In-Depth

The Impact of a Recession on the BI Market

When it comes to BI deployments, organizations should not be "penny wise and pound foolish."

• By Mike Schiff
• 04/02/2008

There has been much speculation about the effects of a possible recession on the business intelligence market and how this could adversely affect customer spending and associated vendor revenues. While caution is certainly advised, I suspect that these concerns are much too pessimistic and that a general business slowdown may have little detrimental effect on the BI industry. In fact, it might even result in increased BI spending.

In times of economic growth, many companies will invest their IT budgets in improving their operational systems to handle an anticipated increase in customer demand. When the threat of a recession arises, and every source of revenue must be considered, astute business people will try to maximize the revenue potential from their existing customers while attempting to attract new ones. They will also seek ways to reduce expenses and determine which departments, programs, and initiatives are performing below expectations. After all, a penny saved is a penny earned, and a company can increase its profits both by generating new revenue and by reducing expenses.

From a revenue-generating perspective, in addition to the traditional deployment of query, reporting, and OLAP analysis tools to analyze what has recently happened and which products are selling best, companies can deploy data mining and predictive analytics technology to identify cross-selling and up-selling opportunities as well as find new sales prospects.

From an expense perspective, analytic applications for financial analysis, customer profitability, and especially corporate performance management are likely to be closely evaluated. Some analytic applications (such as those associated with campaign management) can help generate additional revenues while helping to monitor and control expenses.

Some organizations, particularly those concerned with defense and homeland security, have BI needs that are relatively independent of the economic landscape. These customers and prospects are not likely to cut back on their plans for deploying additional BI technology. Moreover, in times of economic trouble, fraud attempts tend to become more prevalent, and business intelligence can be used to track and analyze these attempts and data mining can be used to predict common characteristics of those likely to be involved in fraudulent activities.

The bottom line is that the deployment of BI technology should not be considered a luxury item that an organization can defer in hard times. Rather, it should be viewed as an essential item that can be used to help identify new revenue opportunities, prevent fraud, and identify unproductive expenditures.

When it comes to BI deployments, organizations should not be "penny wise and pound foolish." They should consider expanding their business intelligence deployments rather than cutting them back. In fact, the threat of a recession might even enable organizations to gain additional leverage when negotiating with BI vendors by using the perceived fear that BI spending will be curtailed to gain more advantageous pricing.