HOW BUSINESS INTELLIGENCE SYSTEM DOES PROVIDES VALUE ADDED FOR FIRM PERFORMANCE

Muhammad Arifai

Abstract: The aim of study is attempt to explain the Business Intelligence (BI) system in order to provide the ability to analyze business information and supported management decision. Specifically BI is looked as strategic information systems. It is an integral part of the establishment of a decision-support system providing information to decision makers. There are three important factors that provide strategic decision, consist of internal strategy, costumer relation management and interpreting weak sign system. This study consider to use the Value Added efficiency of  the firm that has developed by Ante Pulic (1998) to measure firm value, that cause of it may not be appropriate to use accounting measures when measuring the business performance of a transactional information system tool or a typical decision support system (DSS). Based on the literature review, in today’s revolutions in information technology (IT) BI system has needed and provides firm value added.

Key Words: business intelligence, value added, decision support system

Muhammad Rifai, Master Accounting Programs, Faculty of Graduate School of Business (GSB) National University of Malaysia

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INTRODUCTION

Today’s business environment has been competitive than ever. That is caused by global competitions and customers demand more on product features and services. This effect making corporate expenses are continuously increasing. To survive in the competitive environment, high-level management needs business intelligent information to efficiently manage corporate operations and support their making of decisions (Cheng et al, 2009). Support-level staffs need knowledge information to provide better customer services for gaining satisfaction and retaining loyalty.

The term business intelligence (BI) refers to the use of technology to collect and effectively use information to improve business effectiveness. Business intelligence consists of sourcing the data, data analysis, assessing the situation, filtering out unimportant information, developing solutions, analyze risks and then supporting the decisions made. BI were viewed as tools that were used to support strategic decision making. However, organizations have recently begun to further exploit the capabilities of BI system though deploying these technologies to support wider business activities (Rogge, 2005). BI is not only a tool reflecting issues, but also the management of transferring internal messages in the enterprise environment (Eckerson Wayne, 2005) BI systems also as an important class of systems for data analysis and reporting that provide managers at various levels of the organization with timely, relevant and easy to use information, which enables them to make better decision. (Hannula and pittimaki,  2003).

Elbashir and William,(2007) mention that typically this system are required specialization in IT infrastructure in order to function effectively, including query, analysis, and reporting tools. Such as online analytical processing (OLAP), data mining tools, statistical analysis, forecasting and dashboard. BI systems are often implemented as enhancements to widely adopted ERP system. Examples of BI tools include those software and solution which are provided by software vendors including SAP, IBM, Oracle, and Microsoft. Many kind of BI software such as  Procyon 3, COGNOS, Business Objects, SAS, and Eligant J BI.  As a new approach in business strategic BI system is still expensive rather than with other software in order to decision supporting system. Elbashir and William (2007) state that IDC estimates global spending on BI system and related product is expected to reach $US6.1 billion by 2008. Furthermore King (2009) stating also that BI software is tops the list of technology spending priorities for companies in 2009, according to Market researcher Forrester Research (FORR) expects the BI market to generate more than $12 billion in revenue in 2014, vs. $8.5 billion in 2008. Expectations for increasing demand helped fuel a wave of consolidation in the BI market. The growth of BI product is reflective of growing strategic business in term of high business competition today and need for more attention in research studies.

Hence, the fundamental questions will be arising related to this issue regarding with cost of investment of this system and what the BI software can done to enhance firm value added in order to achieve competitive advantage today? For over a decade, empirical studies have also attempted to quantify the value realized from system investment. Although, much of this has shown positive relationships between value added of software on business performance (Kohli and Devaraj, 2003; Chan, 2000; Barua and Mukhopadhyay, 2000; Dehning and Richardson, 2002; Elbashir et al, 2008, Kim et al, 2009). the results, especially those related to the contribution of software to value of firm, have been mixed, finding little or no improvement in productivity despite massive investment. 

