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Introduction

Insurance – specifically Property Casualty Insurance – is the industry that I have worked within for the last twelve years. During this time, I managed teams spanning IT, Finance and Operations. However the successes that I am most proud of have been in the related fields of Business Intelligence and Cultural Transformation that appear in the title of this blog.

I have described various aspects of this work elsewhere, for example in The EMIR Project and my collection of articles on Cultural Transformation. I have also written about the general benefits of good Business Intelligence for any organisation. This article focuses on the business benefits of BI that are specific to the Insurance industry.
 
 
Of pigs and men

  Insure /insho′or/ v.tr. 1 secure the payment of a sum of money in the event of loss or damage to property, life a person etc. (O.E.D.)  

Insurance is all about risk; evaluating risk, transferring risk, reducing risk. The essentials of the industry can be appreciated via a rather colourful fable provided in Success in Insurance (S.R. Diacon and R.L. Carter). This tale was originally told by someone at The Association of British Insurers:

Once upon a time there were 11 men; each of them owned a pig.

Unexpectedly one of the pigs died. The owner could not afford £90 for a new pig and so he had to leave the country and go to work in the town instead. The remaining 10 men went to see a wise man. ‘It could happen to any of us,’ they said. ‘What can we do?’

‘Could you each afford £10 for a new pig if your pig died?’ asked the wise man. They all agreed that they could manage that. ‘Very well,’ said the wise man. ‘If you each give me £10, I’ll buy you a pig if yours dies this year.’ They all agreed.

That year one pig did die. The price of pigs had gone up to £95 by now, but the wise man replaced the pig, so none of the men suffered and the wise man had £5 left for the trouble and risk he had taken.

 
 
Pricing Insurance products

Of course in the above example, there were two crucial factors for the wise man. First the outcome that only one pig actually died; if instead there had been two pig-related fatalities, the perhaps less-wise man would have been out-of-pocket by £90. Second, the related issue of him setting the price of the pig Insurance policy at £10; if it had been set at £9 he would again have suffered a loss. It is clear that it takes a wise man to make accurate predictions about future events and charge accordingly. In essence this is one thing that makes Insurance different to many other areas of business.

If you work in manufacturing, your job will of course have many challenges, but determining how much it costs to make one of your products should not be one of them. The constituent costs are mostly known and relatively easy to add up. They might include things such as: raw materials and parts; factory space and machinery; energy; staff salaries and benefits; marketing and advertising; and distribution. Knowing these amounts, it should be possible to price a product in such a way that revenue from sales normally exceeds costs of production.

In Insurance a very large part of the cost of production is, by definition, not known at the point at which prices are set. This is the amount that will eventually be paid out in claims; how many new pigs will need to be bought in the example above. If you consider areas such as asbestosis, it can immediately be seen that the cost of Insurance policies may be spread over many years or even decades. The only way to predict the eventual costs of an Insurance product with any degree of confidence, and thereby set its price, is to rely upon historical information to make informed predictions about future claims activity.

By itself, this aspect of Insurance places enormous emphasis on the availability of quality information to drive decisions, but there are other aspects of Insurance that reinforce this basic need.
 
 
Distribution strategy

In most areas of commerce the issue of how you get your product to market is a very important one. In Insurance, there are a range of questions in this area. Do you work with brokers or direct with customers? Do you partner with a third party – e.g. a bank, a supermarket or an association – to reach their customers?

Even for Insurance companies that mostly or exclusively work with brokers, which brokers? The broker community is diverse ranging from the large multinational brokers; to middle-sized organisations, that are nevertheless players in a given country or line of business; and to small independent brokers, with a given specialism or access to a niche market. Which segment should an Insurance company operate with, or should it deal with all sectors, but in different ways?

The way to determine an effective broker strategy is again through information about how these relationships have performed and in which ways they are trending. Sharing elements of this type of high-quality information with brokers (of course just about the business placed with them) is also a good way to deepen business relationships and positions the Insurer as a company that really understands the risks that it is underwriting.
 
 
Changing risks

The changing face of risk

At the beginning of this article I stated that Insurance is all about risk. As in the pig fable, it is about policy holders reducing their risk by transferring this to an Insurance company that pools these with other risks. External factors can impinge on this risk transfer. Hurricane season is is always a time of concern for Insurance companies with US property exposures, but over the last few years we have had our share of weather-related problems in Europe as well. The area of climate change is one that directly impinges upon Insurers and better understanding its potential impact is a major challenge for them.

