The Development and Use of Business Intelligence (1 of 10)

This article is the first of ten articles on the creation and use of Business Intelligence Systems.

Have you heard this before? "It's not what you know, it's who you know." In Classical Strategy Sun Tzu tells us, "What you know depends on who you know." In Sun Tzu's "Art of War" we encounter the five factors that make up our position; ground, leadership, climate, methods, and mission. Plato said, "Know thyself" and Sun Tzu added to that with "Know yourself and your enemy and in a hundred battles you will never be in peril." Success comes from understanding your position as well as that of your competitor. Ultimately, a position is simply a relationship of these factors, one affecting the other, and yours and your opponents affecting one another. The wise commander evaluates the five factors for themselves and for their opponent. The fool understands neither their position nor that of their competitor. In negotiation, information asymmetry is a critical factor toward success.

"What we have found in one research study after another is that how business really gets done has little connection to the strategy developed at corporate headquarters." This quote, from the Harvard Business Review article "How Managers' Everyday Decisions Create or Destroy Your Company's Strategy" (Bower & Gilbert, 2007)), highlights the reality that strategy occurs on the front-lines of organizations, large and small, by the decisions of the people that make the company work. While the CEO and his or her army of vice presidents may envision a strategy and communicate it to the "troops," the reality is that strategy happens where combatants meet.

Effective execution of strategy requires thousands of small decisions made every day by those on the front lines of the organization. The only way to ensure the right decisions are made is by having sound and timely information. However, from where does this information come? When we must make a decision, we intuitively understand that we need information. We have questions that must be answered in order to make the "best" decision. What is not intuitive is what the right questions are and from where to seek the answers to these questions.

The focus of this article is from where to gain information required for sound decision-making. While the decision process is an important piece of the puzzle, there is no attempt to define such a process in this paper due to the limitations of space.

Strategy replaces force and effort with information. Most of us spend a lot time planning our campaigns but very little time gathering information. This means that most of us are making decisions without information. We often do this either because of ignorance or to save time. After all, gathering information is time consuming. However, do we really save time by not gathering information beforehand? When you are in a hurry to go somewhere and leave home without directions, are you really saving time? It often seems as if you are at that moment, but inevitably leads to lost time as you drive around searching for your destination.

In strategic terms, we can substitute information for time, money, and other resources. For example, if you know exactly what you need in order to fix a broken sink you need to make only one trip to the hardware store, thereby saving time. If you know the correct type of faucet you have you won't have to buy five different o-rings "just in case," saving you money. When we have limited time or money, the right response in many cases is to gather information.

The reason that information gathering appears to slow down decision-making is because we wait to gather information when we are desperate. If an organization is not paying attention to the competition and then find itself in a competitive battle, it may be too late to establish an intelligence system that provides the requisite foreknowledge. Good business intelligence systems must be established before they are needed. They must be cultivated over time.

What are needed are conduits of information that allow the flow of information, in and out, of our organization. In today's world of marketing and selling, business people are encouraged to "network." While networking will enhance your popularity and put you in touch with some of the right people, it offers no solution to the need for information. In addition, you are one person, how many relationships can you realistically and practically cultivate?

Sun Tzu, the Chinese general, wrote on the importance and practice of developing intelligence networks in his 2400-year-old book, "The Art of War." This article explores the thirteenth chapter of this ancient text for insights into developing a modern business intelligence system.

What Is Information?

However, before embarking on a study of gathering information, let us define the term. A good place to start might be to examine the words "data" and "information." While these words are certainly defined in the dictionary they are not adequately defined in practice. Let us begin with the dictionary definition first. Perhaps something of interest will come of it.

Information, according to Webster's dictionary is, "knowledge obtained from investigation, study, or instruction." The rabbit hole opens wider. What is knowledge or intelligence? Again, we reference Webster's, "the ability to learn or understand or to deal with new or trying situations." Therefore, Information is the ability, gained through investigation, study, or instruction in order to understand or deal with new situations. That was helpful, but seems incomplete. Let's look deeper.

If you're like most organizations, you have spent a small (or not so small) fortune on the development of an "information system." Over time, you have probably discovered these are, in reality, only "data systems" as evidenced by your inability to find what you need, when you need it. To be sure, let's examine what "data" might be. Your home address is data. This article is data. The phone book is filled with data. It seems that data is any string of characters that describe anything about our reality. What then, is information? To answer this we can begin by making our claim about data false. Yes, your address is data, but to your credit card company it is information when they wish to send you a monthly statement. If you memorized the phone number to a friend, it's certainly data. However, if you needed to call them in an emergency, it's information.

It seems that under the right circumstances, data is also information. Given a specific set of circumstances at a specific time, what was once data becomes information. The difference between data and information then lies not with the content but its relationship to a decision. If we don't know the decision we need to make in advance then we cannot distinguish data from information. This begs the question; can we ever really have a business intelligence system, an information system, which can answer a disparate number of questions that we do not know in advance? Many would argue that if we simply gather all the data, at the right moment we can turn it into information. It is precisely this kind of thinking that has created data management systems that will never become an information system. While computers speed up the process of converting data into information, the underlying thinking that created this mess remains.

Can we then simplify our definition as, "information is the data required to answer a question." While this is better, is there anything missing? It may be nagging at you that while this makes sense it is missing the point that information can only be defined within the framework of how the decision is made. Perhaps we should modify our definition to simply state that "information is the answer to a question." If this is true, then information is not outside the decision-making process, but a part of it. A business intelligence system must know how to ask the right question and convert data into information simultaneously. The only thing missing is our early discovery that intelligence, or knowledge, deals with new situations.

We have then concluded that "information" is the answer to a question that provides us with the ability to deal with new situations. We establish our information network, our business intelligence system, in order to answer a question that gains us the ability to deal with new situations. If the information we receive does indeed, help us deal with a new situation we have gained valid and reliable information. However, it is possible to obtain information that is neither valid nor reliable. It is also possible to gather data that is not information. That is, it does not help us deal with a new situation or answer our question.

As a leader, we must have a decision-making system that includes the conversion of data into information. We accomplish this feat by knowing the questions and actively seeking answers and then ensuring what we learn improves our ability to deal with the new situation.

Join me next time in the second of ten articles on Business Intelligence Systems.