Read Case Study 12-2 Business Intelligence at CKE Restaurants.
Answer question 1. How does the BIS at CKE add value to the buisness?
At a time when most fast‐food restaurants were touting nutrition, Hardee’ s proudly introduced the Monster Thickburger. It boasts a phenomenal 1,420 calories and 107 grams of fat. It consists of 2 one‐third‐pound charbroiled 100% Angus beef patties, three slices of American cheese, a dollop of mayonnaise, and four crispy strips of bacon on a toasted buttery sesame seed bun. What on earth was CKE Restaurants, the owners of the Hardee’ s chain, thinking?
Because of its business intelligence system (BIS), CKE was confident about introducing the Monster Thickburger across the United States. A BIS uses data mining, analytical processing, querying, and reporting to process a business’ s data and derive insights from them. CKE’ s BIS, known ironically inside the company as the CKE performance reporting (CPR), monitored the performance of its Monster Thickburger in test markets to ensure that the burger contributed to increases in sales and profits at restaurants without cannibalizing sales of other more modest burgers. To do so, CKE’ s BIS studied a variety of factors—such as menu mixes, Monster Thickburger production costs, average unit volumes for the Monster Thickburger compared with other burgers, gross profits and total sales for each of the test stores, and the contribution that each menu item (including the Monster Thickburger) made to total sales. Because the sales of Monster Thickburger exceeded expectations in the test markets, CKE developed a $7 million dollar advertising campaign to launch its nationwide introduction. Monster Thickburger sales exceeded expectations, and Hardee’ s sales revenues increased immediately, eventu-ally growing by 8%. “The Monster Thickburger was directly responsible for a good deal of that increase,” says Brad Haley, Hardee’ s executive vice president of marketing.
Partially because of its reliance on CPR, CKE was rescued from the brink of bankruptcy. It increased sales at restau-rants open more than a year, narrowed its overall losses, and finally turned a profit after three years. CPR, its proprietary system, consists of a Microsoft SQL server database and uses Microsoft development tools to parse and display analytical information. It uses econometric models to provide context and to explain performance. The company reviews and refines these models each month. The econometric models take into consideration 44 factors, including the weather, holidays, coupon activity, discounting, free giveaways, and new products. With the click of a button, for example, a sales downturn can be explained on a screen showing, for example, that 5% of the 8% decrease was due to torrential rain in the Northeast and 2% was due to free giveaways.
In the competitive restaurant chain industry, companies have to be agile and responsive to the dynamic environment that they face. They must match their BIS initiatives to their business strategies in order to improve operations and their bottom lines. BISs assist companies in making strategic decisions about menu items and closures of underperforming stores as well as tactical matters such as renegotiating contracts with food suppliers, monitoring food costs, and identifying opportunities to improve inefficient processes. To derive value from their BISs, many restaurant chains have successfully reduced the three biggest barriers to BIS success: voluminous amounts of irrelevant data, poor data quality, and user resistance.
CKE’ s CIO and Executive Vice President of Strategic Planning Jeff Chasney states: “If you’ re just presenting information that’ s neat and nice but doesn’ t evoke a decision or impart important knowledge, then it’ s noise. You have to focus on what are the really important things going on in your business.”
Chasney stresses that a BIS should be different from the plain‐vanilla standard corporate reporting tools of old. Rather, a BIS should provide managers insights rather than just data. He believes that the context from which the data were collected significantly impacts how those data should be interpreted. Systems that just report changes without enough background or information on what caused those changes are not very useful. Managers don’ t know what data to trust. Chasney explains, “If your business intelligence system is not going to improve your decision making and find problem areas to correct and new directions to take, nobody’ s going to bother to look at it.”
The first step to developing a BIS is to understand the company’ s decision‐making processes. Before information is col-lected, analyzed, and used in the BIS, someone has to identify what information is needed to confidently make decisions. For instance, the CEOs of CKE’ s restaurant chains wanted to understand what made sales fluctuate while the COOs wanted to know how to recognize good business opportunities as well as underperforming properties. Then the BIS designer must determine the appropriate presentation format, be it a report, a chart, or a Web site.
BIS must add value to the executive’ s decision‐making processes. To do that, attention must be paid to the critical performance indicators. For CKE, as Chasney learned, those are sales, cost of sales, exceptions (such as high‐performing or underperforming areas), and business trends.