With markets, companies, supply-chains and even labour becoming more global, Insurance programmes increasingly cover multiple countries and Insurance companies need to be present in more places (generally a policy covering risks in a country has to be written by a company – or subsidiary – based in that country). This means that Insurance professionals can depend less on first-hand experience of risks that may be on the other side of the world and instead need reliable and consistent information about trends in books of business.

The increasingly global aspect of Insurance also brings into focus different legal and regulatory regimes, which both directly impinge on Insurers and change the profile of risks faced by their customers. As we are experiencing in the current economic crisis, legal and regulatory regimes can sometimes change rapidly, altering exposures and impacting on pricing.

The present economic situation affects Insurance in the same ways that it does all companies, but there are also some specific Insurance challenges. First of all, with the value of companies declining in most markets, there is likely to be an uptick in litigation, leading to an increase in claims against Directors and Officers policies. Also falling property values mean that less Insurance is required to cover houses and factories, leading to a contraction in the market. Declining returns in equity and fixed income markets mean that one element of Insurance income – the return on premiums invested in the period between them being received and any claims being paid out – has become much less.

So shifts in climate, legal and regulatory regimes and economic conditions all present challenges in how risk is managed; further stressing the importance of excellent business intelligence in Insurnace.
 
 
The Insurance Cycle

If this litany of problems was not enough to convince the reader of the necessity of good information in Insurance, there is one further issue which makes managing all of the above issues even more complex. This is the fact that Insurance is a cyclical industry.

An example of The Insurance Cycle

The above chart (which I put together based on data from Tillinghast) shows the performance of the London Marine Insurance market as a whole between 1985 to 2002. If you picked any other market in any other location, you would get a similar sinusoidal curve, though there might well be phase differences as the cycles for different types of Insurance are not all in lock-step.

To help readers without a background in Insurance, the ratio displayed is essentially a measure of the amount of money going out of an Insurance Company (mostly its operating expenses plus claims) divided by the amount of money coming in (mostly Insurance premiums). This is called the combined ratio. A combined ratio less than 100% broadly indicates a profit and one above 100% broadly indicates a loss.

It may be seen that the London Marine market as a whole has swung from profit to loss, to profit, to loss and back to profit over these 18 years. This article won’t cover the drivers of this phenomenon in any detail, but one factor is that when profits are being made, more capital is sucked into the market, which increases capacity, drives down costs and eventually erodes profitability. As with many things in life rather than stopping at break-even, this process overshoots resulting in losses and the withdrawal of capital. Prices then rise and profitability returns, starting a new cycle.

Given this environmental background to the Insurance business, it is obvious that it is very important to an Insurance company to work out its whereabouts in the cycle at any time. It is particularly crucial to anticipate turning points because this is when corporate strategies may need to change very rapidly. There may be a great opportunity for defence to change to attack, alternatively a previously expansionary strategy may need to be reined in order to weather a more trying business climate.

In order to make predictions about the future direction of the cycle, there is no substitute for having good information and using this to make sound analyses.
 
 
Summary

I hope that the article has managed to convey some of the special challenges faced by Insurance companies and why many of these dramatically increase the value of good business intelligence.

Essentially Insurance is all about making good decisions. Should I underwrite this newly presented risk? Should I renew an existing policy or not? What price should I set for a policy? When should I walk away from business? When should I aggressively expand? All of these decisions are wholly dependent on having high-quality information and because of this business intelligence can have an even greater leverage in Insurance than in other areas of industry.

Given this it is not unreasonable to state in closing that while good information is essential to any organisation, it is the very lifeblood of an Insurance company. My experience is that Business Intelligence offers the best way to meet these pressing business needs.
 

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Posted in bi and the economic crisis, business, business intelligence, enterprise performance management, it business alignment, management information, technology Tagged: bi, business intelligence, economic crisis, information technology, insurance, it business alignment, it strategy, management information

Chief Information Officer (CIO) Network

This post is another that highlights responses I have made on various LinkedIn.com forums. In this case, a news article was posted on the Chief Information Officer (CIO) Network group (as ever you need to be a member of LinkedIn.com and the group to view the original thread).

