Evidence-based management: Finding the hidden treasure in corporate databases

Until now, the data collected by companies about their customers and their business processes was relatively cumbersome to use. Companies often relied on industry "folklore" to make decisions, because the tools available to mine their own vast databases yielded screen after screen of numerical entries in spreadsheet cells. Managers needed analysts to comb the reports for insights. But a new generation of technology is enabling managers to easily harness real data when making decisions. This new capability has given rise to a fresh approach called "evidence-based management." Companies are now looking for managers who can help them capitalize on this recently-acquired access to the treasure of insight in their databases. In response, universities are looking for ways to prepare the new breed.

"Too much information running through my brain; Too much information, driving me insane." A quarter century has passed since rock star Sting voiced his frustration with the Information Age on Ghost in the Machine, an album released the same year that the IBM Personal Computer was unveiled to the public.

This past May, Microsoft founder Bill Gates echoed Sting's frustration with sensory inundation as he wrote an executive e-mail that addressed the issue of information overload. "Faced with the endless deluge of data that is generated every second of every day, how can we hope to keep up?" Gates asked.

Actually, the problem is twofold: first is information overload — how to stay focused on what is important to delivering real value; second is information underload — even with access to lots of information, we need tools (and people with the skills to use them) to provide valuable and relevant information to decision makers at the exact time when it is needed the most. So how can businesses better harness the vast amounts of information generated by their operations?

Business intelligence refers to the technologies that aid businesses in a variety of strategy and management practices, including online analytical processing, data-driven decision-making, forecasting, statistical analysis, and data mining. One example is the supermarket courtesy card. Data obtained from every swipe provides information about the consumer's particular buying habits, which becomes the basis for marketing decisions.

Another example, straight from the headlines, is SWIFT (The Society for Worldwide Interbank Financial Telecommunications), which tracks 11 million daily transactions valued at $6 trillion and gathered from 7,800 banks and financial institutions located in 200 countries. News reports recently revealed that federal investigators had gained access to the data to trace terrorist money trails.

On top of the old comes the new Robert D. St. Louis, professor of information systems at the W. P. Carey School, says that a recently emerged 'technology trifecta' has helped managers see the possibilities for using business intelligence as never before.

"The issue now is that technology has outrun people's imaginations," St. Louis said. "It isn't that technology is keeping people from doing things, it's having enough imagination to see what technology can do for you."

The technology trifecta includes:

• Moore's Law — Intel co-founder Gordon Moore stated in 1965 that the number of transistors on a typical chip would double roughly every eighteen months, while costs decrease. Forty-one years later, Moore's Law still holds strong and is predicted to remain relevant through the next decade. The resulting exponentially-faster processor speeds pave the way for development of increasingly sophisticated products used to churn data.
• Storage space is doubling every 12 months — Citing as an example the typical USB 1GB thumb drive costing less than $50, St. Louis said the implications of the rapidly falling cost of storage are significant not only in terms of storage space, but for affordability and portability as well.
• Bandwidth speeds and capacities are doubling every nine months — Data can be delivered at greater speeds and volumes more effectively than ever before.
• So, what do the advances in technology mean for the present state of business intelligence? As the technology changes, innovative business intelligence practices emerge. This is where evidence-based management enters into the picture.

Not just another buzzword

Michael Goul, an information systems professor at the W. P. Carey School, explains that the new generation of software products and information analysis practices has led to the development of a new approach to strategy and decision making: evidence-based management. Many decision makers rely on what Goul and his colleagues call "folklore."

The old-school executive errs through emulation, Goul says, making decisions based on irrelevant success stories, or by habit, due to an entrenched attitude or mindset. "A lot of organizations are run by people who had old stories stuck in their minds. A lot of managers operate on anecdotal evidence, or stories they heard from the histories of what the organization has done in the past," Goul adds. Often outside influences hold sway, such as the advice of management consultants or the observed actions of direct competitors.

The existing technology made it difficult to do it any other way: older data-driven decision making tools yielded screen after screen of numerical entries in spreadsheet cells to be scrutinized by analysts. The new tools make it much easier for managers to harness real data when making decisions — data that is particular to their company.

Companies like Hyperion Solutions Corp., a California-based developer of business performance management software, have developed tools that enable businesses to apply evidence-based management principles through "dashboards" — scalable software that tailors analytics to an organization’s strategic and operational needs. Furthermore, other new tools let managers "mine the data in order to pull the gems out," Goul said.

