How does business intelligence affect decision making?
Business intelligence is like teenage sex; everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it. To dispel some misconceptions, business intelligence software simply analyses business data and provides actionable insights. I like to think of it on a spectrum – at the low-end, there is simple reporting software that generates a report that a business owner or advisor can read and interpret. At the high-end, business data is dumped into a data warehouse from disparate sources and sophisticated software uses artificial intelligence to analyse it. Somewhere in the middle is where most small businesses should be aiming.
The business intelligence software landscape is crowded, there are plenty of software vendors claiming that their software is the best or easiest to use but which one is right for your business? Actually that question kind of misses the point. Business intelligence software is a tool and if you don’t know how to use it, it doesn’t matter how good the tool is. Fortunately, you can speak to your accountant about this. Most accountants offer an advisory service that is supposed to deliver you actionable insights and strategies to help grow your business. This practice is known as management accounting and the use of business intelligence software is a mainstay of the discipline.
“The framework is simple: measure, analyse and execute.”
If you ask your accountant about business intelligence and they have a blank expression on their face, it may be time to change accountants. At Accodex, we have a methodology for delivering our advisory service. The framework is simple: measure, analyse and execute. The first step is to measure and what you measure depends on your business. Do you need to measure inventory turnover? Revenue per dollar of wages? The value of your opportunity pipeline? The lifetime value of a client? Lead time to close? Return on investment of a marketing campaign? The good news is there’s an easy way to measure any of those metrics: cloud software.
Once you have the appropriate cloud software measuring your chosen metrics, it’s time to analyse. This is where business intelligence (BI) software comes in. BI software will give you myriad graphs, charts and tables so it’s important to configure it correctly. To make the best use of BI software you need to ask it questions (figuratively at this point but in the future, that sentence can be read literally!) An example for a service-based business might be something like this: At what point do I start to make a profit on a client? Perhaps it costs you $800 to acquire a client and you make $600 profit per job you perform for that client. You can see you will only start generating a profit on that client after the second job. BI software will help us uncover insights like this.
“The good news is there’s an easy way to measure any of those metrics: cloud software.”
The final step is to execute a plan. Most advisors will analyse your data, give you the insights and then dust their hands and show you the door. That doesn’t really help your business. Looking at our example from before, we know that we only begin to make a profit after the second job for a client. This tells us that we lose $200 for every client we acquire and only begin making a profit if we retain them for a second job. So let’s focus on that. After we work out our customer churn (the opposite of customer retention rate) we can begin to experiment with different retention strategies. You can already see that our focus has switched from customer acquisition to customer retention. We might try loyalty programs, email nurture campaigns, multi-stage projects or a number of other strategies. The point is you’re acting on the insights you got from the BI software.
“Most advisors will analyse your data, give you the insights and then dust their hands and show you the door.”
Accountants are great at crunching numbers but it’s less common to find accountants that work with business owners to measure data, analyse that data and execute strategies. This is how business intelligence software should influence decision making. This is what we are passionate about at Accodex and it’s summed up in our purpose:
“To democratise business intelligence”.
Written By: Patrick De Ruvo
Chief Technology Officer