Business intelligence tools allow corporates, online traders and ISPs to sift through customer data for clues about how to better tailor their strategies for greater efficiencies and profit. But what are the privacy implications, asks Tom Rodwell.
Every mouse-click now carries real weight. Once, not long ago, the client data rushing through an organisation was an element to be casually managed along its way into nothingness. Now, a company’s competitive edge relies on storing that data, and – crucially – making sense of it.
This torrent of consumer data has backed up into virtual data warehouses, but alongside this, the IT industry is witnessing both the accelerated uptake of business intelligence (BI) services and tools to create knowledge out of the raw data, and the rumbles of the data privacy movement.
Major corporates, e-commerce outfits and ISPs all have an unprecedented ability to analyse every minute of every day of business. Marketing strategies, client demands, financing, staff workloads, fraud detection – all facets of business can become the focus of management attention.
Naturally BI vendors are hailing the uptake of their wares as hugely important. Under the guise of that terrible cliché – "better-tailored customer service" – firms can now put their clients under ever-improving microscopes. Sales strategy not working? Well, say vendors and marketers, BI tools and services can help identify the answers. If you believe the hype, business intelligence could be just the way to soup-up your firm’s competitive edge.
To whose benefit?
Or can it? Overseas developments may be starting to take the rosy sheen off the claims for business intelligence. Sooner or later, some commentators believe, those precious data warehouses could become a liability. With an ever-increasing overseas privacy backlash, led by the foul taste left in the public’s mouth by the intrusion of marketing into online life, companies that are seen to be less than respectful of sensitive information may well find themselves with serious image problems – and maybe the occasional lawsuit.
Here in New Zealand the privacy backlash is not as urgently-toned, but the Privacy Commissioner is in the process drafting a Telecommunications Privacy Code, as reported in Computerworld earlier in September. The user-monitoring practices of some ISPs appear to be in conflict with this code.
Additionally, Internet NZ (formerly ISOCNZ) is in the process of redrafting this country’s internet code of practice, and detail regarding privacy will reportedly be debated at a forum in October. (Although not every ISP – for instance – is a signatory to the existing 1999 code.) The Privacy Act 1993 already details how personal information can be used, stored and safeguarded.
So how do business intelligence providers and users plan to deal with privcy issues? Is it possible to use products that deal with complex, sensitive information in ways that make good business sense and are respectful of client’s right to privacy?
Despite those great bogeymen – hackers and rogue employees - privacy advocates say the greatest sinners against the sanctity of data are companies themselves.
Dr Ross McDonald, a senior lecturer in business ethics at the University of Auckland’s Department of Management and Employment Relations, is sceptical about corporations’ usage of private information for commercial gain.
“Marketing relies upon legions of experts who know how to get into the subconscious and preconscious mind, and make a person desire something that they wouldn’t normally do, and spend their resources acquiring that thing that they may not really desire,” he says. “I think any organisation that is involved in facilitating that process of deception is involved in ethically dubious practices.
“If the use to which the information that companies gather is being put is genuinely in the interest of the consumer, then it can be a positive or responsible thing to do. But … if the reason for passing on the information is more about benefiting the company and its shareholders, not the consumer, then that situation has a whole different flavour to it,” McDonald says.
One organisation that prides itself on responsible handling of data sensitive to both customer and company, is Clear Communications.
Where telecommunications firms were once essentially engineering businesses, now their lifeblood is data. Sixty users at Clear employ the advanced portal-based Brio ONE BI tools package, which keeps 15 months' worth of data - call records, sales plans and returns, technical and security monitors – constantly online.
Clear senior data analyst Cherie Nicholas points to a planned business-to-business project employing Brio, where product usage by client companies can be monitored in real-time by sales staff, as an examples of the value BI has added to Clear’s work. “Marketing are able to see which outlets worked for us, and the type of customers we achieved from those outlets and what their revenue spend was.”
Could Clear handle the data it must deal with daily without such a tool? “Chances are, no,” says data and systems manager Stephen Usmar. “The whole goal is trying to move things from mass-market advertising, which isn’t cost effective, and where you don’t know who is buying what and for what reason, to a below-the-line direct marketing approach, and analyse those results.”
This direct-marketing approach is a common feature across Clear’s business, like many ISPs, and while it is perhaps "data smart", it is also controversial. In June Computerworld reported that Clear was forced to defend the privacy practices of its free ISP Zfree, which collects demographic data about subscribers and tailors advertising to them via direct emails. Clear asserts that it is possible for users to opt out of all but one (monthly) email from the company.
