BI also behavioural intelligence

Stephen Dubner and Steven's Levitt's 2005 book, “Freakonomics” provides an entertaining and insightful look at how there are more interesting ways to look at data than the standard business intelligence (BI) approach of delivering a simplistic report of the basic numbers.

Businesses must ask themselves more relevant questions

David Logan is Principal consultant at PBT

In the book, they analyse the results from the Chicago public school system, with a view to looking at the underlying performance of schools in the context of school funding being driven by the results obtained. The conventional wisdom is that by rating teachers and schools continuously, this would lead to a general increase in the standard of education. However, careful analysis actually led to some interesting conclusions. The implementation of the rating system created a situation whereby “good” schools were rewarded with increased funding and “bad schools” had their funding cut. The statistics produced, in fact, highlighted the high probability that the teachers would cheat by modifying the pupils' test results, and by doing so, they would increase the overall ratings of their school.

This highlights the distinct difference between a basic report, answering the question: Have school ratings improved marks?” (To which the answer is a categorical “yes”), and the more relevant question: “Have school ratings improved the education system?” (To which the answer is “maybe”). The latter question is a much higher-value BI question to ask than the former.

For a more relevant South African example, consider the case of a colleague of mine who enrolled her son in an expensive and prestigious local private school. She was told that they marked children on a curve, ie, the traditional bell-shaped distribution where there is a high number of average performers and a small amount of over and under-performers. Should her child significantly underperform, then, “so as not to hold back the class”, her child may be asked to find another school.

Now, from a private school's point of view, actively deselecting (asking children to leave) the underperformers makes perfect sense. By continuously selecting average and above average children, the school's results should be on a gradual upward trajectory, which in turn makes for highly effective marketing. “School X continuously produces Y distinctions every year, so the school must be high quality,” but creates something of a problem for parents whose children underperform and may end up being pushed (along with other underperforming children) into a school which is not as picky (another point of view is that these schools believe in educating all children regardless of ability).

In addition, continuously selecting on a curve means the bar for low performance moves upward as well, as the overall average grows, so slightly below average children may be next to be deselected.

The above examples highlight the need for businesses to ask themselves more relevant questions, such as: “Why does my warehouse not receive its stock immediately upon delivery?” (The answer may be that it makes the measured time in the warehouse shorter, which looks good on a performance report.) Another example of a question includes: “Why would Eskom under-invest in power generation?” (A complex issue, but paying short-term bonuses on profit when investment in power is long-term may be part of the answer.) And finally: “Why did bankers issue such huge, low-cost debt?” (Another complex issue, but quarterly bonuses paid on the amount of debt and not the quality of debt seems to be a powerful short-term inventive.)

I would like to emphasise that true BI informs and educates businesses about motives and real value, and should not simply be a reporting mechanism. As such, the next time a company reviews its BI strategy, ask the “why” questions and it may find that its business is setting itself up for some challenges or even missed opportunities in the future, even though the reports are looking rosy at this point.

BI should form part of the strategic overview of an organisation and should never be viewed as just a technology used to get the reports required. As the business environment continues to evolve, so too does the role of BI, and it is this that businesses should be paying attention to.