Buying Biz Smarts
Steve Poss used to shudder the week before the monthly board meeting. The corporate controller for Deloro Stellite Co. Inc., of St. Louis, would spend that week gathering faxes and e-mails from plant managers throughout Europe, Asia and North America. Poss would end up with a pile of statistics about transactions, inventories and profits for the diversified manufacturer of alloys and other metal-related materials and equipment. Then, with the clock ticking, hed review the numbers for completeness before entering everything into an Excel spreadsheet. This left almost no time for the real purpose of the reports: to comb the information for important buying trends or potential sales shortfalls. "This was not an efficient way to create reports," he acknowledged.
Poss was aware of the advantages of the online analytical processing systems, which layer analysis tools on top of a corporate data warehouse and turn raw statistics into multidimensional reports. He was also aware that these systems require a top-shelf database administrator, powerful servers, and untold hours spent keeping the data clean and timelywhich would overtax a company like Deloro Stellite, which doesnt even employ an IT manager.
Then Poss discovered outsourcing. St. Louis-based Host Analytics Inc. sold Deloro Stellite its packaged analytic tools, then moved Deloro Stellites data into a data warehouse it hosted. Now, for about $2,000 per month, Deloro Stellite receives its monthly reports roughly two days before its regular board meetings, compiled using data that its managers throughout the world feed into a central Oracle Corp. database managed by Host Analytics. Instead of wasting time looking for missing data and inaccuracies, Poss now slices and dices the electronic reports to ferret out problems and opportunities. "The system has enabled us to identify adverse situations early enough so it takes less time and energy to correct them," he said. "We know if one plant is not keeping up with its sales goals by looking at its production and inventory turns. It was hard with the manual system to see problems like this and understand why they were happening."
Companies throughout the country that never considered themselves to be potential beneficiaries of business- intelligence tools because they were too costly to implement and too hard to maintain are now turning to ASPs (application service providers). The result? Smaller companies like Deloro Stellite, without IT resources of their own, no longer have to guess about who their most profitable customers are, which departments will fall short of business goals or what products might become hot sellers. In short, business intelligence isnt just for the Fortune 500 anymore.
But experts warn that, like most quick-hit solutions, ASP warehouses arent without trade-offs. What companies save in time and IT costs, they may sacrifice in the discomfort caused by seeing their critical data stored offsite and in the extra time it can take for service providers to turn out reports. "In most cases when you outsource, youre asking someone who knows very little about your business to help run your business," cautioned Steve Pratt, senior manager in the business-intelligence unit of data warehousing consultant Braun Consulting Inc., of Chicago.
Raising the Roof
The rise of data warehouse-focused ASPs is part of a broader rekindling of interest in business-intelligence systems, experts say. Several factors are behind it. First, Web-based data gathering and analysis tools are more economical than their predecessors. Second, the ASP model is opening up business intelligence to new users. "Weve seen the Web really re-energize data warehousing," said Mike Schroeck, a partner in charge of the global data warehousing and data analytics practices for consultant PricewaterhouseCoopers, in New York. Third, the sobering demise of once-hot dot-coms has caused many business managers to get business-intelligence religion. "A year ago, companies were just trying to grab market share at any cost," Schroeck explained. "Now, theyre more scientific about going after new customers. Not every customer is profitable."
Market researchers back up Schroecks observations. Over the last year, the market for data warehouse software, data management tools and information access applications has grown by approximately 26 percent, from a baseline of $5.3 billion, said Dan Vesset, an analyst for International Data Corp., of Framingham, Mass. Vesset said he expects this annual growth rate to continue until at least 2004. The growth of business-intelligence services by ASPs is too new to measure, he added, but his research shows high interest from potential customers, which could turn into significant sales over the next year. "Many companies are reluctant to sign long-term [ASP] contracts because the model is so young it hasnt been proven yet," Vesset said. "Long term, this could be a viable business."
IDC also reports that the data query and reporting software market is similarly healthy, with gains of almost 28 percent, to $1.3 billion, reported in 1999. This segment of the business-intelligence sector could reach $6.9 billion by 2004, the market researcher said.
Part of the future growth, Schroeck said, will be in business-to-business exchanges. "Theres real money to be made [by the exchanges], not from processing transactions, but from harvesting the information and selling the answers back to the suppliers," he said.
The rise of Web-based business-intelligence tools and services is also helping to dispel the image of data warehousing as a black hole for time and money. Five to 10 years ago, a large corporation might have accepted the idea that comprehensive business analysis was impossible until the company had devoted six to 12 months to gathering, cleaning and reformatting data for a dedicated analysis database, then installing the middleware and hardware that would let authorized managers access and manipulate the data. Upfront costs for such systems could range from $500,000 to well into the millions, depending on the size of the warehouse and the complexity of the data. And that was just the price of entry. An IT department would have to work diligently from then on to keep the warehouse stocked with timely and consistent data so that business executives would not waste time slicing and dicing junk.
