Data rooms can be nerve-racking places, and when Quaker Chemical Corp. began entering them to do due diligence at the turn of the millennium, it had reason to be more jittery than most.
The deals that the maker of specialty chemical products was making had some real strategic urgency. Quaker's target niche, the steel industry, was in the throes of consolidation, and the company had suffered a 55% drop in earnings for 2001. The way forward, Quaker decided, was to expand its customer base through a string of acquisitions and implement a higher-margin strategy of selling services as well as product.
It's easy to overpay under such circumstances; Quaker Chemical's deals had to be finely calibrated. So before plunking down its money, says CIO Irving Tyler, the Conshohocken, Pa., company's data-room team armed itself with a wealth of details about its own products' margins, profits and costs. When it examined product lines that were complementary to those sold by Quaker but had lower margins, Tyler says, "we were able to ask, 'Can we sustain the margins to take advantage of cost structures to get more synergies out of them?' "
Such fine-grained details are often missing during due diligence. "A lot of people don't have that kind of information available to their own firm," Tyler says. "They look at big trends rather than their own specifics."
The scrutiny paid off. After a series of five acquisitions, Quaker Chemical's sales grew 17% in 2004, to $400 million, and net income soared 39%. "If you have a culture of business intelligence, the team you're going to send in can take advantage of that information and become more capable of analyzing it on the fly," says Tyler
The term "business intelligence" may conjure images of corporate intrigue, but for Quaker Chemical and other companies it's becoming a jack-of-all-trades tool. For years, companies have used business-intelligence software to pry loose crucial details that have been poured from spreadsheets, databases, and million-dollar enterprise-resource-planning implementations into cavernous, woefully underutilized data warehouses. Initially used to sift through market and customer data, business intelligence has operational talents that are just now being recognized by more companies. What's more, it is poised to achieve a tricky feat: being able to search both button-down transactional systems and their more bohemian, free-form counterparts: the scads of e-mail, Word docs, presentations and other assorted corporate data that float untethered through IT systems.
Fueling business intelligence's new versatility is its revved-up approach to decision making. In its simplest form, business intelligence is the process of enlisting data to make better, more timely decisions. When BI was paired only with data warehouses, that time frame was measured in months, quarters and years.
But operational decisions are often made with finger-snapping speed. There's no time for database queries. So many business-intelligence software packages now easily piggyback onto everyday applications like Microsoft Excel in addition to data warehouses, points out Keith Gile, a principal analyst with Forrester Research Inc. Operational business intelligence, adds Gile, "works best when it's so embedded in the applications that you don't even know its BI."
Tyler says Quaker Chemical's companywide use of business-intelligence software was instrumental in shaping its methodical acquisition program. The company launched its first business-intelligence project in 1996 and has since morphed its extensive use of software from SAS Institute Inc. (Cary, N.C.) into an operational tool that aids departments from administration and marketing all the way to order-processing, payables and collectibles. He declines to specify the dollar investment but says Quaker Chemical has expanded its use of the software 300% in the past three years with no significant new expenditures.
What's driving business intelligence's metamorphosis? For one thing, plenty of companies are looking to liberate financial data from elaborate, costly ERP implementations that are strong on collecting data but poor at sharing it. Companies have already racked up a sizable inventory of BI tools. According to the Data Warehousing Institute, organizations have an average of 3.2 business intelligence tools.
In addition, business-intelligence software is branching out and becoming more accessible to companies beyond the $1 billion-plus crowd. Top vendors like Business Objects SA, Cognos Inc., SAS, Hyperion Solutions Corp. and MicroStrategy Inc. have stoked demand for their software among small and midsize businesses by creating less expensive applications. In October, Microsoft announced its first business-intelligence product.
The pressures of regulatory compliance - especially Sarbanes-Oxley - have also contributed to business intelligence's growth and new applications. "All of these regulations have said CEOs better know what's going on in their organizations or they're going to jail," says Claudia Imhoff, president and founder of Intelligent Solutions Inc., a Boulder, Colo., consulting firm. Business-intelligence software's ability to retrieve pertinent details means it can red-flag dubious entries, such as shipments that go out before the orders have been completed, Imhoff says.
That same versatility has also led companies to explore business intelligence's utility for executing external growth strategies. That means not just eyeballing potential acquisitions and partnerships, but also monitoring existing alliances, joint ventures, and especially supply-chain partners. Business intelligence can deliver metrics on a supplier's performance, such as on-time delivery rates or damaged goods incidents, points out Dan Vesset of market research firm IDC. In the retail industry, for example, where retailers are often under contractual agreement to report to suppliers on the movement of inventory, business intelligence can lead to more detailed reporting and stronger relationships.
"In those cases, business intelligence is becoming very much an operational issue," says Vesset.
Imhoff offers the example of a client company that was losing out on quantity discounts from vendors because its decentralized ordering precluded a big-picture view of the divisions' cumulative orders. Corralling its invoices and orders into a business-intelligence application was a real eye-opener for the company, The sprawling company was a better customer than it had realized and could now negotiate with greater accuracy. "That's the kind of thing that's tremendously valuable to organizations in terms of deals," Imhoff says.
Small wonder, then, that more companies report business-intelligence applications are becoming harder for them to go without. According to IDC, 43% of large companies said it's a hardship if their business-intelligence solution goes down for a few hours. "That's something that wasn't there five years ago," says Vesset.
Among the features that are making business intelligence increasingly useful is its capability to crunch through both the neatly organized spreadsheets and databases and the much larger stash of information contained in e-mail messages, call-center notes, Web pages, memos, and all those PowerPoint presentations. In 2003, Merrill Lynch & Co. estimated 85% of all digital business information was unstructured data.
The union of so-called structured and unstructured data is the brass ring for business intelligence. It can underpin a variety of operational uses for the software; in the M&A realm, business intelligence can support not just due diligence, but also its follow-on, post-merger integration. After Dow Chemical Co. paid $11.6 billion for Union Carbide Corp. in 2001, for example, a key integration step was combining the two companies' intellectual assets into one knowledge database. Union Carbide had "hundreds of thousands" of R&D documents to be reviewed, and Dow's library was 8 to 10 times larger, estimates Mani Shabrang, who supervises Dow's use of new text-mining technologies.
Using software from ClearForest Corp. (Waltham, Mass.), Dow spent two years sorting through the documents and applying digital tags to help organize the data. The software did much of the tagging automatically, but Dow employees had to exert a considerable amount of effort to ensure proper context, explains Shabrang - educating the system, for example, that "White House" is a political entity and also an architectural one. Business intelligence isn't the end result, merely the means to a successful result. Tyler reports that the Quaker Chemical team that used business-intelligence data to probe the records of potential acquisitions was likely unaware of the origins of the details they relied on.
"I think if you went and talked to the people doing that work, they wouldn't have identified business intelligence as a part of the process," says Tyler. "That makes me feel good, because it means that [business intelligence] has become a routine part of the culture." - Deborah Asbrand
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