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Business Intelligence in Competitive Strategy

Strategic Intelligence

• Mehmet T. Oguz

• DM Review Online, August 1, 2002

Lost Boy: "Injuns! Let’s go get �em!"

John Darling: "Hold on a minute. First we must have a strategy."

Lost Boy: "Uhh? What’s a strategy?"

John Darling: "It’s er …It’s a plan of attack."

Walt Disney’s Peter Pan

It is clear that the fundamental goal of the firm is to earn a return on investment on its capital that exceeds the cost of its capital. There are two basic ways a firm can accomplish this core goal:

1. Exist in an industry where the economic conditions are favorable, where the rate of return is above the competitive level.

2. Defeat the competition and earn a return greater than the industry average.

These two points define corporate strategy vs. business strategy. Corporate strategy decisions include mergers and acquisitions, new ventures, allocation of corporate resources, etc. Business strategy is concerned with how the firm competes within a particular industry. In other words, it is what defines the competitive advantage a firm must attain in order to win or to survive in an industry. Therefore, business strategy is also referred to as competitive strategy. The definition of corporate and business strategy is not a separation but rather a hierarchy. If a firm is successful in executing its business strategy, it will be successful in the overall corporate strategy. In this hierarchy, the next level is functional strategy, which identifies functional decisions for R&D, personnel, finance, production, and sales and marketing. As the firm gets larger, the distinction between functional and business strategy grows. For small, entrepreneurial businesses, the two are virtually the same.

Figure 1: Strategy Overview

Know the other and know yourself:

Triumph without peril.

Know Nature and know the Situation:

Triumph completely.

Sun Tzu

There are two factors that impact the success of any organization: internal environment (resources, processes, capabilities) and external environment. Understanding these factors is key at any point in the strategy hierarchy. It is important to know the capital spending in R&D, development life cycles of the products, production efficiencies, turnover rates in the organization and effectiveness of the sales and marketing force. Several key performance factors can be identified to monitor what’s taking place internally. The majority of the business intelligence solutions today are built around understanding the internal environment. It is clear that this is only half of the equation since in order to achieve strategic advantage, a firm must understand both the internal and the external environment.

Figure 2: Business Intelligence Overview

Information need grows as we move toward the top of the strategy hierarchy in a firm. Traditionally, data warehousing solutions are built to answer business decisions with the maximum impact on the functional strategy. That’s because there’s limited emphasis on external data at this time. For instance, an HR data mart tries to calculate metrics and key performance indicators regarding the HR processes. It should also capture or acquire industry information such as unemployment rates, average compensation, average turnover, etc. In other words, information need is exponential rather than cumulative. The sum of all the data collected at the functional level is less than all the data needed at the business level because at the business level, there is a need for external data. Same principal applies to the corporate level. At the functional level, the decision support is focused on the internal environment. The managers are expected to understand their business units and are evaluated based on this criterion. Senior managers, however, are expected to understand both the internal and external environments. Often times the directors and the executive team focus mostly on the external environment without losing grip on the firm’s internal processes. Since the information need is exponential, the business intelligence system must be created with a strategic focus that captures the data needed for corporate, business (competitive) and functional strategy.

If understanding internal and external environments is what’s crucial to a firm’s ability to execute its strategy, then the business intelligence solutions must capture internal and external data. In functional data marts, internal data is being collected every day. The combination of the functional data marts, which follow the rules of conformity, results in the enterprise data warehouse. What’s



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