The news article itself linked to a piece / podcast on The IT-Finance Connection entitled: Big BI Vendors Facing Big Challenges. In this Nigel Pendse, author of the anual BI Survey, was interviewed by IT-Finance Connection about his latest publication and his thoughts about the BI market in general.

Nigel speaks about issues that he sees related to the consolidation of BI vendors. In his opinion this has led to the big players paying more attention to integrating acquisitions and rationalising product lines instead of focusing on customer needs. In one passage, he says:

Within product development, the main theme moved from innovation to integration. So, instead of delivering previously promised product enhancements to existing customers, product releases came out late and the highlights were the new connections to other products owned by the vendor, but which were probably not used by the existing customers. In other words, product development was driven by the priorities of the vendor, not the customer.

Whilst there is undoubtedly truth in Nigel’s observations, I have a slightly different slant on them, which I offered in my comments:

It is my very strong opinion that what the users of BI need to derive value is not the BI vendors “delivering previously promised product enhancements” but using the already enormously extensive capabilities of their existing BI tools better. BI should not be a technology-driven area, the biggest benefits come from BI departments getting to know their users’ needs better and focusing on these rather than the latest snazzy tool.

If this does happen, it may mean less than brilliant news for the BI vendors’ sales in the short-term, but successful BI implementations are going to be a better advert for them than some snazzy BI n.0 feature. The former is more likely to drive revenues for them in the medium term as companies build on successes and expand the scope of their existing BI systems.

See also: BI implementations are like icebergs

While some people see large potential downsides in the acquisition of such companies as BusinessObjects, Hyperion and Cognos by large, non-BI companies, you could argue that their new owners are the sort of organisations that will aim to use BI to drive real-world business success. Who knows whether they will be successful, but if they are and this is at the expense of technological innovation, then I think that this is a reasonable sacrifice.

As to whose vision of the future is right, I guess only time will tell.
 

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Posted in business, business intelligence, enterprise performance management, it business alignment, management information, technology Tagged: bi, business intelligence, businessobjects, cognos, hyperion, information technology, it business alignment, it-finance connection, management information, nigel Pendse

I will be facilitating the Chase Zander IT Director Forum in Birmingham on Thursday evening and am also attending a CIO Magazine event earlier in the week, so there will be rather less blog output than is customary.
 

Posted in site update Tagged: chase zander, cio magazine

Further to my recent article which argued that the building metaphor often applied to IT projects did not work so well for business intelligence, I have dug out a brief piece that I wrote some time ago debunking even the general applicability of the building analogy.

For the avoidance of doubt, this is intended to be a humorous piece, so please do not take it too seriously.
 
 
Why IT is not like Civil Engineering

Civil Engineering and IT

“If the automobile industry had developed like the software industry, we would all be driving $25 cars that get 1,000 miles to the gallon…”
~ Bill Gates (allegedly)

“…and if cars were like software, they would crash twice a day for no reason, and when you called for service, they’d tell you to reinstall the engine”
~ Unnamed Detroit Executive (even more allegedly)
 
It is difficult to draw analogies between different industries as Bill Gates found out (at least apocryphally – he did indeed talk at length about comparisons between the PC and automobile industries at the launch of Windows 98, but probably never made the above quote that is often ascribed to him).

If IT was really like Civil Engineering then, in the spirit of Mr Gates and his Detroit counterpart: -

• The concrete, steel and glass used in a office would have be replaced every five years because Lafarge, Mittal and Pilkington no longer support their old products
• A year after construction is complete, there would be a requirement to double the size of the 5th, 18th and 34th floors of a skyscraper and to swap the positions of the 1st and 50th floors
• The building that had been erected in London, would also now need to be situated simultaneously in Frankfurt and Taipei
• It would also often become necessary to have a bridge between the Sydney and Cleveland offices
• The factory that was constructed to house an assembly line for dishwashers would need to be adapted to also provide a skateboard park, horse-riding facility and hi-tech laboratory
• Occupants of buildings would be unable to use the doors or lifts or look out of the windows without calling the Help Desk or referring to the user guide
• Think Geek Ts would be acquired by Construction Gear
• Pocket protectors would be replaced by tool belts
• Brick 2.0 would be of enormous interest to venture capitalists

 

The IT Crowd and Bob the Builder

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Posted in business, technology Tagged: civil engineering, information technology

