Oops! The input is malformed!
Originally published abril 9, 2009
Acquiring business intelligence (BI) capabilities through a software-as-a-service (SaaS) model versus enterprise business intelligence represents the inflection point of two separate trends in business. One trend signals the increasing importance of gaining insight into all manner of business events. These events encompass not just transactions, but patterns in activity as widespread as customer responsiveness, network management, supply chain performance, and fraud detection. The focus on business intelligence comes from business grasping the importance of the axiom: “If you can't measure it, you can’t manage it.”
The second trend relates to an increasing interest in the concept of SaaS. The idea of leasing rather than buying a software application, and accessing it over the Internet, offers companies many benefits relating to the conservation of resources. With a SaaS application, companies can generally:
These two trends are converging now for a variety of reasons. Not the least of these is the realization that overarching business insight relies on the integration of information from a multitude of systems. Even companies that have standardized on all-encompassing enterprise resource planning (ERP) applications realize that sometimes key business data exists beyond the boundaries of such applications. While ERP vendors are concertedly designing and acquiring new modules, two facts remain: it takes time to incorporate new and acquired modules into the ERP infrastructure, and companies may have custom-built modules whose functionality outweighs the promises and even the reality of what ERP vendors provide.
At the same time, companies growing through acquisition frequently find themselves saddled with a plethora of data sources. One user of SaaS-based business intelligence revealed his division (not even the entire company) extracted data from eight different ERP systems.
Our assessment: In order to derive value from customers or employees or data gained after an acquisition, companies must find a way to integrate it quickly.
This begs the question: Isn’t this integration the responsibility of a company’s information technology (IT) department? The answer reveals a key conundrum facing line-of-business (LOB) executives who require BI capabilities for performance-based decision-support such as sales and profitability. Even while they require a perspective that can only come from the integration of multiple data sources within the company, IT’s increasing importance to the viability of all phases of the company — not just any individual LOB — means that its staff is increasingly focused on projects that provide the biggest payback for the company as a whole. This is not to say that LOB projects are ignored, but according to our research, IT frequently assigns them a lower priority. Even as the LOB is under pressure to deliver results, BI projects can take up to six months when there are limited IT resources to go around. Our case study on a $10 billion manufacturing company is a prime example of this.
In the meantime, employees still need to analyze data. Frequently, they will revert to using a spreadsheet, an application about which they have a high level of comfort. While this gives employees limited insights, it eliminates the opportunity to gain visibility into a wide swatch of corporate trends. Because they tend to proliferate throughout a company, frequently containing inconsistent data, spreadsheets fall short of providing the ultimate goal that companies need for reliable business intelligence: a single version of the truth.
In response, LOB executives are increasingly turning to SaaS-based BI vendors for a variety of reasons:
Expertise in data integration: Making data consistent – known as the process of normalization and rationalization – is a difficult process. For SaaS BI vendors, this is a key core competency that saves time for companies.
Pre-built templates and dashboards: For midsize companies, which typically have fewer IT resources than large enterprises1, SaaS BI vendors can provide pre-built reports that highlight basic corporate needs – e.g., sales and profitability, segmented by region, channel, salesperson, product, or stock-keeping units (SKUs). (SaaS BI vendors also offer consulting services at additional fees to develop specialized reports.)
Reduced risk: Companies that tackle internal BI deployments bear more risk than if they hire another firm to do it. With internal budget restrictions, companies may end up with fewer features than they want. With SaaS business intelligence, the external vendor bears the risk.
Reduced cost: An internal BI deployment requires up-front capital expenditures of both hardware and software. The latter includes not only the BI software itself, but licenses for software that migrates data from one database to another, such as ETL (extract, transform, and load) software, or data integration hubs combined with data quality or profiling software for synchronization.2 Companies using a SaaS BI vendor pay monthly or annual fees. From a budgeting standpoint, a SaaS BI solution offers a repeatable yet predictable business expense.
Improvements in security: While some companies initially shied away from allowing corporate data to be transferred outside its secure firewalls, advances in data security – including secure FTP and data encryption – abrogate those concerns.
According to our research, theses four industries are where SaaS business intelligence has strongest foothold:
Financial Services: As in many industries, these companies use SaaS business intelligence for marketing purposes: conducting demographic profiling to determine the most likely households for credit card offers, for instance. In the insurance industry, insurers are beginning to make hosted BI systems available to their agents so that they can easily discern their own sales and demographic trends.
Healthcare: Segments using SaaS business intelligence in this industry range from insurance payers to pharmaceutical companies. Business intelligence is utilized in marketing efforts to determine the best promotions based on factors such as demographics and deductibles (see the Blue Cross and Blue Shield of Florida case study). Pharmaceutical companies use SaaS business intelligence as well to determine the validity of marketing programs (see the McKesson case study).
Manufacturing: On-demand BI usage spans a wide range of activities in manufacturing – especially within complex supply and demand chain management processes . Manufacturers use dashboards and performance metrics to track multiple facets of deliveries from suppliers: did the agreed-upon number of widgets arrive at the proper warehouse on a timely basis, and did they meet quality standards? Is the company getting a higher rate of returns (or customer support requests) than normal on particular products? Other performance metrics are used for operational decision-support such as, “Are some products lasting so long that the company should increase the length of their warranties as a marketing differentiator?” (For more on manufacturing, see the Welch’s case study.)
Retail: The diversity of stock-keeping units makes retail and merchandising a rich lode for SaaS business intelligence. Retailers routinely parse sales data in order to better determine what will sell in the future. For instance, does a particular color or size sell more than another? Do particular colors sell better in one season or region than another? (For more on retail, see the Car Toys case study.)
Our research revealed that companies are using SaaS-based BI software in other, more innovative scenarios. In short, companies exploit low-cost rapid integration and deployment in order to gain insights into either non-traditional or short-term scenarios that they might not otherwise have investigated. For example, a company could measure compliance with contracts or service-level agreements, looking at whether shipments are delivered on time and complete; and if not, is this an anomaly or part of an increasingly common pattern?
Public Sector: Government agencies use geographically based BI tools to monitor data ranging from crime statistics to utilities usage.
Interestingly, we discovered that among SaaS BI vendor Birst’s customers were both churches and casinos. Although each establishment had a unique, non-overlapping customer segment, each is using the service to track similar metrics such as: