure 2. The market for BI tools includes both standalone packaged software and embedded BI tools provided by database management software vendors (Vesset & McDonough, 2007). The BI tools market itself is divided into two market segments, Query reporting, analysis and Advanced analytics, and these are the two areas of BI tool applications that this thesis is focusing on. In Figure 2, these areas are the two dash-boarded rectangles End-user query, reporting, and analysis Query, Reporting, Analysis (QRA) software includes ad hoc query and multidimensional analysis tools as well as dashboards, scorecards and production reporting tools. These tools are designed specifically to support ad hoc data access and for report building by either IT or business users and do not include any other applications or tools that may be used for report building what so ever
22 Business Intelligence Software 22 (Vesset & McDonough, 2007). Yet they are justified as multidimensional analysis tools that include both online analytical processing (OLAP) servers and clientside analysis tools that provide a data management environment that is used for modeling business problems and analyzing business data. Packaged data marts are also included in this function. These data marts are preconfigured software used for combining data transformation, management, and access in one single package and are usually presenting the results in various business models (Vesset & McDonough, 2007) Advanced analytics The main occupation of advanced analytics software is data mining and statistics. Technologies that are used are neural networks, rule induction, and clustering, among others, in order to discover relationships in data and then make hidden, not apparent or complex predictions for reporting and multidimensional analysis (Vesset & McDonough, 2007). In this sector there are technical, econometrical and other mathematical operations that provides libraries with statistical algorithms so that the data can be processed and analyzed. Most common functions are frequencies, cross-tabulations and chi square but there can also be some other specialized and sophisticated functions focusing on the functional area such as the industrial design, clinical trial testing, exploratory data analysis, and high-volume and real-time statistical analysis (Vesset & McDonough, 2007).
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