A traditional metaphor for IT projects

IT people are familiar with a number of metaphors for their projects. The most typical relates to building; IT projects are compared to erecting a skyscraper. The IT literature is suffused with language derived from this metaphor. We build systems. We develop blueprints for them. We design architectures (two-for-one there). This analogy has some strength and there are indeed superficial similarities between the two areas. However, as with most metaphors, if over-extended their applicability often breaks down. I recall one CEO in particular who was obsessed by the “building team” moving on to the next “site”; regardless of the current one requiring further work and dedicated maintenance. One of his predecessors often referred to wanting a “diesel submarine” built, as opposed to a “nuclear one”. Before I fall into the same trap of over-exploiting the metaphor, let’s move hurriedly on.

As I mention above, aside from the occasional misapplication, the building analogy works reasonably well for many IT projects; does it also work for business intelligence? I think that there are some problems in applying the metaphor. Building tends to follow a waterfall project plan (as do many IT projects). Of course there may be some iterations, even many of them, but the idea is that the project is made up of discrete base-level tasks whose duration can be estimated with a degree of accuracy. Examples of such a task might include writing a functional specification, developing a specific code module, or performing integration testing between two sub-systems. Adding up all the base-level tasks and the rates of the people involved gets you a cost estimate. Working out the dependencies between the base-level tasks gets you an overall duration estimate.

The problem with BI projects is that some of the base-level tasks are a bit different. An example might be: develop an understanding of a legacy data table, how it relates to other legacy data sets and to more modern systems (this sits under area two of my model of BI development - see BI implementations are like icebergs). This is not an exercise that is very easy to estimate in advance. Indeed it may not be possible to produce an adequate estimate until a substantial amount of work has been done. Even at a late stage in the task, something may be discovered which expands the work required dramatically; surprises may lurk round every corner.

Why is this? Well with legacy data, the people who developed the system may have done so many years ago. Since then, they may have left the company or moved on to other areas, taking their knowledge with them. Their place may have been taken by successive tranches of new staff. Perhaps poor initial documentation meant that later workers did not fully understand the full nature of the system, but nevertheless did their best to build upon it. Perhaps the documentation was good at first, but has not been kept up-to-date and now describes a system that no longer exists.

By definition, legacy systems will have been around for some time and layers of changes will have accumulated on top of each other. Maybe, as a company has expanded, new data has been interfaced to the system from different business units and territories; perhaps each of these cases has its own dedicated interface code, each subtly different from those of other systems. Even where people exist in an organisation who preserve an “oral tradition” about the system, handed down to them over generations; these people may not appreciate how their data interacts with other data – even if the person who looks after another legacy system sits in the adjacent cubicle.

Although these challenges can also occur when trying to understand the data in more modern systems, they are particularly acute with older ones. For a start, the people who designed these systems are more likely to be around. Also legacy systems often sit at the centre of a Byzantine web of inter-connections, batch-processes, over-night jobs and the occasional more modern service. It can be a real mess and this is a situation with which any data analyst with a reasonable amount of experience will be very familiar.

The difficulty of estimating the duration of tasks such as properly analysing legacy data makes overall estimation of BI projects more of an art than a science. Of course techniques such as time-boxing tasks can be applied, but these are not always 100% appropriate. A 75% analysed data source (even assuming that the estimate that only 25% work is left is accurate) is not an analysed data source. Leaving dark corners of knowledge is likely to be reflected in BI cubes and reports that do not reconcile back to their sources. Probably the best way to deal with this problem is to be extremely open about the challenges up-front with executive sponsors and when submitting estimates. It helps to also stress the level of uncertainty in progress reports. The more honest you are initially, the better you will be able to explain any overruns and the more likely it is that you will be believed.

These types of issues mean that the – hopefully more orderly – process of constructing a building is not a fully accurate way to describe a BI project. That is unless the metaphor is extended to include an occurance that is all too common during construction in The City of London. Given the age of Londinium, whenever ground is broken on a new project, it is more likely than not that a mediaeval, Anglo-Saxon or Roman site is unearthed (often all three). These finds, while of enormous interest to academics, can result in projects being put on hold (sometimes for years) while the dig is fully assessed, artefacts are carefully removed and catalogued by experts and so on. Sometimes the remains are of such importance that a structure preserving and protecting them (and even allowing public viewing) has to be made part of the design of the foundations of new building. Many office blocks in The City have such viewing galleries in their basements. Such eventualities can create massive and unexpected overruns in central London building projects.

