Information Is Power
Until last year, Mike Cripe set prices at his three Ace Hardware stores near Chicago. He sold wheelbarrows, for instance, at $80 apiece, more than a 100% markup over their $39 wholesale cost. Then last May, Ace's corporate headquarters started issuing pricing recommendations to store owners. Among the suggestions: Drop the wheelbarrows to $50.
In the four months after the launch of the new pricing plan, Cripe sold eight wheelbarrows, compared with two in the preceding 12 months. "I made as much in four months on them as I did in a year before," Cripe marvels.
The key to this insight? Business intelligence software. BI programs help managers make smart decisions by extracting information from computer systems, running it through sophisticated math formulas, and delivering it in simple-to-understand reports. Ace Hardware uses software from Informatica Corp. (INFA ) to analyze price and sales data from its own stores and from competitors. The goal: Calculate prices that will keep customers coming into Ace outlets and buying everything from hammers to light bulbs, while maximizing profits for local store owners.
For Cripe, the result has been better margins--up to 39%, from 32%. "With the data we're collecting, we can go back to the stores and say: 'Here's the money you're leaving on the table,"' says Mark Cothron, information-technology manager at Ace headquarters in Oak Brook, Ill.
Success like that has kept BI programs moving off the shelf even as the software industry stalls. Last year, the BI market grew 2.2%, to $3.8 billion, according to researcher IDC. That may not sound like much, but it's better than the flat revenues for software in general. This year, IDC expects sales of BI programs to rise by 9%, to $4.2 billion, while the software industry as a whole will grow by 7.7%. BI is "the best software market out there," says analyst Mark Murphy of First Albany Corp.'s Equity Capital Markets group.
Those numbers have set off a scramble for market dominance. France's Business Objects (BOBJ ), privately held SAS Institute, and Cognos (COGN ) of Ottawa are neck-and-neck for the lead in BI programs, with market share of just under 10% each, says IDC. Business Objects' sales will grow by nearly 14%, to $415 million, this year, predicts Murphy. And Cognos forecasts a 10% increase in revenues, to $540 million, for the year ending in March. Some smaller niche players are doing just as well, including Fair Isaac & Co., the maker of software that "scores" the creditworthiness of consumers.
BI players are prospering because they help their customers do a simple but vital task: Make better sense of the information they already have in their computers, and present it in a way that anyone from sales reps to chief executives can grasp. For years, companies have been using software to collect oceans of data. But navigating those seas has been tricky because data are stored on different types of computers, running various kinds of software.
Coty Inc. in New York is a case in point. With more than a dozen different computer systems, Coty's managers had a tough time seeing and understanding all the sales data they were gathering. Coty focused efforts on its core business of makeup, devoting scant resources to toiletries such as shampoo and shaving cream. After analyzing sales data, using BI software from Hyperion Solutions Corp. (HYSL ), execs realized they had missed potential profits. "Not only was [the toiletries sector] profitable, but it was better than a lot of other businesses" such as certain makeup lines, says Jim Shiah, senior vice-president. Now, Coty is beefing up R&D in toiletries and expects to offer a broader range of products this year.
Another advantage of BI software: It's relatively inexpensive and can pay off quickly. Programs for generating sales reports and forecasts for a small business or department can cost just $10,000. The top end runs into the millions, but such projects can generate a quick return. Coty sees its $1.8 million investment paying off in two years.
The growth in BI hasn't escaped the attention of the big enterprise-application companies. Last fall, Siebel Systems Inc. (SEBL ), a maker of customer-management software, bought tiny nQuire Software Inc. The reason: Siebel Systems wants to bake better analytic capabilities into its customer-management programs. Likewise, database giant Oracle Corp. (ORCL ) and enterprise software maker SAP AG are putting BI capabilities into their applications.
The little companies say that won't slow their success. Business Objects points out that its programs aren't wedded to any one software package, the way Oracle's are with its own database software. Industry heavyweights "cannot claim to be able to work with all data as well as we can," says CEO Bernard Liautaud. And until the big guys can learn to do that, fortune will likely shine on the upstarts.
By Jim Kerstetter in San Mateo, Calif.