BI in Action

As you probably have seen in my blog postings and everywhere else, the era of Competing on Analytics is upon us. Businesses now have the tools and the drive to look at who, exactly, their customers are, what they want, where they are going, and if they will go amiss at some point in the future.

Financial services have been the leading force in adoption of business analytics. However, such business intelligence seemed notably absent from the currently unfolding subprime mortgage debacle.

Anyone following the business news over the past few weeks has seen the grisly stories of mortgage companies taking huge losses or going out of business. In addition, financial services firms with stakes in the market are also taking their share of mega-losses.

For example, at the time this post was being written, one of the powerhouses of the financial services space, Merrill Lynch, announced $5 billion in losses thanks to investments in debt obligations tied to the floundering subprime mortgage market. Washington Mutual also took a 75% drop in profits as fallout from the Mortgage Meltdown summer.

That's big, big money. However, if our business intelligence tools and platforms are so good, why didn't any of them see this coming? Could effective predictive analytical tools have helped steer these companies away from these losses? For example, couldn't these systems have predicted the impact that the current waves of mortgage-rate resets would have on certain markets? Why weren't these systems able to flag risky loan applications that would not be able to bear resets to higher rates?

I am reminded of what happened to Cisco Systems during the dot-com and telecom busts in 2000 and 2001. Cisco, with the world's most sophisticated and intelligent supply chains -- able to see customer demand well into the future -- ended up with $2 billion worth of overstock, because it kept on producing and didn't see the market softening ahead.

Our analytics systems may be better and better at spotting new opportunities and market anomalies, but they are only as perceptive as the executives that actually make the decisions from the reports they produce. When a mania overpowers markets, it overpowers both rational and programmed decision making. Companies can be cautious, but, at the same time, can't have their lunches eaten by nimbler competitors wiling to take greater risks.

We have the systems that can make good tactical calls -- telling decision-makers whether customers are good or bad credit risks, if they will stay on for extended periods of time as customers, and the likelihood that they will respond to certain market promotions. We can tell what items will need to be shipped through a supply chain weeks before demand actually hits.

The next challenge is developing systems that are outward-facing, that can take a broader look at the big picture, and the impact these external forces will have on opportunities. And, be able to look at the impact that new players have on the competitive landscape. with that, analytics that not only spit out reports, but make actionable recommendations.