So this leads me to suggest a different metaphor for BI projects. Major elements of them are much more like archaeological digs than traditional building. The extent and importance of a dig is very difficult to ascertain before work starts and both may change during the course of a project. It is not atypical that an older site is discovered underneath an initial dig, doubling the amount of work required.

So, my belief is that BI professionals should not be likened to architects or structural engineers. Instead the epithet of archaeologist is much more appropriate. And if the fedora fits, wear it!

Fortune and glory in BI?

 

 
Apologies for the initial typo’ in the article heading, which persists in the perma-link. Of course I have the odd error scattered around the place, but in a heading! Maybe I need to employ a proof-reader.
 

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Posted in business, business intelligence, management information, project management, technology Tagged: archaeology, bi, business intelligence, indiana jones, information technology, it management, it projects, la, legacy data, legacy systems, management information

A very brief post, just to acknowledge that sometimes you come across a gem of an article in the blogosphere. On this occasion, I would also like to thank the author for pointing his work out to me on a LinkedIn.com group!

The piece in question is called Talking business: Three reasons why your opinion is being ignored. It is by Ilya Bogorad and appears on Tech Republic. Well worth a read, no matter where you are in your IT career.
 

 
Ilya Bogorad is the Principal of Bizvortex Consulting Group Inc, a management consulting company located in Toronto, Canada. Ilya specializes in building better IT organizations and can be reached at ibogorad@bizvortex.com or on (905) 278 4753.
 

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Posted in business, it business alignment, technology Tagged: Ilya Bogorad, information technology, it business alignment

Back in January, in collaboration with Chase Zander, I started a process of consulting with senior IT managers to develop a list of the top business issues that they faced. This exercise was intended to shape the content of a IT Director Forum that we were planning. This will now be happening on 26th March in Birmingham (for further information see this post).

The Top Business Issues faced by CIOs / IT Directors

Back then, I promised to share some of the findings from this study. These are summarised in the above diagram. The input was based on public comments made by a selection of senior people on the CIO group of LinkedIn.com, plus e-mails sent to me on the topic and feedback received by Chase Zander.

A textual version of the data appeas below (sample size ~60):
 

  Issue % of Votes     IT / Business Alignment 27%     Cost-saving 13%     Managing change 8%     Status of the IT Director 8%     Legacy Systems 5%     Customer focus 5%     Enterprise Architecture 5%     Business Intelligence 5%     Avoiding the latest and greatest 3%     Cloud Computing 3%     Only one response 17%     Total 100%  

 
I would like to thank all of the IT professionals who contributed to this survey.
 

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Posted in business, business intelligence, change management, cultural transformation, it business alignment, technology Tagged: business intelligence, change director forum, change management, chase zander, cultural transformation, information technology, it business alignment, it management, it strategy, management information

Please click on the image to view the full-sized invitation

Some time ago I posted about about the IT Director Forum that I was helping Chase Zander to set up. This is happening on the evening of March 26th in Birmingham, England.

Seminar topics: People who should attend:

• How Business and IT be better aligned?
• How IT can add more value while being more cost effective?

• IT Directors
• Managing Directors
• Senior Business-Facing IT Professionals

A summary of the research that led to developing these topics may be viewed here.

Rather than just making presentations, the objective is to have round-table discussions with delegates sharing their experiences. I will be facilitating the IT / Business Alignment session and Elliott Limb will be handling the Adding value with IT session. Elliott is an IT and Business Leader and Author of forthcoming book Credibility - Bridging the IT / business divide.

At present, there are a few places still available. Any UK-based IT managers who are interested in attending can contact Emily White (emily.white@chasezander.com or 0870 997 9014) to make a reservation.
 

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Posted in business, it business alignment, technology Tagged: business projects, chase zander, information technology, it director forum, it management, it strategy

 
Introduction

The phrase IT outsourcing tends to provoke strong reactions. People either embrace it as a universal panacea capable of addressing any business problem, or recoil in horror at the very sound of it. Just for a change, I am somewhere in the middle; to me it is another tool at the disposal of businesses which can either be used wisely or poorly (much like IT itself you might say). As always the difference between the two extremes comes down to how well the project is led. Regardless of this, there are some benefits and some disbenefits associated with IT outsourcing and this article will explore the case for applying outsourcing to business intelligence.
 
