According to Eddie Short, head of the information management practice at IT services group Capgemini, the average business leader wastes £800,000 a year by making the wrong decisions. There may be a fair few assumptions that go into calculating that figure (number of decisions, frequency of errors of judgement, etc) but it is perhaps a useful starting point when senior management are mulling over whether business intelligence tools can help them improve their capability to make the right choices.
Of course, real-world examples of the costliness of poor decision-making can be even more terrifying, Short suggests. For example, in 2004 Anglo-Dutch oil company Shell was hit with £83 million in fines, after it found that 20% of its ‘proven’ oil and gas reserves were not particularly proven – over 4.5 billion barrels were re-categorised as not commercially accessible. The resultant furore saw its share price battered, and senior executives – including the chairman, CFO and head of exploration – forced to leave the company.
“The real impact of consistently making wrong decisions is RIP: your business will be bought by competitors or by private equity [groups],” warns Short.
With hindsight, it is easy enough to point to the pitfalls of poor information in cases such as Shell, says Short, but business leaders should instead focus on what they can learn from successful organisations. There is a common theme emerging at today’s leading enterprises, he says: “The best, world-class businesses in every sector are focused on information.”
For Short, it is companies such as US financial services company Capital One which best embody the spirit of making information a core business asset. While the so-called ‘sub-prime’ lending market in the US is undergoing a period of upheaval, Capital One has consistently been able to identify which potential customers are likely to meet repayments, and weed out those that will not.
Such success is predicated on a board-level understanding of how good quality information and analysis can improve performance, says Short. But the flip side of this is that businesses have to invest both time and effort in ensuring that their information systems are providing information that can be relied upon. “Becoming an ‘intelligent enterprise’ – where information is at the heart of what the business does – is more than just implementing BI tools,” says Short.
Head of information management, Capgemini
The difference between being ‘information-centric’ and ‘information-illiterate’, is highlighted by the competitive fallout in the UK utilities market, says Short. “Who is the most powerful company in that market?” he asks. In the information-centric view of the world, the answer has to be uSwitch – not a utilities company per se, but a consumer advice website that provides price comparisons for its users, allowing them to switch provider almost at will. “The utilities companies didn’t get it but they’re paying the price now: there’s no customer loyalty left,” says Short.
Organisations are “overwhelmed” by data today, he explains, but simply adding technology is not going to help executives make sense of it. IT management needs to work alongside business colleagues to ensure that the right information is being delivered, and that consumers of the information have trust in its veracity.
In some companies, such initiatives have been instigated by charismatic leaders, who instinctively understand the importance of becoming information-centric. Short cites Randy Mott, now CIO at Hewlett-Packard, who has led information revolutions at both computer maker Dell and retailer Wal-Mart.
To its competitors, Dell’s success seemed to be predicated on building reasonable PCs and selling them cheaply; blindly copying that strategy resulted in IBM eventually having to exit the market with the sale of its PC division to China’s Lenovo, notes Short. In fact Dell’s success is based on becoming a virtually integrated data business, he says: being able to match customer requirements with business orders. Its control over information ensures that its operating costs are at an absolute minimum; indeed, it operates with negative working capital.
However, not all companies can count on having an information visionary at the helm, says Short. Rather, they can play in the same league by ensuring that the processes behind their decision making are sown through with reliable, consistent data and supported by BI tools to make sense of that.