ASPs promise relief on the front end of data warehouse construction and relief from ongoing maintenance efforts. For example, Host Analytics, the company Deloro Stellite contracted with, set up a dedicated server at its headquarters and installed an Oracle DBMS that holds only Deloro Stellites data. Host Analytics then transferred the manufacturers production data to the offsite server and went through the tedious process of cleaning out double entries for individual customers, fixing typos in the contact information for suppliers and solving other data entry headaches that could produce inaccurate analysis results.
"A data warehouse is unique for everyone, but a lot of the pieces are repeatable," said Host Analytics CEO James Eberlin. The company sells pre-fab data models and financial analysis software that consolidates information from disparate areas (such as global sales divisions) and plugs the data into forecasting reports. Deloro Stellite uses these tools to collect raw data from its international operations, often from the various brands of enterprise resource planning software being run at each plant. The reporting tool isolates business goals created by executives and identifies the key accomplishments that will be necessary to reach those goals. For example, if a Deloro Stellite plant manager in China is charged with doubling revenues over the coming year, the monthly reports will track such things as the success of new sales and marketing programs as well as whether theres enough capacity and manpower to reach the revenue objectives.
Traditional brick-and-mortar companies like Deloro Stellite arent the only ones turning to ASPs for business intelligence. Internet companies like Save.com are finding outsourcing is a way to stay close to customers and understand their businesses without the pain of constructing a traditional data warehouse. Save.com offers a Web-based coupon clearinghouse where shoppers can electronically clip retailer coupons that used to be found only in magazines and Sunday newspaper supplements. In the process of gathering coupons, consumers also leave behind loads of important information about themselves and their buying choices that inform Save.coms marketing programs. To collate and analyze that data in Internet time, Save.com signed up with an ASP service offered by WhiteCross Systems Inc., of San Francisco, said Todd Nelson, a Save.com spokesman. Through this service, Los Angeles-based Save.com learns how successful new promotions are. The site also uses demographic information that consumers provide when signing up, as well as data about what coupons they clip, to alert them via e-mail to promotions likely to interest them.
Host Analytics, WhiteCross and New York-based Primary Knowledge Inc. are business-intelligence outsourcers that offer analytic services, ranging from sales force automation to financial forecasting. Other outsourcers, such as CRM (customer relationship management)-focused Torrent Systems Inc., of Cambridge, Mass., specialize in particular types of analytic applications so customers can build an intelligence system one piece at a time to solve high-priority needs. ASPs may offer home-grown analytic tools or rely on products licensed from vendors such as Information Builders Inc., Cognos Inc., Applix Inc. and MicroStrategy Inc.
Of course, large systems integrators such as PricewaterhouseCoopers are adjusting their offerings to approximate some of the benefits furnished by ASPs. One way theyre doing this is by packaging targeted business-intelligence applications so every data warehouse isnt entirely custom-built. "Today were seeing much more focused applications for data warehousing," Schroeck said. "CRM is an example. A company can start out with a marketing data warehouse, then perhaps add sales. Its a way of getting value early on."
Systems integrators also compete against ASP upstarts by selling the business-domain expertise they have developed throughout years of building captive data warehouses. "We can offer analytical applications with modules that allow customers to do things like churn analysis," Schroeck said. "These applications arent necessarily turnkey, but they do allow companies to jump-start 80 percent of the warehouse building process and focus on the remaining 20 percent." Aggregating and cleaning data remain the most time-consuming pieces of the labor-intensive 20 percent step, he said. Although outsourcing offers benefits for some companies, not every enterprise is right for the ASP approach. Some companies, experts say, may need more customization of business-intelligence applications than ASPs can provide.
Location Is Everything
How do companies decide if an ASP is right for them? Data warehousing experts warn that some end users may not be culturally prepared for ASP-based business intelligence. Government agencies, pharmaceutical companies, financial institutions, and others with sensitive data and high security demands are best served by a captive data warehouse. "You have to ask yourself, Do we ever let our data live outside our walls?" said Michael Corcoran, vice president of New York-based Information Builders. "In a few different industries, customer data is so sacred companies just cant give it up."
ASPs answer these questions by saying specialization means outsourcers can do a better job of protecting datafrom both theft or losses due to system crashesthan many resource-strained IT departments can on their own. "An ASP is ultrasensitive to those issues. We have a security plan in place. We have mirrored servers," Eberlin said.
Schroeck, of PricewaterhouseCoopers, said going with an ASP is more a matter of business sense than technology sense. "You should ask, How well do they know my business, my industry?" he said. "The real value add is how you interact with the information in terms of target marketing, propensity to buy and churn analysis. Those algorithms require domain expertise."
If an ASP doesnt know your business and if you dont have clear goals, said Joyce Norris-Montanari, a Braun Consulting vice president, an outsourcer may ultimately hurt your company. "You may find youve just created more chaos," Norris-Montanari said. This would make things like monthly board meetings more painful than ever.
Whether you build your own warehouse or use an ASP, business analytics can yield real benefitsbut only if you accept that nothing is either free or without effort. Said Brauns Pratt, "A data warehouse isnt a destination, its a process."