The Worcester Group, Inc. Blog

I picked up a new book the other day, The Profit Impact of Business Intelligence, by Steve Williams and Nancy Williams (Morgan Kaufmann Publishers), and I have to say I’m barely into it and I’m impressed.  The authors are not saying anything I didn’t already know, but their presentation is compelling, and will provide much useful material for presentation in my own workshops and projects.

The book uses numerous case studies to illustrate its thesis that BI, process engineering, and change management are interdependent and inseparable.  For example, applying BI to customer relationship management forces a business to segment its customer base by high- and low-value customers, accord the segments different degrees of preferential treatment, and reorganize itself to facilitate this segmentation.  It makes perfect economic sense, which I’m sure is a great comfort to the vast majority of us who fly coach and are treated like dirt.

Then this morning (April 4, 2007) the New York Times Business section featured a headline: “3400 Layoffs Send a Message to Millions”.  The article discusses the dismissal by Circuit City of 3400 senior staffers for the sole reason that they make too much money, illustrating the shrinking “safety net” of the American worker.  Unlike the downsizings that have taken place in American manufacturing in the past twenty years, these workers got screwed without even getting kissed.  There was no buyout; no termination settlement; no continuation of benefits; no effort at job placement.  In fact, these people even have to wait ten weeks to apply for their old jobs at lower pay.  The reason for the move was the assertion that employee pay had risen with employee longevity, but productivity had not.  Thus, the information allegedly prompted a corrective action to get rid of expensive senior employees and replace them with inexpensive new employees.

Back in the 1950s, many companies hired “efficiency experts” to try to tune business processes and improve profitability.  Most of them were incompetent and did tremendous damage to both business operations and company reputations.  Business Intelligence, as discussed by the Williams’s in their book, is in danger of a similar perception.  It’s not that the idea is bad, but that the execution is subject to abuse.  Suppose Circuit City management had already made up its mind to cut costs by replacing senior employees.  Could the information from its BI systems be used to “prove” the disconnect between seniority and productivity?  You bet it could!

I have always believed, and I still believe, that any project I engage in should leave everyone involved better off than they were before I came along.  Change is inevitable, and ultimately for the good, and everyone should share in the good, because everyone shares in the cost.  It may be that Circuit City had no other options than a massive layoff.  Given the competitiveness and labor-intensive nature of the business,  that is a possibility.  But it looks to me as though the change management function was not very well thought out, if at all.  (I can’t say anything about the process engineering.)   If employees have to get pink slips, the business should make an effort to ease the pain, and the options for doing that should be considered in the decision process.  In creating a BI system, the kinds of information needed to support such efforts, and the data sources that would feed it, should be taken into consideration against the time when they will be needed.

My business is providing consulting services to small and medium-sized enterprises to develop business intelligence systems.  It is a simple fact that this stuff is not rocket science.  The expertise that I and my associates have in this field can be obtained by any of our peers within the clients we seek to serve.  Some may already possess the requisite skills and experience.  So we always have to deal with the obvious question: “Why should we hire you to do what we could do ourselves?”  It is a fair question, and a much harder one to answer than “Why should we hire you instead of your competition?”  In simplest terms The Worcester Group, Inc., and other consultants like us, are “outsourcing providers”.  The reasons a customer avails himself of our services, then, should be the same as those for entering into any outsourcing arrangement.

The Outsourcing Management Zone lists 21 rationales:

 
• Lower costs due to economies of scale
• Ability to concentrate on core functions
• Greater flexility and ability to define the requisite service more readily
• Specific supplier benefits. For example, better security, continuity, etc.
• Higher quality service due to focus of the supplier
• Improved internal management disciplines resulting from the exercise itself
• Less dependency upon internal resources
• Control of budget
• Faster setup of the function or service
• Lower ongoing investment required in internal infrastructure
• Greater ability to control delivery dates (eg: via penalty clauses)
• Lack of internal expertise
• Increase flexibility to meet changing business conditions
• Purchase of industry best practise
• Improve risk management
• Acquire innovative ideas
• Increase commitment and energy in non core areas
• Improve credibility and image by associating with superior providers
• Generate cash by transferring assets to the provider
• Gain market access and business opportunities through the supplier’s network
• Turn fixed costs into variable costs

The Outsourcing Institute, on the other hand, gives the top ten reasons companies outsource as:

1. Reduce and control operating costs
2. Improve company focus
3. Gain access to world-class capabilities
4. Free internal resources for other purposes
5. Resources are not available internally
6. Accelerate reengineering benefits
7. Function difficult to manage/out of control
8. Make capital funds available
9. Share risks
10. Cash infusion
As I see it, there are really only four valid reasons:

1. Jumpstart the initiative with purchased expertise
2. Keep the project focused
3. Free up internal resources
4. Innovative solutions to ongoing problems

Let me examine these one at a time. 

Jumpstart

A Business Intelligence initiative comes about because one or more decision makers in the organization have identified a shortcoming in the available information they use to run the business.  This usually results from the pain of some loss in the market place, so in a sense the initiative is already too late.  The objective is to prevent another such loss in the future.  Getting a new initiative approved – that is, getting the money to pay for it – can be a lengthy process, possibly requiring a full budget cycle.  To make up for lost time, once the approval has been granted, the project has to be staffed with people who can walk in the door and start building.  There is no time for on-the-job training.  That kind of expertise is relatively expensive.  The compensation required may be such that future incentives allowed by company policy (including raises and bonuses) will be inadequate, making it difficult to fill the position, or if filled to retain the talent for very long.  Outsourcing the expertise eliminates this issue, except for retention.  But since you know the arrangement is temporary, part of the project plan will involve knowledge transfer to in-house resources.

Focus

I have pointed out elsewhere that “scope creep” is endemic where internal resources are applied to a project.  They will bend over backward to accommodate a great many requests from their colleagues that end up slowing down progress and increasing costs.  Outside resources are generally isolated from these kinds of peer requests.  Nobody knows them.  They focus on the specification they have been given.  They have established deadlines that must be met, because there are other customers to be served.

Free Internal Resources

Most companies, especially since 2001, have reduced their headcounts to the point that operating departments don’t have the manpower they really need to meet their objectives.  IT departments are typically the hardest hit.  So implementing a BI initiative with internal IT resources just stretches those resources beyond reason.  Something has to give.  Either day-to-day operations so overwhelm them that they can devote no time to the new initiative, or the day-to-day requirements are neglected in favor of doing the sexy new stuff.  This is potentially disastrous.  At one major consumer products company, the IT department devoted all their decision support resources to implementing SAP’s data warehouse.  When client departments requested projects, they were told that everything would be provided by SAP.  This went on for a year, the SAP data warehouse missed its target delivery, and the client departments gerry-rigged there own solutions.  It is tempting to shrug this off as poor project management, but that’s just smoke.  The manager had insufficient internal resources to do both jobs.

Innovation

The consultant coming in from the outside has to learn, if not the industry, at least your enterprise’s specific mode of operation.  The downside of that is that a learning curve takes time.  The upside is that while the outsider is on the curve, he may see an opportunity you have missed.  I once consulted for a company that relied on a mainframe computer to perform certain daily processes.  These processes had become so complex, and the volume of data so great, that they could not complete in the CPU cycles allocated to them on the mainframe.  As a result, daily reporting was not getting out to the field.  What I pointed out was that the processes could be easily moved to a network server and the mainframe completely cut out of the equation.  We did this in a couple of weeks, and problem was solved for good.  The people I was working with were at least my equals in terms of their skill with the software.  It was only my perspective as an outsider that highlighted a solution to a problem.

So, why should your company hire The Worcester Group, Inc. to implement your Business Intelligence initiative?  Because:

We’ll jumpstart your project.

We’ll keep the project focused.

We’ll free up your internal resources.

We’ll bring fresh ideas to bear on your ongoing challenges.

 

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