Today's business environment is more uncertain than ever before.  The pace of change is accelerating, and the competitive landscape is more like a minefield.  Customers are expecting real-time interactions, and business is executed across a complex web of channels, partners, suppliers, regulations, collaborators, and social networks.  This real-time web of interactions creates a huge number of customer touch points and ever-increasing data volumes.  It demands a quick response to rapidly-changing information.  But your company can't be more agile than its systems. 

Decision management transforms your hard-to-change enterprise applications into action-oriented, flexible, predictive, smarter systems that learn and adapt.  Smarter systems don't require ripping out and replacing existing applications.  Smarter systems are simply your current systems made smarter by applying the Decision management approach and decisioning technologies like business rules and predictive analytics. 

Smarter systems have four characteristics.  They are action-oriented, making decisions so they can act on your behalf.  They are flexible, so you can change them when you need to.  They are predictive, so you can act with the future in mind.  And they learn and adapt, so their value increases as the business environment changes.

One Telco has over 100 million subscribers across India and handles 3 billion calls a day.  They are adding millions of customers each month, and these customers are acquired and supported through over 1.3 million retailers across the country.  More than a million retail partners — many companies don't have that many customers!  These retailers support consumers in 400,000 rural villages; many are not literate and own no technology apart from their cell phone.  Indeed, many of the retailers also don't own any technology besides their cell phone so the transactions are using one cell phone to add minutes, music, or other services to another cell phone.  These millions of customers speak many different languages, too, requiring mass personalization of systems like IVR and SMS-based customer service. 

Smarter systems ensure this Telco knows what the best plan/upgrade offer is for every one of these customers and allows them to find out about the offer through any channel at any time.

Action-oriented

Smarter systems act rather than wait.  They don't assume that you will take action but take action on your behalf when it is needed.  Sometimes this means taking action in a system sense; sometimes it means guiding and empowering someone to take action rather than just be an order- or note-taker. 

An insurance company has a smarter system that allows it to bind and quote the majority of its applications while the customer is still on the phone with the call center.  The smarter system enables the call center representative, someone with no underwriting expertise or authority, to commit the company to a particular price and set of terms.  The company found that being able to do this resulted in more business — for the same price and the same risk, they closed more business.  It turns out that people are not good comparison shoppers and that given a reasonable quote and an opportunity to cross a line off their to-do list, they will take it.

A smarter system is action-oriented — it makes decisions and empowers decision–makers.  It evaluates the available options or choices and selects an appropriate action.

Flexible

Smarter systems keep all your key business decisions and parameters visible, understandable, and changeable in a business rules management system, not buried in software code or company manuals.  The business is in the driver's seat and can make the appropriate changes as the business environment changes, without an IT request.

A line-of-business manager from an electronics distributor was presenting on a rules-based pricing engine to an IT audience.  Their smarter system handled pricing for a large product portfolio, and the rules for pricing were changed every day.  Some of the prices reflected spot market prices for commodities; some were driven by special lots purchased by agents, others by longer-term contracts.  All these changes were made by the business people and put into production.  Someone in the audience asked him about testing.  He hesitated for a second and then said, "We used to do testing."  The audience was visibly surprised.  He went on to explain.  The smarter system, he said, makes it hard to make a mistake.  Mostly the team made the rule changes they intend to.  Once every few months, the testing, which took a couple of hours a day, would find an error and this got him thinking.  What would be the impact of a problem that was not found?  He worked out that the call center and his customers would spot it quickly, his team would get called, and they would immediately put the rules from yesterday back into production.  He estimated that this would result in 10-15 minutes of downtime.  The risk of 10-15 minutes of downtime every few months did not justify the 2 hours a day of testing, so they stopped.

Smarter systems deliver this kind of powerful flexibility, flexibility of both the systems and the organization.

Predictive

It is hard for a system to be smarter without some ability to look forward.  If all it can do is see what has happened in the past, it is unlikely to make good decisions.  The future is the only thing a smarter system can affect so it is the future it must take account of.  Thus, smarter systems use analytically-derived insight about the future to make better decisions about your customers, and your business.