 
Benefits of general IT outsourcing

Before I plunge into the world of BI, it is perhaps worth revisiting the general reasons for IT outsourcing, some of the most regularly quoted are as follows:

1. Reduction in costs

The provider of outsourcing (I’m just going to say “the provider” from now on to save typing) can carry out the same tasks at a cheaper cost to the client organisation (while still presumably turning a profit). There can be a number of bases for this; the one that generally comes to mind is wage arbitrage between different economies. However, it could also be that the provider has economies of scale; for instance, less people being required to run the consolidated data centres of several companies, than is required to run each separately. Also the provider may have staff who are more productive than at the client.

2. Ability to scale-up and scale down resource

The nature of business is such that sometimes all hands are required on the IT deck and at others there is spare capacity (this is something I address in my two articles on Problems associated with the IT cycle and Mitigating problems with the IT cycle). Now IT departments are normally quite good at finding (hopefully) useful things for people to do, but the issue remains. The promise of an outsourcing arrangement is that the tap of resource can be adjusted to meet demand without having to either fire and rehire staff, or rely on bringing in expensive contract resource. It is often hoped that this feature of outsourcing will also help to speed IT products to market.

3. Making IT provision a contractual relationship

An arrangement with a provider, depending on how the contract is drafted, can make the provision of IT services subject to penalties and claw-backs when service levels drop below those that have been agreed. While there are clearly some sanctions that can be applied to underperformance by internal IT departments, the financial benefit to the organisation is likely to be less (unless your CIO is a multi-billionaire of course). Companies are used to these contractual relationships, they are often the lifeblood of business, and it is a more familiar way of dealing with issues for them.

4. Access to skills

The nature of IT is that it does tend to evolve, sometimes quickly, sometimes slowly. For organisations this means keeping their IT people’s skills up to date though courses, or continually looking to bring people with new skills into an organisation (such people generally not being the cheapest). The idea with an outsourcing arrangement is that these issues become the headache of the provider, not the client. This area can be particularly pertinent when there is a technology change or a significant upgrade; these are times at which the prospect of being shot of IT worries may seem very attractive. The effort and cost of, as it were, upgrading your in-house IT staff may seem prohibitive in these circumstances.

5. Focus on core competencies

This has been a business mantra for many years, why should a company engaged in a wholly separate area of human endeavour want to become experts in building and supporting complex IT systems, when they can get a specialist organisation to do this for them? This moves towards the idea of a lean, or even virtual, organisation.

6. Failure of in-house IT

It is sad to have to add this item, but it is often the implicit (and sometimes even the explicit) driver of a desire to outsource. CEOs and COOs may be so fed up with the performance of their IT people that they feel that surely someone else could not be worse. There is an adage that you don’t outsource a problem, but this is often honoured more in breech than observance.

I am sure that there are other advantages, claimed or real, for IT outsourcing, but the above list at least covers many of the normal arguments. At this stage a fully-balanced article would probably present arguments against IT outsourcing. However, my objective here is not to provide a critique of IT outsourcing in general, but to see whether the above benefits apply to business intelligence. Because of this, and I should stress purely for the purposes of this article, I am going to accept that all of the above gains are both realisable and desirable for general IT. There will therefore you will find no comments here about arbitrage (of its very nature) resulting in differentials of pricing closing over time.

The only benefit that I am going to rule out is the final one; addressing failed IT departments. Applying outsourcing in these cases is only likely to make things worse, and probably more expensive. Far better in my opinion to work out why IT is failing (most typically due to poor leadership it has to be said, see also my article: Some reasons why IT projects fail) and draw up plans for addressing this. If outsourcing is a strong element of this, then so be it, but thinking that it will resolve this type of issue is probably naive in most circumstances.

So, as always seems to be the case in these types of articles, we have five potential benefits against which to assess outsourcing BI. Before I look at each in turn, I wanted to make some general observations.
 
