Factors that have led to increasing importance of Business Intelligence
Business Intelligence (BI) has increasingly become an integral part of any business entity. There are two factors which have contributed to this; External and Internal factors. (Editor, 2012) This paper aims to discuss these factors and how each drives the need for BI in business entities:
1. Internal factors driving business
These are factors that are within the control of the firm and include sales, procurement, employees, and logistics. The following are the main driving factors for BI:
Volumes of data – Organizations that collect large amounts of data will require a formal system for analyzing this data. BI makes it possible to give meaning to this vast amount of data which otherwise would be difficult to understand due to the sheer volume of the data. BI ensures the data is aggregated and analyzed giving an overview of the situation of the business.
A single version of the truth – Business entities have different definitions of KPIs. As a result, different results can be derived from different reports which purposely should have the same information. Time is thus wasted to discuss and analyze these differences. Valuable time is hence lost which could have been used to drive the business forward.
Information overload – Business entities that have so many reports invest in BI systems which help in combining the reports into a single dashboard. A single dashboard ensures that only the relevant information required in decision making is availed, detailed reports are only looked at when necessary. (Daniel, 2007)
The size of the entity and shrinking response time – Large business entities will have reports from the broader scope of personnel. Investing in BI is thus justified by the need to combine all these reports and enable managers to make informed decisions within the shortest time possible.
2. External factors driving Importance of Business Intelligence
External factors that drive BI are factors that are beyond the control of the organization. These factors include government, competitors, consumers and the environment. Three main external factors drive Business Intelligence as follows:
Competition – Businesses do not operate in a vacuum and thus have to contend with competitors to give them an edge to attract and keep consumers. This is especially essential when the services and products provided by the business have low barriers for replacement and have high volume. Tele-companies are well known for conducting massive campaigns which are aimed at attracting customers from competitors given the ease with which consumers can change operators. (Hocevar & Jaklic, 2010)
Market volatility – Goods and services demanded by consumers are always evolving. (E.g. Mobile phones and their accessories) Having the right information beforehand will enable the business avail the right goods and services when the customer demands them, and at the right price. These requirements may change overnight, and the company needs to keep abreast with these changes. (Guarda, Santos, Minto, Augusto, & Silva, 2013)
Legal requirements – Most business organizations are under legal requirements to deliver specific reports as required by the law. This legal requirement has necessitated the need for BI. An example of this condition is the regulations by Sarbanes-Oxley, which govern large business organizations in the USA. Compliance to deliver these reports requires a company to have well-defined delivery systems for these reports.
Daniel, D. (2007, November 9). Need for Business Intelligence Grows: Too Much Information, Not Enough Insight. Retrieved May 18, 2016, from CIO: http://www.cio.com/article/2437685/business-intelligence/need-for-business-intelligence-grows–too-much-information–not-enough-insight.html
Editor. (2012, July 11). 5 reasons why BI is important. Retrieved May 18, 2016, from TechAdvisory.org: http://www.techadvisory.org/2012/07/5-reasons-why-bi-is-important/
Guarda, T., Santos, M., Minto, F., Augusto, M., & Silva, C. (2013). Business Intelligence as a Competitive Advantage for SMEs. International Journal of Trade, Economics and Finance, 4(4).
Hocevar, B., & Jaklic, J. (2010). Assessing benefits of business intelligence systems – A case study. Management, 15(1), 87-119.