How Smart Is Business Intelligence?

Sounds too good to be true, doesn’t it?

Well, it probably is.

“Strategies,” cautioned balanced scorecard guru and Harvard Business School Professor Robert Kaplan at last week’s CFO Corporate Performance Management Conference in New York, “are executed by people, not spreadsheets, not BI software.”

In other words, like all tools, the new tools being developed to power the data-driven enterprise will only be as useful as the skills, wisdom, and experience of the people and businesses that use them can make them. For example, toward the end of 2000, Cisco (then Cisco Systems), peered into its demand forecasting engine, applied the algorithms that had never been wrong, and decided that what it needed was more inventory — more switches and routers — to sate the appetite for its equipment that had led to more than 40 straight quarters of growth and powered the dotcom boom.

Unfortunately for Cisco, even as it upped its orders to its network of suppliers, and even as it filled its warehouses, its customers had begun to dial back as they saw what Cisco did not: the dotcom bubble bursting. As 2000 turned into 2001, as Cisco’s switches and routers moldered in their warehouses, the company’s stock plummeted; it lay off 8,500 workers; it wrote-off $2.2 billion in inventory.

Between March 2000 and March 2001, its market cap went from $430 billion to $180 billion. Some of Cisco’s problems could be attributed to a lack of visibility into its supply chain, but it also badly misjudged the market. Why couldn’t Cisco see what others saw? Because its corporate eye was fixed on its demand model, on its algorithms, not on the real world.

A similar story could be told about the 2007 credit crisis in which investment banks believed their own risk models rather than the very real risk of billions of dollars in assets weighing on their balance sheets. What would Cisco and the banks have answered when asked, as the late, great Richard Pryor asked his wife when she discovered him in bed with another woman, “Who are you gonna believe? Me, or your lying eyes?”

As new BI and analytics tools not only come onto the market but become cheaper and more accessible thanks to the software-as-a-service (SaaS) delivery mechanism, it’s important for CFOs, who increasingly will be making the call on the adoption of these technologies, to remember that IT is an enabler, not a driver of business success. Big Data, we’re told, can tell you everything about anything. But as MIT senior lecturer and author (Islands of Profit in a Sea of Red Ink) Jonathan L.S. Byrnes suggests, “The more data and analysis that is available, the more important it is to whittle it down.”

by David Rosenbaum, from: http://www.cfo.com/blogs/