 
Things that are different about BI

The main fly in the ointment with respect to outsourcing business intelligence is the fact that good BI is reliant upon four things (see also BI implementations are like icebergs):

A. An in-depth understanding of business requirements, developed by close collaboration with a wide range of business managers. In particular, what is necessary is understanding what questions the business wants to ask and why (see Scaling-up Performance Management and Developing an international BI strategy) B. An extensive appreciation of the data available in different business systems, its accuracy and how data in different places is related to each other. C. Developing creative ways of transforming the available data into the required information and presenting this in an easy-to-understand and use manner. D. A focus on change management that includes business-focussed marketing, training and follow-up to ensure that the work carried out in the first three areas results in actual business adoption and thereby the creation of value (see my collection of articles focussed on cultural transformation).

With the possible exception of item C., which is more technical, the above are best carried out in a symbiotic relationship with the business. Ideally what develops is a true IT / business hybrid team, where, though people have clear roles, the differences between these blur into each other. In turn, building thus type of team is predicated on developing strong relationships between the IT and business members and establishing high levels of trust and respect.

Also with item C., this is not precisely a stand-alone activity. It is one best carried out collaboratively by technically-aware business analysts and business-aware data analysts, ETL programmers and OLAP designers. Once again, distinctions blur somewhat during this work and a different type of hybrid team appears.

I have tried to illustrate the way that these tasks and teams should overlap in the following diagram.

Clearly it is not impossible to achieve what I have described above in an outsourced environment, but it seems that it might be rather tougher to do this. One key point is that the type of skills that are necessary for success in BI are cross-over business / IT skills and these are generally less easy to buy off the shelf. Another is that the type of intellectual property that a BI team will build up (basically extensive knowledge of what makes the organisation tick) is precisely the sort that you would want to retain within an organisation.

I would suggest that if an organisation wants to outsource BI, then they should start that way. Once a BI team has gone through tasks A. to D. above then I can’t see how it would be cost-effective to subsequently outsource. The transfer of knowledge would take too long and be too costly.

To provide some context to this let me share some non-confidential details of a study I performed recently comparing the efficiency of a well-established BI team in a developed country with a less mature BI team in a lower-cost location. Rather than considering relative costs, I looked at relative productivity. A simple way to do this is to get quotes for carrying out a certain type of work from both teams (though I also applied some other techniques, which I won’t go into here). My main finding was that the ostensibly high cost team was more than twice as productive as the allegedly low-cost team. Just to be clear, if the “high-cost” team quoted $X for a piece of work, the “low-cost” team quoted over $2X,because they required much more resource and/or time to carry out the same work.

So, in what follows, I will assume that a decision is taken to outsource at the inception of a project. With assumption and the previous background, let’s go back and look at the five benefits of outsourcing from the beginning.
 
 
Matching the benefits to BI

1. Reduction in costs

It will take external BI resource at least as long as internal BI resource to understand business requirements and available data. In fact internal staff probably have something of an advantage as they should already have an appreciation of what the organisation does and how IT systems support this. The external resource also has the disadvantage of it probably being more difficult for them to build business relationships, this can be exacerbated if there are personnel changes during the project; something that is perhaps more likely to happen with an external provider. If the provider is located in another country, then this raises even more challenges and inefficiencies (and leads to travel expense).

It will take an external BI team at least as long as an internal one to dig into the available data and how the various systems inter-relate. Again, having some familiarity with the existing systems’ landscape would be an advantage for an in-house team.

If an external team can get to the position where they understand the business needs and the available data really well in a reasonable period of time, then they could possibly have an advantage in the arena of transforming data into information. Something that may mitigate this however is that fact that most BI development is iterative and that a rolling set of prototypes needs to be reviewed closely with the business. This element introduces the same challenges as were apparent with defining business requirements above.

Similar arguments as were made about the business requirements phase apply to deployment and follow-up.

2. Ability to scale-up and scale down resource

While it may be possible (subject to contract) to scale-down resource with a provider (though perhaps tougher to get them back when you need them), scaling-up is just as hard as it is in-house at it means more staff at the provider going through the learning curve about the organisations business needs and data.

4. Access to skills

Clearly this is a benefit of outsourcing. However, given that the contract is there for when things go awry, it is worth asking the question “are things more or less likely to go wrong with a provider?”

3. Making IT provision a contractual relationship

This is the crux of the matter. The skills in question are not Java programming (or even Cobol), they are business knowledge. ETL and OLAP skills are important, but only if they are applied by people who understand what they are doing and to what purpose. These skills are not just lying around in the market place; they are acquired through hard work and dedication.