But the Direct Marketing Association’s (DMA) code says unsolicited commercial email is "a poor business practice," even when the recipient is given the opportunity to "opt out" of receiving further emails. A conscious "opting-in" is acceptable, note the DMA).
Clear says it receives few complaints from users about its privacy policies. But does tacit approval – silence - necessarily mean consumers are satisfied? Growing rumblings overseas would appear to indicate no.
However, Clear’s general manager of e-business and spokesman for Clearnet and Zfree, Drew Gilpin, says his firm is in a harder position than smaller organisations. “We’ve got to toe the line. People will notice if we mess up,” he says.
With a large investment in business intelligence, and a weighty collection of complex and sensitive data in its hands, Clear is a good instance of a firm that is both capitalising upon its data flow and is aware of its new responsibilities.
Stephen Usmar notes that all Brio users are actively audited, and that the software places great importance on security of information. “It’s very easy for us to police who uses it, and what access they have to the information.”
The ethics of marketing
But surely Clear is simply able to afford to be ethical? What about the little firms – who may be keener to exploit more direct marketing avenues with BI tools, and compromise its customers? Drew Gilpin rejects this notion.
“Everything we do has got to be commercially sound, and is based on ethical principles. I don’t believe small or large you can compromise those principles.”
Maybe smaller companies are more likely to do just the legal minimum, Gilpin acknowledges, but he believes the "self-regulation" of the market will force change.
“Maybe smaller guys might not take notice (of privacy issues), but at the end of the day his customers will tell him, and will leave.”
However University of Auckland’s McDonald doesn't believe industry self-regulation is realistic. “Self-regulation is a weak force in the sense that there is an institutional drive towards being lean and mean. And I think that generally works against good ethical practice,” he says.
“There is no self-starting ethical motivation within an organisation. Legislation becomes a way of enforcing responsibility.”
McDonald foresees companies reacting to legislation – the smarter ones will, perhaps, be proactive - but believes that when so many companies put profit before people, data privacy legislation becomes essential.
“There is no other way of bringing those people up to a level of responsibility that fits with what the public expects,” says McDonald.
“For those who hold power in organisations that have a genuinely ethical orientation towards service for the public at large, then for them, they will seek out information, they will send people on ethics courses, they will look at the other side of the issue. They will explore the problems they might create if they weren’t ethically considerate. And from that come the practices and the policies that are self-regulatory.”
But, stresses McDonald, an "ethical will" must come from within a company’s culture. “As long as ethics is subordinate to commercial interests, we have a problem.”
So how can responsible business practices intertwine with intelligent business? Can BI be used innocently? Some say yes.
Former alumnus with Cap, Gemini, Ernst & Young at the University of California, Tim Simcoe, believes a reliance on subtler, seemingly "dumber" business intelligence tools could improve business practices.
“Companies doing business on the internet can [now] focus on formerly unobservable aspects of customers’ behaviour. Companies with the technology in place and the understanding to use it can carry out systematic and simultaneous market experiments that help them spot the next big thing before their competitors do,” he says.
“And companies on the lookout for new ways to use technology in their business can create opportunities without real-world analogues.”
"User-facing" BI tools, like Cognos, distributed in New Zealand by CDP, can analyse data from website visitors without necessarily betraying any of those visitors demographic details. Cognos can follow, for instance, e-commerce store visitors through a site, tracking every click – or "decision" – and reporting back to the company.
This may provide little demographic information, since that usually only comes from credit card purchases, but user-facing tools can tell a firm a great deal about what features lead visitors through a site, or make them click on an advertisement: What did we do right or wrong?
Perhaps, then, business intelligence tools will aid corporate self-reflection.
“Today’s … leaders are refining a process for discovering new and unexpected customer niches,” says Simcoe. “The value of the approach is that it finds unanticipated niches and allows clients to test new creative content or rapidly respond to market changes with new buying patterns.”
Instead of wondering who consumers are, perhaps companies should be pondering the reasons behind that very consumption.
And as consumers themselves become less tolerant of marketing manoeuvres, IT firms can simply refocus their technologies: BI tools can be used to understand behavioural patterns, without compromising privacy.
BI specialists themselves are aware of this, and how it could benefit subscribers. Netratings’ Kerry Hawkins points to ‘psychographics’ as a replacement for the baggage-laden world of demographics. “We’re not just interested in dumping tonnes of demographic data on our subscribers,” she says. “Less is definitely more.”
As the privacy backlash takes hold worldwide, the evident message from consumers is: stop exploiting us. But the message from business intelligence tools and services is: look to your own uniqueness for any key to success. Legislation may force you to know less about your clients, but BI may teach you more about your own business’ strengths.
The ratings game
Finding a useful medium
Rodwell is an Auckland journalist.