A $1B writer of auto insurance was spending millions of dollars on outside consultants to find subrogation opportunities (other companies who might be liable for some of a claim).  They turned their IT systems into smarter systems by bringing in analytically-derived rules that enabled them to take their historical information and turn it into actionable insights about the future.  They took uncertainty and turned it into a usable probability.  "We don't know which claims have a subrogation opportunity" became "How likely is there to be a subrogation opportunity in this claim?"

Using a decision management approach, the company implemented the smarter system, including the analytics software, in just 9 months.  The new subrogation decision had 33% higher returns — it found subrogation opportunities in many more claims than before — and paid off the analytic software investment in just 3 months, with the dollar value recovered from other companies nearly doubling.

While the subrogation project was underway, their industry entered a deep recession.  The company had to lay-off 300 staff and trim expenses.  With 12,000-13,000 new claims a month, they had to get cases out to field staff quicker, improve customer service, and reduce people all at once.  Again, they used a decision management approach to build a smarter system to fix this problem. 

Using decision management to apply predictive analytics (of fraud risk, for instance) and rules to prioritize claims, they were able to take control of the "can we safely fast track this claim" decision and "right track" claims to fast track adjustors.  These fast track adjustors were people in the business units who went from simply reporting losses to handling claims with no hand-off to field adjustors. 

The new, smarter system increased the old fast track rate of 2% to 22% in just a year of operation.  The 100 fast track adjustors now handle more than 2,500 claims a month without referral to a field adjustor.  This represents a huge cost savings for the field, helps decouple organization growth from the number of field adjustors, and has reduced loss adjustment expenses from 14% to around 11%.

Smarter systems turn you away from the rear view mirror of business intelligence and reporting to a view through your windshield and into the future — turning uncertainty into usable probability.

Learning and Adaptive

Smarter systems learn and adapt.  Because smarter systems have all key business decisions and parameters visible, understandable, and changeable in a business rules management system, not buried in software code or company manuals, you can test how these decisions might be made differently.  The most effective way to do this is to integrate what is known as adaptive control or champion/challenger in your decision testing.  Marketing and web people sometimes call this A/B testing. 

By testing and constantly challenging the approach you use for most of your decisions, you quickly learn what works and what doesn't.

Capital One is famous as a serious tester.  It uses smarter systems to run thousands of randomized tests to find out what kind of credit card solicitation is most effective.  Should it offer a six-month teaser rate of 2% or a three-month teaser rate of 4%?  On the web or in the mail, it offers these alternative solicitations to random groups of prospects and analyzes the answer. 

Testing is one way smarter systems learn and adapt.  Smarter systems also learn from results.  Cross-sell models, for example, can be made to respond to the success or failure of the cross-sell offers made so that their ability to predict which offer is most likely to succeed improves over time.  Some smarter systems use pattern matching to detect fraud in transactions ranging from credit card purchases, to healthcare claims, to cell phone calls.  These smarter systems learn from a company's own data or from pooled data across an industry.  And they continue to learn once they are in use — as fraud patterns shift and change, the smarter system adapts so that it continues to detect fraud despite the ever-increasing sneakiness of those perpetrating it.

Smarter systems employ learning models and adaptive control so they get smarter over time, and you get better business results.

Smarter Systems — A Quick Recap

Smarter systems are action-oriented, flexible, predictive, and learn and adapt:

• Smarter systems are action-oriented.
  Smarter systems act rather than wait — they don't assume that people must take action but take action on your behalf when it is needed.  A smarter system makes decisions.
  
  
• Smarter systems are flexible.
  Smarter systems have all key business decisions and parameters visible, understandable, and changeable in a business rules management system, not buried in software code or company manuals.  The business is in the driver's seat.
  
  
• Smarter systems are predictive.
  Smarter systems use analytically-derived rules to turn your company data into insights about your customers, and your business.  Smarter systems turn you away from the rear view mirror of business intelligence.
  
  
• Smarter systems learn and adapt.
  Because smarter systems have all key business decisions and parameters visible, understandable, and changeable, you can test how these decisions might be made differently.  Smarter systems employ learning models and adaptive control so they get smarter over time, and you get better business results. 

In the next article we will see how Decision Management transforms your enterprise backbone into smarter systems using a simple three-step process — Decision Discovery, Decision Services, and Decision Analysis.

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