To answer question above, this study will be explaining of BI in delivers  business value which can be seen as a strategic information system (SIS). That systems having a profound effect on business success by influencing or shaping a company’s strategy or by playing a direct role in the implementation of that strategy. In the implementation, SIS can be influenced by many factors, among the external factors such as environmental competition, uncertainty, external needs, environmental change, competitor’s action are driving forces for any SIS application (Rouibah and Ali,2002). Through exploring the nature of BI system in order to achieve business value, this paper will be contributes to academic literature in viewing higher rating technology issues of BI today.   

LITERATURE REVIEW  

Business Intelligence (BI)

According to Wang, (2005) Business intelligence (BI) is the tool used by enterprises to collect, manage and analyze structural and non-structural data and information by taking advantage of modern information technology (IT). It utilizes a substantial amount of collected data during the daily operational processes, and transforms the data into information and knowledge to avoid the supposition and ignorance of the enterprises.  Grigori et al (2004) they defining the Business Intelligence (BI) as system which improves the quality and efficiency of their administrative and production processes, to manage ecommerce transactions, and to rapidly and reliably deliver services to businesses and individual customers. Additionally BI suite provides several features that offer various levels of automation for the management of process quality such as analysis, prediction, monitoring, control and optimization.

BI is not only a tool reflecting issues, but also the management of transferring internal messages in the enterprise environment (Eckerson Wayne, 2005). BI covers a wide range of tools and broad scope, and among the commonly mentioned important applications are data warehouse, data mining, OLAP, decision support system (DSS), balance scorecard (BSC), etc and the purpose of BI is to provide users with the best possible assistance in the process of decision-making. Apart from delivers the right information to right person during the right time (Back, 2002; Eckerson Wayne, 2005).

In order words, BI is defined an analysis mechanism by which automated decision-making regarding business, which developed to extraction, integration and analysis of data, technology and commercial processing procedures (Wang, 2005). While Back, (2002) BI is associated with problems and a huge amount of data of enterprises are input into data mining systems for data analysis, so that decision makers can obtain useful information promptly for making correct judgment; that is, in regard to enterprise operating contents. BI provide abilities of fast understanding and deducing, and thus enhancing the quality of decision-making and improving performance and expediting processing speed. 

Currently, there are multiple software suppliers and specialty consulting companies conducting even more logic planning and enhancement for the function and applicability of BI systems, e.g. tools assisting enterprises in decision-making such as data warehouse and real-time analysis. Hence, commercial logic thinking is still being innovated and developed and through such processes, systematic enterprise operation mode is expected to be created to enhance the competitive edge of enterprises. The application of business intelligence is the process through which enterprises take advantages of modern information technology to collect, manage and analyze structural or non-structural data.

Furthermore, Back (2002) has drawing the general concept of BI system in order to optimal business solution. The methodology of BI started with business input, that means the problem to be treated and solved, together with the corresponding data, while business output is the problem knowledge or problem solution generated by the approach, which can be turned into business operations to improve desired aspects of the business. This approach is showed in figure 1 bellow

Figure 1. Adaptive Business Intelligence. (Back,2002)

BI and Business Value

As tools in order to compete in the rigorous environment, BI systems should be evaluated upon effectiveness during the deployment. This may to avoid the ineffective system to interpreting large information and support manager decision in business performance. The problem here is existing electronic software package not only provide a set of complete solutions for the operation and management processes of enterprises but sometime provide failure in operation system. Ward et al, (2005) mention that the effects of the implementation of electronic tools vary that the probability of failure is higher than that of the success.

According to Lin et al (2009) have attempt to examine the performance of BI and find out a suitable assessment method to evaluate the performance of BI systems and clarify the impact of BI. They use analytic network process (ANP) based assessment model was constructed to assess the effectiveness of BI systems. The results indicate that the most critical factors that impact the effectiveness of a BI system are: output information accuracy, conformity to the requirements, and support of organizational efficiency. The assessing based on case study and other result shows that 24% improvement in effectiveness has been reached, which consists with the perception of the management level. However, this effectiveness assessment model can be used to evaluate the performances of a BI system. It can also provide performance indices and improvement directions for BI users and vendors, respectively, for the total succession in system effectiveness and satisfaction.

