The Art of the Decision
Information Management Magazine, July 2006
James Taylor
VP of Product Marketing
Enterprise Decision Management
Fair Isaac
A great deal of attention this year has focused on the quality of corporate decision-making - or the lack thereof. Harvard Business Review recently devoted most of an issue to examining proper executive strategies. A more telling indictment of the operational status quo might come from the popularity of the long-running comic strip "Dilbert," in which bureaucracy and pomposity turn an office into an insane asylum of bad decisions. In the real world, there is a lengthy continuum of situational decisions reaching from upper and midlevel executives to front-line business rules that oblige action on myriad details of business - all intended to turn strategy into policy. James Taylor, vice president of product marketing for Enterprise Decision Management at Fair Isaac, works in this realm of technology, thinks about it, reads about it and blogs about it. DM Review Editorial Director Jim Ericson recently sat down with him to hash out some of the basics.
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DMR: What's the distinction between decision management and decision automation?
JT: At Fair Isaac we use the term decision management because the first time you automate a decision, it does not give you competitive edge; it is your ability to manage the information and evolve a strategy over time. Decision management involves an initial automation - taking control of how a decision is made, giving you the ability to actually determine how you're going to make these sorts of high-volume operational decisions in a day-to-day environment - and then managing that as a corporate asset and strategic weapon.
DMR: The idea of decision automation suggests a binary decision. Is it about setting a threshold and adjusting it periodically?
JT: At first glance some decisions appear to be that way: I give you a loan or I don't. In fact, there are multiple versions of the loan - there is the rate, there are different conditions. There's a phrase used in insurance that says, "There's no such thing as a bad risk, only a bad price." There is a price for any risk, which explains the trend moving from simplistic to more complex decision-making. If you're in an industry where you have to combine complex decision-making with fast response to competitors and high volumes, you're forced to automate the decision and manage the automation in a very active way.
DMR: We talk about contextual decision-making - that things need to be viewed in the context of a role or a position - but that doesn't necessarily align decisions with enterprise goals, does it?
JT: There are two ways in which you can view context. There's information-use context; things such as decision support and business intelligence need context for information. The same applies when you're trying to execute a decision in the context of a particular transaction. But you want that context to be driven by corporate strategy as much as possible, and it quickly gets thorny. We discovered, for example, that telcos could boost their profit margin by retaining fewer less-profitable customers. No one would do that because retention rate is about growth, which is more important than profitability when it comes to share price. Making more money would lower your stock price because retention would be down. Unless you have that kind of context - unless you know what is driving the strategic decision-making in the company - it is very hard to automate a decision in an effective way.
DMR: Boardrooms and operations are often at odds in this regard. How do you bring some clarity to the situation?
JT: One of the advantages you get from focusing on operational decision-making is strategic alignment, which always strikes people as odd. They tell us, "We're just talking about high-volume operational decisions here; how does that help with strategic alignment?" The answer is, if you want to change strategic direction, you need to change the micro-decisions that contribute to that direction in a consistent way. The context of an overall strategy is applied not just in executive committee meetings, but in day-to-day interactions on the Web site and in the call center.
DMR: Why is it so difficult to translate strategic goals into operational decisions?
JT: What I see are overinstrumented businesses that have all sorts of infrastructure to understand what is going on, yet no real ability to change the way operational decisions are effected. I'll use a dashboard analogy. I used to work with a guy in the auto industry who'd point out that the dashboard is the flat thing on top that everyone's talking about. The dashboard isn't a steering wheel or a button - you know where you're going, how fast you're going and how much gas you've got left, but you can't do very much about it.
DMR: Are you saying that all the technology gives enterprises a false sense of competency?
JT: I'm saying the people who understand the strategy can't actually go change it because it's not implemented in a way that's successful for them. You have to take all the things that constrain your strategy, plus what your data tells you and find a way to inject it into operational systems. The way a company acts is increasingly driven by its information systems, Web site, billing system or call center system. People click through dashboards, drill down and see a problem. They pick up the phone, call their IT department and ask them to put a change through a system. They call the Web team to get them to do something else, and they call the guy in the call center and say, "I need you to tell everybody in the call center that we're going to do this instead of that." It is just a very squishy process for turning an insight into any kind of effective action. It is interesting that many companies we've worked with for years, like credit card issuers, were able to change their risk strategy and offer credit long before they had reporting infrastructure. It's not like this BI/data warehouse/analytics infrastructure is necessary to do these things, but clearly once you have the infrastructure, the desire to find a way to apply it goes up. People used to say, "We're drowning in data and starved for information." And now it is, "Well, I have the information, but I still can't do anything about it."
DMR: Will service-oriented architectures make it easier to effect changes in decision-making?
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