Business Intelligence Software Isn’t Enough
One of the major parts of business intelligence that is drawing more attention these days is decision making. Sophisticated software now means that we have become capable of processing vast amounts of information, however as we have seen by the most advanced users of data, the financial sector, it can still lead to terrible repercussions.
In the November 2009 edition of the Harvard Business Review, Thomas Davenport, the author of Competing On Analytics, discussed some good pointers for those organisations that want to improve how they make decisions and these observations are just as (if not more) valid in 2012. It is vital to start making good decisions and stop making bad ones. This may seem like an obvious conclusion, however, as he points out, decisions seem out the void all too often.
Make Decision-Making Into a Documented Process
The key to avoid this is to make decision-making into a documented process(example). Decision makers need to be aware of the conjecture that underlines the decisions that they make. For example, the housing market will go down by 10%, our main competition has lowered their prices by 5%, looks like oil prices will go up again etc etc. This awareness means that they can be communicated, and if their assumptions don’t pan out, then the company can be alerted.
This is important because you may build more automated decision making into your processes and still end up with a terrible decision in the end. A good example would be sub-prime mortgages. It is vitally important that these decisions are backed up by human beings.
Get Together and Work Together
Decision makers should get together and work together. Businesses like Air Products and Chemicals have trained their decision makers to understand how involved collegues should be in a particular decision.
Imagine the billions of dollars that could have been saved if those who put together the financial products that caused the financial crisis and the downfall of many banks had explained all the assumptions they were making. We could have avoided the financial crisis we still find ourselves in years later. Also we found out years later that the people who were buying them simply did not understand how they worked.
Be Collaborative and Analytical
People who make the decisions should follow through on them and have a process in place to review(example) their prior decisions to see if they’ve worked in the real world. For this, your company culture needs to be collaborative and analytical.
Robert Shiller, the Yale economist, quoted by Davenport, said, “You have to be a quantitative person if you’re managing a company. The quantitative details really matter.”
You Need More Than Just the Software
Of course there are software systems available now that make all this technically possible, but you need more than just the software, as they found out at Stanley Works, the toolmaker. They formed a think tank for product pricing that was made up of the business unit director, data mining experts, IT people and consultants, and the result was a $200 million increase in their gross margin over 6 years.
In a time of globalisation, businesses need to wring out every tiny advantage in their assets that seperate them from their competitors, now more than ever. The use of data to produce information that can affect decision making is one example of this. More importantly though, is the ability to use this data to make better business decisions that make sense and people can work on.
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About the Author: Jim Seward writes about business intelligence and other business related software and processes. |