5. Focus on core competencies

While it is quite easy to argue that building e-commerce systems is not necessarily a core competency, good BI is about understanding what is necessary to best run the business. If that is not a core competency of any organisation, then I struggle to think of what would be.
 
 
Summary

My main argument is that BI is different to general IT projects (an assertion to which I will return in a forthcoming article - UPDATE: now published here). Having successfully run both, I am confident in this statement. I also think that you need different types of people with different skills in BI projects. These facts, plus the closeness of business / IT relationships which are necessary in the area mean that outsourcing is less likely to be effective. I am sure that an outsourcing arrangement can work well for some organisations in some circumstances, but I would argue strongly against it being best practise for most organisations most of the time.
 

 
After penning this article, a further problem with outsourcing business intelligence came to my mind; security. On part of most BI systems is a facility to analyse the organisation’s results. Ideally the BI system will have these figures in place very soon after the end of a financial closing. Such data is market sensitive and there may be concerns with trusting an external provider with both producing this and ensuring that it remains confidential until market announcements are made. I am not suggesting that providers are unethical, just that companies may not wish to take a chance in this area.
 
I should also credit a thread on the LinkedIn.com EPM - Business Intelligence group, which got me thinking about this area (as ever, you need to be a member of LinkedIn.com and the group to view this)
 

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Posted in business, business intelligence, enterprise performance management, it business alignment, management information, outsourcing, technology Tagged: bi, business intelligence, information technology, it business alignment, management information, outsourcing

© Alex Messenger - http://www.alexmessenger.co.uk/

Having yesterday been somewhat disparaging about the efforts of others to delineate the reasons for BI projects failing, I realised that I had recently put together just such a list myself. By way of context, this was in response to being asked for some feedback in a subject area where I had little expertise and experience. Instead of bailing out of answering, I put together a more general response, a lightly edited and mildly expanded version of which appears below.

Please note that there is no claim on my part that this list is exhaustive; in common with all humans, us IT types can be very creative in finding new ways to fail, I am sure there are some out there that I have not come across yet.
 

1. The objectives of the project not being clear. By this I mean the business objectives. There are two layers of problems, the actual business issues may not be understood well enough to form an effective response and, if the business knows what it needs to do in general terms, IT may not fully appreciate this for a number of reasons (mostly down to lack of communication) or may be unable to translate this into a suitable programme of work (possibly because of a lack of knowledge of how the business operates). Where IT is not part of the senior management team, or sees itself as a department apart, this issue is more likely to occur.
2. Strategy formation being skipped. If you don’t understand what a project is meant to be about, it is difficult (to say the least) to form a strategy. However, if the test in point 1. is passed, then it may be tempting (or there may be pressure applied) to get to the end game as soon as possible without either forming a strategy for the project, or fitting this into both over-arching business and IT strategies (which one fervently hopes are complementary). As I know all too well, the strategy formation step can be tough one and people may sometimes be keen to skip it. The current economic climate may lead to this happening more frequently and my opinion is that this will be storing up trouble for the future.
3. Fragmented systems’ landscapes. Related to the above, it is often very difficult to make progress when there is a patchwork of different systems and approaches throughout an organisation and little desire to address this short-coming. Often some sort of revolution (albeit sometimes a quiet one sustained over many years) is required to move forward. Sometimes this requires some crisis, internal or external, as virtually every organisation is inherently conservative; no matter what their marketing spiel may claim to the contrary.
4. Lack of Change Management. Projects often also have an organisational change aspect (what else are they for?) and the problems here are: a) people do not like change and resist it; and b) many otherwise able managers are not experienced in change - indeed we tend to educate most managers to be efficient in a steady-state environment. Even when this aspect is recognised, it is often underestimated and work does not start until too late in the game.
5. People. Aside from these, the main other problem is people. Projects, even small ones, are difficult and not everyone is up to running them. Simple errors in execution can derail projects that otherwise tick all of the boxes.

 
Of course any passing Gartner analyst is more than welcome to rip this to shreds if they see fit.
 

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Posted in business, change management, it business alignment, project management, technology Tagged: business projects, business strategy, change management, information technology, it business alignment, it management, it projects, it strategy