"The sophistication of the tools has allowed that to happen," he added, explaining that the 'gems' in this case are the results of very specific data queries. In this environment, unsubstantiated folklore has less value. "Anecdotal experience plays less of a role in evidence-based management," said W. P. Carey information systems Professor Haluk Demirkan, a frequent collaborator with Goul in research on business intelligence services.

Before his academic career, Demirkan spent over a decade in the private sector developing business intelligence solutions.

"Evidence, in this context, is historical information. Using that evidence, available through a variety of channels, managers make more informed decisions," he said.

Take Microstrategy, a company based in Washington D.C., for example. Microstrategy provides query, reporting, and advanced analytical solutions, and distributes the resulting insights to managers via web, wireless and voice.

Evidence-based management applied Rich Malone, chief information officer for St. Louis-based investment firm Edward Jones, has used a dashboard developed by his company for information technology operations for nearly four years. Each day his technology team reviews the results of round-the-clock monitoring to determine whether business applications interconnecting 9,700 branches worldwide are running smoothly.

"[The dashboard] collects everything, decisions are made, action items are created, follow-up is done, based on that information," Malone said. "If we have new projects underway, this dashboard helps us monitor a project from beginning to end." Malone recalls when, 20 years earlier, Edward Jones used what he calls "fact-based evidence" to successfully alter the firm's marketing strategies — a move that transformed a company formerly reliant on rural customers into a business that now counts metropolitan clients as the majority focus.

The Edward Jones example is a strong argument that managers increasingly must understand how to use these tools. To do this, Malone said, businesses and universities must put their heads together to determine how to prepare a new generation of leaders for what he calls rapidly-converging disciplines. "You can't be just a technology person per se anymore, without clearly understanding the business that you're working for — how it works, and how you can help apply technology to that business," Malone said.

"People coming to the business side are also going to be very knowledgeable about technology ... I think it's up to the universities to help both those sides, and understand that crossover's taking place."

Can businesses and universities meet the demand?

St. Louis said that because analytics has far-reaching impact on every conceivable business niche — whether it is manufacturing, retail, financial, etc. — it is more critical for the business student to learn how to use the tools effectively than it is to learn about the code that runs the analytics interface. "You have to make them aware of what the [technology] environment is, so they know what can and can't be done," St. Louis said. "Then, you have to develop tools that they can use. You have to worry about what sort of guidance and feedback managers need to be able to effectively use these tools."

The Teradata University Network, sponsored by Teradata, a division of NCR Corp., Dayton, Ohio, is helping universities meet the challenge. Teradata University Network provides applications access, course content and learning resources as well as direct access to Teradata's data warehouses, which includes data donated by Wal-Mart Stores, Inc., Dillard’s, Inc. and Frozen Foods, Inc. The Sam's Club database, hosted at a partner site at the Sam M. Walton College of Business at the University of Arkansas, alone contains over 55 million data entries for students to query and mine.

Goul and Demirkan, who sit on the Teradata University Network advisory board, are the academic liaisons to Hyperion Solutions Corp. and MicroStrategy Inc., respectively. "Business intelligence tools are very powerful and sophisticated — and companies are excited to have universities training students using the most up-to-date platforms and versions," Demirkan said. "Teradata University Network enables faculty and students to remotely access these tools through web portals."

For Goul, the collaborative nature of the network provides him with an edge that he brings to his classes. "I can support advancement of knowledge in evidence-based management, and at the same time impart to my students a cutting-edge capability they would otherwise not get by using some small, canned software that only emulates what the real tools can do. Gone are the days when "IT professional" was a synonym for "programmer." Initiatives like the Teradata University Network will serve to prime graduates to fill the vacancies opened as the business intelligence pioneers head out to pasture.

Bottom Line:

• Business intelligence is a new buzz word referring to the technologies that aid businesses in a variety of strategy and decision-management practices.
• Older data-driven decision making tools yielded screens of numerical entries in spreadsheet cells; the new tools make it much easier for managers to harness real data when making decisions.
• The new tools yield 'gems' of insights as the result of very specific data queries.
• Because analytics has far-reaching impact on every conceivable business niche, it is more critical for the business student to learn how to use the tools effectively than it is to learn about the code that runs the analytics interface.