Retail Business Intelligence Did You Get Any Nice Christmas Presents This Year?

Originally published 6 February 2008

By the time you read this, we will all know what sort of a Christmas we had. I am writing this in early December, and the retail press is, as is traditional now, full of forecasts of doom and gloom for the festive period. In spite of this, I am feeling strangely optimistic. Why? Because 2008 promises to be the year in which retail business intelligence finally breaks out of the blue chip world and filters down to organisations of all sizes. This might seem to be a strange prediction given the fact that last year saw a rash of mergers, takeovers and consolidations in the business intelligence world.

SAP bought Pilot Software, OutlookSoft and Business Objects, Oracle bought Hyperion, and Cognos bought Applix only to be bought themselves by IBM a few days later. In consequence, a natural reaction might be to suppose that the price of business intelligence products will only go up, making it still harder for small organisations to take advantage of the benefits that business intelligence can bring.

What we are in fact seeing, however, is a polarisation within the marketplace. Microsoft has been threatening for some years now to turn business intelligence software into a commodity, but the reality has always been that, in spite of the relatively low cost of their software, implementation costs have remained relatively high due to the high level of product-specific skills required.

In 2006, a very significant, but under-reported event occurred – the release of the world's first open source business intelligence product. The product is called Palo and is designed by a small company in Germany called Jedox. Over the next two years, this product quietly but steadily developed until it evolved into a highly capable and highly performing OLAP tool. The major feature which distinguishes it from all the other tools in the OLAP marketplace is its cost – it simply doesn't have one. If you combine this with the fact that it is also designed to be maintained by end users, much in the same way as existing tools like Cognos’ TM1 and Infor’s MIS Alea, then you have an extremely powerful tool kit which is now within the reach of even the smallest retailer.

Typically, the independent retailer or the small chain has to manage all their management information using spreadsheets. This is, in fact, still true of some of the larger retail organisations that I come across on a daily basis. Whilst spreadsheets are a wonderful productivity tool, we are all only too painfully aware of the limitations they suffer from when it comes to developing real-world applications. Imagine though, for a second, what your merchandisers could do if they had access at little or no cost to targeted and relevant cubes of data that contained the key performance indicators necessary for them to manage your stock effectively. What could your distribution centre staff do if they had an activity-based costing model which they had developed themselves in a couple of days using free software? What would it mean to your store operations management if they could carry around a profit and loss account for each store by month on their laptops to help them in their decision-making at a local level?

All of a sudden, the type of application which was restricted, by virtue of its high cost, to the very few organisations who could cost-justify it, is now open to everybody. All you need is a functional design, a competent Excel user who can convert his or her skills to this new environment, and some vision. Of course, this presupposes that your organisation is susceptible to the argument that open source software is an appropriate “purchase”. To be fair, many open source projects are started, and, in turn, many of these fall by the wayside – as a search for orphaned projects at sourceforge.net will show. Going for an open source solution, therefore, still requires careful thought. As a business, though, we already use open source software for online training courses and find it to be of higher quality than many of the commercially available options, and, along with many others, I have been using an open source Web browser, Firefox, for the last two years. Given the potentially huge number of users for this type of application, I can see no reason why this initiative should not succeed.

So, financing the capital purchase of business intelligence software no longer needs to be an issue. However, as well as putting the licence fee model of the existing vendors at risk, the advent of open source business intelligence applications also challenges some of their other key revenue streams – particularly the revenue which they gain on an annual basis from support and maintenance charges. Incredibly, some of the major business intelligence players are now considering charging 25% of the already high up-front licence fees for annual support and maintenance. This kind of upward pressure on costs should make any retailer consider their attitude toward open source software very carefully as the annual support costs for these products tend to be so very much lower.

The challenge that faces the subject matter experts working in this open source business intelligence field is how to generate revenue. If we can’t resell the products taking a slice of the licence revenue, where will we find our bread and butter? We now have to look for ways of really adding value in order to convince this new breed of customer to part with money. We can do this by providing services like installation, training and bespoke development across a much wider customer base than would be possible using the old high licence fee paradigm. By harnessing the power of the web, there is no reason why, in future, we should not be able to create global communities using high value, low or zero cost software which can be distributed, maintained and supported from anywhere in the world.

While there will always be companies who are large enough to be able to afford the security which they feel comes from buying into a large brand, there must be a multitude of businesses out there for whom 2008 will finally be the year in which they start to really use business intelligence in retail. After all, the retail business intelligence area has been crying out for a company to take the lead and to create a commoditised product that will allow the democratisation of the benefits that can be gained from improved knowledge of the retail environment. What surprises me somewhat is that it was not Microsoft that did this. I have long been waiting for the £1,000 OLAP tool to appear, but this year, Father Christmas has brought me one that is free and that will allow my clients to generate some real benefit at little or no cost.

The world is changing fast – to quote the American business guru Jason Jennings, "It's not the big that eats the small – it's the fast that eats the slow”. Whilst we watch all those big corporations busily trying to digest their recent acquisitions, we all ought to keep an eye on the rapid and exciting development that is occurring at the other end of the marketplace. We retailers are all familiar with the Latin phrase caveat emptor – “let the buyer beware”. I’d like to suggest that next year we should all learn a new one caveat edax – “let the guzzler beware”!

  • John HobsonJohn Hobson
    John is Managing Director of The Planning Factory Ltd. and has worked on business intelligence and planning systems throughout Europe and Asia. His 25-year career includes positions with retailers House of Fraser, Tesco and Jaeger where he was Retail Operations Controller. He has also worked as a senior consultant specialising in retail planning systems design and implementation for Kurt Salmon Associates. Before setting up The Planning Factory Ltd. in 1996, he worked as Decision Support Systems Product Manager for Pennine Retail. John can be contacted at jhobson@planfact.co.uk.

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