BI as Strategic Information System (SIS) 

In the early 2000s accounting researchers started to focus on specific type of IT application especially ERP system, in order to create stronger and more meaningful relationships between adoption and performance effect. (Elbashir et al, 2008) This recognized that different IT investment are used in different purpose such as supplier and costumers relationship management, human resource management, and transaction processing and therefore lead to different expected outcomes (Turner and Lucas,1985; Weil,1992). Changes in business process making research in information system can provide form the basis for multi dimensional performance measure which will help to provide a better explanation of the relationship between such as software investment and its effect to business performance.

            Smith, (2004) defined SIS is an integral part of the establishment of a decision-support system providing information to decision makers. Decision makers use strategic information and systems to pursue the goals of an enterprise. Furthermore Smith ,(2004) consider three strategic decision in SIS that may be required to achieves corporate goals, that are corporate strategy, competitive strategy and operational strategy.

Today’s revolution in information technology (IT) science is roughly associated with exploitation of data by means of computational intelligence technologies, facilitating adaptive business intelligence applications. (Back, 2002). Previously research has shown that BI system are strategic information system that organizations deploy in order to improve decision making and competitive advantage (Thomas,2001; Werner and Abramson,2003; Nemati and Barko,2001). BI cannot stand alone, but need to be integrated into management and operational process (Devoe and Neal, 2005; William and Williams,2003;William 2004). According to Rouibah ( 2002) they mention that BI as a strategic approach for systematically targeting, tracking, communicating and transforming relevant weak sign into actionable information on which strategic decision making is based. Thus Choe et al,(1998) consider that external factors are influence and during force for any SIS application, the external factors such as environmental competition, uncertainty and external needs. SIS in external changes helps and organization to remains competitive and proactive.

Internal Strategy

Internal strategy is one term of the performance impact of BI as strategic systems  in order to improve the efficiency and effectiveness of organizational structure and business process (Elbashir,2009;Lonnqvist and Pittimaki,2006; Cavalcanti,2005). The objective of operational efficiency enhancement is delivering higher business process performances that are enable BI system to support organizational to achieve their objectives, the example of BI involvement in the internal strategy such as cost reduction and productivity enhancement, increase staff productivity and improved efficiency of internal process.

While William and William (2003) have consider other internal strategy includes that firstly, Human capital productivity analytics, that is one way to attain value internally from BI to be able to streamline and optimize people within the organization, including: Call center utilization and optimization, call center utilization is used to improve throughput and decrease customer waiting time. In the more advanced cases, quick access to customer profile information may also affect the level of support provided to each customer (e.g., high level to high-value customers, minimal support to low-value customers). Secondly, Production effectiveness, such as evaluating on-time performance, labor costs, production yield, etc., all as factors of how staff members work. This information can also be integrated into an information repository and analyzed for value.

However, the successful implementation of operational efficiency is also dependent on other factors including the scope of the business process/size of firm, profitability, the extent to which the business process is core to the organization, the competitive environment, competitors^' actions and environmental changes (Dehning and Richardson, 2002; Melville et al., 2004; Subramani,2004).

Costumers Relationship Management (CRM)

CRM is important issue today because it is often much more expensive to acquire new customers than to keep them. Growing competition from both traditional and online businesses, companies should be able to keeping customers satisfied, increasing potential sales, and maintaining customer loyalty and ensure strategically to business success. Phan and Vogel (2009) has done case study in finger hut company, they need to improve and exploit customer relationships with business intelligence (BI) tool and used to assist Costumers Relationship Management (CRM) systems focus on decision support, market research, target marketing, customer service, and customer collaboration in products and services.

A CRM system is a repository of customer information which contains all customer profiles (Phan and Vogel, 2009). In addition to the traditional database roles, it has the capability of personalizing needs of individual customers by differentiating products or services for each unique customer. Popular strategies recommended to improve CRM include the use of BI for price discrimination, lock-in/high switching costs, and BI tools. However, as relationships develop in stages, IT provides good tools to automate, maintain, and exploit them from the beginning over the lifespan of the relationships.

