Once the strategy, along with the overall strategic KPIs, is in place, a framework, focus, and objectives are established for the operational business processes and initiatives. The information and analysis shown in the underlying layers of the model must be directed at changing and managing business processes toward the strategic objectives made visible by the KPIs. The operational decision makers' desired behavior and the subsequent information and knowledge requirements to bring about this behavior are specified and outlined in this layer.
As mentioned, the objective of BA initiatives is to change business processes and actions so that they are targeted toward achieving the organization's strategic objectives. For example, operational decision makers from sales, marketing, production, general management, human resources (HR), and finance can use information and knowledge to optimize their daily activities. In Chapter 3, we'll look at what this means specifically for the various functions of the company.
Types of Reporting and Analytical Processes
In the analysis and reporting development environment in the middle of the model, analysts specify which information and data are necessary to achieve the desired behavior of operational managers and digital processes in the business environment. This is where information and knowledge are generated about the deployment of analytical and statistical models, which are typically deployed on data from the data warehouse. The requirements for front‐end applications, reporting, and functionality are also specified in detail here, all with the purpose of meeting the demands from the higher layers and levels of the model. Note that the analysis and reporting development environment is placed in the bordering area between the business‐driven and the technically oriented environment, and that the team in this area usually has competencies in both areas. Chapter 4 covers more about the methodical work in the analytical and reporting environment.
Data Warehouse
Database specialists and ETL developers receive requirements from the analytical environment about data deliveries. If the required data is already in the warehouse, the process will be to make this data accessible to the front‐end applications of the business. If data is not stored, the data warehouse will need to retrieve data from one or more operational data sources in the organization's environment. Alternatively, data can be purchased from an external supplier, or the IT department may be asked to implement a new infrastructure with a view to create a new operational data source. Chapter 5 focuses on methods and systems for storing, merging, and delivering data.
Data Sources: IT Operations and Development
IT operations and development must meet the requirements from the data warehouse about the delivery of data from the primary operational data sources or the development of new data sources. The different primary data sources in a company's environment and the data created are covered in Chapter 6.
As previously noted, a large number of people, competencies, and processes are involved in the creation of BA. Large organizations sometimes have several hundred people on all levels involved at the same time. In smaller companies, controllers and analysts must have a wider range of competencies to be able to carry out BA initiatives on their own.
It is important to realize that if something goes wrong in one of the layers of the BA model, the investment in BA may well be lost. If the management, in the top layer of the model, does not define one overall strategy, operational decision makers will not have a goal to work toward. The analyst won't know which analyses are required. It makes a big difference, for example, for the analyst to know whether the overall target is for the business to show a profit of $1.3 million after taxes, or whether the target is to be perceived as the most innovative enterprise – the two different targets require a completely different analytical approach and information deliverables. In data warehousing, the database specialist and the ETL developer won't know which data sources to retrieve, merge, enrich, and deliver to data marts (data prepared in the data warehouse for business use). IT operations and development won't be able to contribute by creating new data sources, since they don't know which new information and knowledge are required by the business. In other words, the whole thing becomes a messy affair without focus. One way of avoiding such a chaotic situation is to create a business analytics competency center (BACC), perhaps as a virtual organizational unit. We'll take a closer look at BACCs in Chapter 7.
Of course, this is what we've always been doing or tried to do – but it's the first time I am able to put it into words and see our endeavors in a useful analytical model.
– program manager for a large radio station
Case Study: How to Make an Information Strategy for a Radio Station
Now that we've introduced our theoretical model, let's apply this information to a concrete example in order to understand it better. This case study features the BA initiative of a large radio station that broadcasts nationwide. The case study is a simplified and somewhat creative version of real events, and its objective is merely to outline a BA process. Its focus is on the helicopter perspective, an improved conceptual tool, and the first important insights. The case study relates to the BA model in Exhibit 1.1.
Overall Strategic Targets of the Business
The radio station's vision is that there is a demand for radio entertainment in the shape of good music, entertaining talk, and news. Its mission is to become a leading player in the national market. The station's specified business goal is a market share of 25 percent and an ROE of 15 percent. The executive management cockpit or dashboard of the radio station with KPIs for monitoring business performance in relation to strategic objectives is illustrated in Exhibit 1.2.
Exhibit 1.2 Executive Management Cockpit of Radio Station with KPIs Prior to BA Initiative
The current status, which can be read from the instruments in the executive management cockpit, is an actual ROE of 9 percent and an actual market share of 17 percent. So the station has a way to go in order to achieve its targets of an ROE of 15 percent and a market share of 25 percent. The business strategy and objectives are thus presented by means of the following metrics (measures) or KPIs. Note that success and good performance are derived from the actual values of these measures in relation to the objectives.
The two KPIs are used to control and manage the radio station. Return on equity (KPI 1) is the most important KPI, and it is affected by the market share (KPI 2). The thinking is that a bigger market share (KPI 2) will mean more concurrent listeners and increased advertising revenue, which means a bigger ROE for a given level of cost. A new BA initiative is planned and implemented in the business. The process is outlined in the following section using the BA model.
Functional Strategy and Business Case
BA activities must always be based on the business‐driven environment, with the management specifying or creating one single information strategy that must be subject to the company's overall business strategy (vision, mission, and objectives).
The program manager of the radio station has come up with a strategic initiative to increase the business's market share from the current 17 percent to 25 percent. The radio station must hold on to its listeners longer. The program manager specifies this strategy as: “From our current record of holding on to our listeners for 15 minutes, before he or she changes channel, we must in the future hold on to our average listener for 30 minutes.” The program manager introduces the performance target: average listening time as a new measure or KPI for the production department. The target is that the average listener must be kept