This chapter gives the practitioner's view of how business intelligence can be used. Can you think of at least one key business process/activity that is well-suited for a business intelligence application?
- Query sales data to spot meaningful trends
- Distinguish between static reports, dynamic reports, and data mining
- For a given situation, determine what type of business intelligence report is required to solve the problem
In order to make strategic decisions about which products to feature in our store, we need to carefully analyze the sales and clickstream data. This type of data analysis is one form of business intelligence.
If there is one thing plentiful in the world today, it is data. At the
heart of every information system is a database that captures
transactional data. For example, who bought what, when, for how much,
and so forth. It is useful to know about the architecture of the
transactional systems so that it is not a complete mystery how the data
However, it is critical to know how to distill and analyze the captured
data in order to make managerial decisions. For example, after
summarizing thousands of records we might find a product selling
particularly well with women in a particular age range living in a
particular area. That meaningful information could be actionable in
terms of the supply chain and marketing initiatives.
If anything in the world today there is perhaps too much data.
Distilling that data into meaningful information is a key skill. There
are a number of tools available to perform data analysis. These include
spreadsheet programs such as Excel and database systems such as Access.
Learning to use these tools will enhance your marketability.
Where Are We in the Life Cycle?
Many information systems projects are conceived of in a life cycle that progresses in stages from analysis to implementation. The diagram below shows the stages that we touch in the current chapter:
Kiva: Summarize Data to Produce Information
To illustrate the power of summary data, we will first show how it can be used as a marketing vehicle for a website. Impressive statistics can help encourage repeat business. The same marketing principles operate even for nonprofit organizations.
Kiva is a website that lets you make small loans (typically under $500)
to entrepreneurs in developing countries. The field of small loans is
Microfinance institutions are an incredibly important resource to help
third world citizens rise out of poverty. Surprisingly, the repayment
rate of the world's poor ranges from 95 to 98%, far higher than the loan
repayment rate in the United States. Over 80% of Kiva's loans are made
to female entrepreneurs. They invest profits back into the businesses
and improve the lives of their families.
Kiva works by pooling resources so that for example 50 people could lend
$10 each to total $500. As part of its marketing effort Kiva maintains
fast facts about their activities to date. For example, they report that
they have nearly half a million lenders who together have lent $161
million dollars over the last three years. These fast facts are gathered
from the website's database after scanning millions of records and
represent business intelligence. Not only does the information serve a
marketing purpose, but it is also an internal scorecard to track the
progress of Kiva's mission and influence decisions.
Kiva's Facts and History page is a business intelligence report. Note
the sentence that appears under "Latest Statistics," which announces
that the statistics are updated nightly (between 1 - 3 am). This is
typical of business intelligence systems. Searching millions of records
puts such a drain on the system that these activities are usually run
during off peak hours.
What Is Business Intelligence?
The Kiva example is a form of business intelligence. Business intelligence (BI) is the delivery of accurate, useful information to the appropriate decision makers within the necessary time frame to support effective decision making.
By this definition all the work we have done with Excel would qualify as
business intelligence since our deliverables contained accurate and
useful information to support effective decision making. However,
business intelligence is commonly understood to include distilling and
analyzing large data sets such as those found in corporate databases.
Extracting and analyzing information stored in databases is the subject
of this chapter. It is very likely that at multiple points in your work
career you will be asked to engage in just this type of analysis.
Business intelligence is part of the big picture information systems
architecture. Most systems in existence can be classified either as
enterprise systems, collaboration systems, or business intelligence
systems. The enterprise systems – taking orders for example – feed their
data to the data warehouse, which in turn is queried to support business
From a managerial standpoint, there are three factors necessary to make an effective decision:
- Construct a set of goals to work toward.
- Determine a way to measure whether a chosen path is moving closer or farther from those goals.
- Present information on those measures to decision makers in a timely fashion
We also need to see performance over time. Is product quality improving or getting progressively worse?
Let's say that our analysis determines that the high rejection rate
comes from just one factory in Southeast Asia. We report the problem to
management. They dispatch a team to review the plant. The review
discovers child labor, abusive conditions, and very low morale at the
plant. The horrible conditions are quickly reversed and the rejection
rate returns to average.
Business Intelligence: Analysis of App Sales Data
The business intelligence portion of the information systems
architecture. Note that business intelligence systems typically operate
off of a data warehouse – a repository of data for the corporation. Each
enterprise system contains one or more databases. The contents of those
databases is routinely copied into the data warehouse to enable the BI
analysis. The process of copying is called extract, transform, and load
Business Intelligence Process
We will look at three types of business intelligence – static reports, dynamic reports, and data mining.
are by far the most common form of business intelligence. Most
businesses have summarized standard reports already laid out and printed
to assist in managerial decision making. For example, universities use
enrollment reports to gauge which departments might need to hire more
faculty. Credit card companies will request reports of persons with high
credit scores to target credit card promotions. Similarly, the
companies might target college students with good future earning
potential. Marketers might look at sales figures for different stores
and regions to determine where there are opportunities to run a sales
Dynamic reports look similar to static reports but online and interactive. A manager curious as to where a certain summary number on his dashboard comes from can drill down
to expose the detail that contributed to that number. In essence it is a
fact finding tour where information discovered in each step gives clues
on where to search next for information. For example, if sales in North
America are down, then drill down to discover a problem in the Midwest
region. Then drill down farther to discover a problem in the Cleveland,
uses computer programs and statistical analyses to search for unexpected
patterns, correlations, trends, and clustering in the data. In essence,
it is fishing through the data to see if there are patterns of
interest. One often cited example of data mining was the discovery that
beer and diapers are frequently purchased on the same trip to the
grocery store. Upon further inquiry marketers discovered that Dad picks
up some beer on his trip to the grocery store to buy diapers. Marketers
can use this information to place the two items in close proximity in
The business intelligence process for dynamic reports is depicted here.
The top half of the diagram shows how data finds it way into the data
warehouse through the extract, transform, and load process. The dynamic
report begins with an executive dashboard providing a high level view of
the business. The dashed red arrows represent drilling down to find a
reason for a pattern in the data. In this example, a downturn in North
American sales is traced all the way back to a Cleveland, Ohio plant.
- Business intelligence is a way of uncovering trends and patterns in corporate data that might have strategic or operational significance.
- Most corporations already have the data that they need for business intelligence. However analyzing the data, presenting the results, and then following through on where the data leads, separates the winners from the losers in a competitive environment.
- Static reports, dynamic reports, and data mining are three different forms of business intelligence.
Questions and Exercises
- Managers are often most interested in exceptions – data that does not fit pre-established expectations. Describe how business intelligence can aid in this process.
- Why do lower level managers require higher level detail in their information?
- In what ways does fantasy football rely on business intelligence?
This text was adapted by Saylor Academy under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work's original creator or licensor.