William and William (2003) mention that many companies these days aspire to use customer relationship management strategies that distinguish between customers based on their value. In retail banking, a customer with loans, large savings accounts, a checking account with large balances, credit card balances, and who uses on-line banking is much more valuable than a customer with only a low-balance checking account who comes into a branch frequently. Clearly the bank would not want to lose the former customer, whereas it might be willing to lose the latter. For the bank to implement a customer relationship management strategy based on the difference in customer value, it first needs BI applications that allow it to know which customers are highly valuable, which are valuable, which are less valuable, and which are not valuable. That knowledge alone, however, is not enough to ensure that the bank does not lose highly valued customers. It must also have management processes and operational processes that take into account the differences in customer value and treat the highly valuable customers preferentially. For example, the bank might waive a late fee on a loan payment for the valuable customer, but not for the less valuable customer.

Interpreting weak signs

Many reason why companies need to have system which can extract information and interpreting large volume of information available and  also can avoid misleading, inaccurate and untimely in information result. In business environment, large volume information available often making difficult to decision making by manager, this condition sometime make failure and inaccurate to interpreting sign. Rouibah (2001) in her research mention about weak signals which arise cause some information available and requires companies to be alert and watchful for the detection. Martinson,(1994)  suggest that companies need to have  a well analyzed, designed and developed strategic business intelligence system and through this information system companies can enhance strategic decision making and support the competitive strategy of an organization.

Although many research previously were  written environmental scanning system (such as Aquilar, Ansoftrategic business intelligence system d systems to and Porter as cited in Beal, 2000) as a solution to avoid misleading, but the growing uncertainty of competitive business today still need for  more efficient strategic business intelligence system to support scanning and interpreting information and give impact to decision making by manager.  There are two modes of scanning that can be explored, that are reactive and proactive (Cyert and March, 1963 as cited in Rouibah 2002) reactive mode of scanning search is stimulated by a problem and directed toward supporting strategic decisions. Here the manager can collect directly this information and integrated into strategic decision making. While proactive or surveillance is exploratory and not directed to any predefined problem. Roiubah, (2002) has examine and associated of weak sign with require transformation into actionable intelligence before the information becomes usable.

CONCEPTUAL FRAMEWORK

Based on describing literature above, there are some numbers of BI analytics that provide business value. Selecting and integrating these analytic functions depends on the ability to effectively build the underlying information infrastructure to support the applications as well as the ability to configure reporting and visualization of the discovered knowledge. So generally, the conceptual framework that can developed to deliver study is based on the assume that BI system is an strategic information system that provides strategic decision to support manager decision. The strategic decision can measured with using any factors such as internal strategy, costumers relationship management and interpreting weak sign systems. While to know impact of usage BI system on firm performance, this study consider to use of the VA efficiency of the firm that has developed by Ante Pulic (1998).

The reason to use this approach cause of it may not be appropriate to use accounting measures such as firm profitability and return on investment (ROI) when measuring the business performance of a transactional information system tool such as transaction processing systems (TPS), or a typical decision support system (DSS). This is because such measures are often neither consistent with the firm's strategic intention regarding the technology, nor sufficiently close to the immediate influence of such systems. That approach have similar reason in term of performance measure of organizational regarding to system development (elbashir,2008; Anderson and Lanen, 2002; Lucas, 1993; Liang and Tang, 1992; Weill and Olson, 1989). Actually the conceptual framework is following:

           

 

Figure 2. The conceptual framework of BI system to achieve firm value added

CONCLUSION

This paper is attempted to explain the value of BI in order to delivering improvement business process. Specifically, BI is looked as a strategic information systems, it is an integral part of the establishment of a decision-support system providing information to decision makers. There are three important factors that provide strategic decision, consist of internal strategy, costumer relation management and interpreting weak sign system. These factors have identified as BI analytic and provide the business value. The term business intelligence (BI) refers to the use of technology to collect and effectively use information to improve business effectiveness. BI was viewed as tools that were used to support strategic decision making. The issue of costly this system and needed IT improvement in order to achieve business competitive and performance will arising the question that addressed to contribution and value of system. However that reason is needed to further study to measure the relationship that factors on firm value.    

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