Corporate Information Factory (CIF) Resources by Bill Inmon, Inmon Data Systems

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Where's The Business Advantage In eBusiness?

By W. H. Inmon

The greatest and most obvious advantage of the Internet is in its ability to connect people and businesses. And in connectivity lies a thousand advantages. But is mere connectivity all that is necessary to achieve success in business? Are there limits to the advantages of connectivity?

There indeed are limits to the business advantages of connectivity. In order to understand why, consider the telephone - the original instrument of electronic connectivity. As a young man, I grew up on a ranch in a very small town in west Texas. I remember when we got our first telephone. It was a wooden box with a fixed speaker and an ear piece that was connected to the box by a cord. We had to turn a metal wheel on the right hand side of the phone in order to make it work. (I never understood the purpose of the wheel.) When we first got the telephone it was a great novelty. Now if we wanted to talk to a neighbor we didn't have to get in our pickup truck or saddle a horse and ride to another ranch. We could just pick up the telephone and call the operator and tell the operator what number we wanted. I remember that at first it was a very odd feeling that we could communicate over such a strange-looking contraption.

When the telephone first came to the ranch there was great novelty in it. It was "modern" and represented a step away from the traditional ranch life that we were living. But very quickly the novelty of the telephone faded and we started to concentrate on the messages that went over the telephone, not the telephone itself.

The same phenomenon is occurring today with the Internet. There is great fascination with the Internet - how it works, what it can do, what it takes to get it installed, how fast it is, and so on. But it is predictable that as soon as the curiosity surrounding the Internet fades away, attention is going to be paid not to the Internet but to the messages that go over the Internet. When it comes to business advantage, the real value of the Internet and eBusiness lies not in connectivity itself, but in the smart business application of that connectivity. The phenomenon happened with the telephone and it is happening today with the Internet.

So you say – OK, just how do we start to send smart messages over the Internet? The answer lies in the judicious usage of data. It is the corporate foundation of data that contains the information needed to turn a company from an Internet-savvy company to an Internet-business-advantage-savvy company. Turning corporate data - some that already exists and some that is collected and integrated as part of the usage of the Internet - is the key to true business advantage, kind of like turning straw into gold.

Stated differently, with corporate data used properly, you can send intelligent, interesting messages over the Internet, messages that have real impact and appeal. Without corporate data your messages are no smarter than a smiley face on a Post-It pad. They just have no punch.

So what kind of business advantage can be achieved by paying attention to the data the corporation owns? In fact, there is an almost unlimited potential to the intelligent usage of data in a business context. Some of the many, many intelligent usages of data to achieve business advantage include:

Churn management. How do you keep the customer base you already have? How do you grow your market share and take market share away from your competition?
Price elasticity. What goods and products that you sell are price elastic? Once you know the price elasticity of items you sell and service you can price them intelligently. But unless you understand price elasticity you are throwing money away when you have a sale. Or for that matter, when you don't have a sale.
Yield management. How do you vary the price of an item over time to reflect market place demand? Have you wondered how airlines know how to vary the price of their commodity - an airline seat - based on the booking for a flight? And if the airlines can do it, why can't you?
Product attractiveness. What items are being browsed on the Internet? What items are being browsed selected, and not purchased? What items are being browsed, selected, and purchased? What items are not being browsed at all?
Credit scoring. How do I know how much money to lend a customer? How do I know a good credit risk when I see one? How do I know a bad credit risk? If I am going to be lending money, the more intelligently I can lend that money, the better off I am.
Quality control. When do I have periods of poor quality production? What factors contribute to good quality? to bad quality? Who are my quality producers? What can I do to change my environment in order to increase the maximum grade of quality? What is the cost of improving quality? What is the cost of not improving quality?
Customer profitability. How do I know which customers are the most profitable? When does a customer change from a profitable customer to a less-than-profitable customer? Can I look at a young person today and predict whether this person in the future will become a profitable customer? If so, how can I attract future profitable customers?

In short, there are a plethora of ways that business advantage can be achieved using data. The amount of money being discussed here is very, very significant. And once the intelligence is created for business advantage, the Internet becomes an excellent vehicle for the delivery of the tools of business advantage. The short list described here merely scratches the surface of the possibilities of wringing business advantage out of corporate data.

So it is seen that mere connectivity is not enough to achieve business advantage. It is the marriage of data and connectivity that forms the foundation for a very significant business advantage. Stated simply -

Connectivity + Data = Business Advantage

But not just any kind of data will do. Data needs to possess some vital characteristics before it becomes suitable for usage by the sophisticated systems that take advantage of it. Some of the characteristics that make data suitable for high-powered business-based systems that can operate on the Internet include:

Integration,
History,
Detail.

Integration is important because it is with integration that the picture of a customer turns from a flat image into an image with depth. For example, think how easy it is to sell to a customer named Mark Smith. With just his name you have to be a pretty good sales person to get him interested. But when you know that Mark Smith is:

Married, with two young children,
Lives in the suburbs in a ranch style house,
Is a lawyer making in excess of $100,000 per year,
Plays golf at the country club,
Drives a Ford Taurus,
Collects stamps

- then you are able to craft a strategy for sales to Mark that can be practically irresistible.

Integration then allows us to see our customers holistically, and that holistic view speaks volumes about strategies for making a sale and even approaching the customer in the first place.

Historical data is equally valuable. Consumers are creatures of habit. The habits formed early in adulthood stick with us throughout our lives. Because we are creatures of habit, the past becomes a great predictor of the future. Because this is so, historical data takes on great importance in shaping how we deal with customers and who might (or might not) be interested in a product. Tell me about a consumer’s past and I can tell you about a consumer’s future.

Detailed data is absolutely necessary because once a corporation has detail, it can reshape that detail to look at the data first one way, then another way. With detail there is flexibility. Without detail there is no flexibility.

The three great characteristics of data then that are needed in order to start to send compelling messages across the Internet are these - integration, history, and detail.

And where does a person find such data? Why, naturally, such data is found in a Corporate Information Factory, the center of which is a data warehouse.

Future articles will describe exactly how business advantage is achieved by the marriage of the Corporate Information Factory and the Internet. Stay tuned.