Can organization theory inform the designers and implementers of business intelligence (BI) systems to help increase the likelihood of their success? The link between BI and the organization that uses it is that an organization collectively is a cognitive system: it senses the environment, makes a representation of it, acts on the basis of the representation and learns from the results of its actions, storing its experience as institutional memory. A BI system supports this process at various levels of organizational learning.

This article, a follow-up to a previous article published in the June 2003 issue of DM Review, "The Limits of Business Intelligence: An Organizational Learning Approach," looks at how designers can reference organizational theory to more effectively implement BI systems. There are two key areas where designers can exercise leverage over BI implementation to help assure their success:

  1. Correctly assessing the level of organizational learning and intervention that the BI project requires to be successful.
  2. Integrating change at the correct level of the organization's institutional memory or knowledge structure.

Levels of Organizational Learning: Single and Double Loops

There are many ways that learning occurs in an organization. Chris Argyris and Donald Schon, scholars at Harvard and MIT respectively, have articulated a useful learning framework.1 They describe organizational learning as comprising single-loop and double-loop modes of change. Single-loop learning occurs when an organization encounters a situation that it can resolve using its current systems, ideas and values. Double-loop learning requires a revision of these artifacts and assumptions. Argyris and Schon also define a third construct, the organization's action theory that describes the collective task knowledge of the organization that it and individuals within the organization access to respond to events. The action theory consists of both explicit knowledge that everyone sees and knows about and tacit knowledge that describes why people actually do what they do in the organization (i.e., it is the organization's collective "moxie").

In the single-loop learning mode, an organization inquires into a situation by referencing its current action theory or repository of institutional knowledge and memory. This can include the collective systems and information resources of the organization, its espoused (public) values, and its basic underlying values and assumptions ­– the components of institutional memory. In single-loop learning, members of the organization know these things and they are not questioned or changed as the situation is resolved. Figure 1 illustrates how single-loop learning works.


Figure 1: Single-Loop Learning

Here, a single feedback loop, mediated by inquiry into the current organizational knowledge base, connects an outcome of action mismatched by expectations (i.e., negative feedback) that is, therefore, surprising to the organization.2 This is similar to how a room thermostat works. The temperature deviates from some preset level, and it triggers the furnace to kick in until the room temperature rises to the preset level again. In a business example, perhaps sales drop for a quarter and management responds with the usual tactics: cut prices, increase advertising, etc. When sales respond, the intervention is deemed successful. No major changes have been incorporated into the business as a result. The situation has responded to tactics dictated by the current action theory. Single-loop learning thus accommodates and responds to negative feedback from the business environment.

My experience has been that many BI efforts are intended to address a single-loop learning/change situation. Users and technicians design a data warehouse (DW) that feeds data into functional data marts and/or "cubes" of data for query and analysis by BI users. The functional data marts represent business domains such as marketing, finance, production and planning. These are used by functional analysts and managers to inquire into current operating issues and to facilitate incremental improvements and plans. This is seen in Figure 2, a diagram similar to those used by BI vendors to illustrate how BI informs the overall organizational learning process. Figure 2 is a single-loop model of learning.


Figure 2: BI Single-Loop Learning Model

In contrast, a double-loop learning event results in a change to the organization's action theory and its knowledge base. This is shown in Figure 3.


Figure 3: Double-Loop Learning

An additional learning loop connects the observed events with the strategies needed to formulate action (i.e., positive feedback). The action theory and even the knowledge base can undergo revision, as shown in Figure 3. In BI terms, this means that the business intends to integrate the BI technology in such a way as to change its operating model, not just to seek incremental improvement.

In the BI world, examples of double-loop implementation are more difficult to find and are risky when attempted. I can think of one case that I observed where a company planned to use its BI system (a CRM analytic DW) to enable it to migrate to performance-based pricing with its customers. In this case, the BI suite was a technical success but the company did not sell its customers on the pricing idea, nor did its management follow through with the organizational changes needed to accomplish the goal. The end result was that the BI suite was an expensive tool that did not give the business the strategic competitive edge it sought from the technology. It is a lot easier to talk about BI technology changing the business operating model than it is to attempt it when the time comes!

Impact of Learning Modes for the BI Designer

Single-loop methods are workable when inquiry and corrective action take place within the framework of values and norms dictated by the current action theory. However, when events require the organization to revise its action theory so that a new theory is available to members, double-loop learning is needed. The process of inquiry between the organization and its environment, including double-loop type events that result in changes to the action theory, puts a lot of stress on managers and technical staff who must support this mode with BI. It is much more risky. Double-loop organizational learning is becoming a necessity for organizations when environmental change is rapid and disruptive.

For the BI designer, this means that he/she has to assess the level of change and learning that the BI suite is intended to support and then to factor that into the BI project risk. If the BI suite will support a change in the organization's action theory (double-loop change), then there are a lot of factors that will be outside of the BI designer's scope of control but will be necessary to assure the success of the project. These might include changes in organization structure, metrics, compensation formulas and so forth. For example, an enterprise CRM system that includes an analytic DW component integrated with channel contact applications is a project that is likely to be double-loop in scope. According to the industry statistics I have seen, such projects do not have a good track record of success. The rubric about people, processes and technology needing to be in alignment has never been more true when it comes to double-loop change situations!

A Framework for Implementing BI Change

An organizational learning framework for successfully implementing BI change will have to consider both: the type of change that the BI system is intended to support (single- or double-loop) and, how the components of organizational knowledge (institutional memory) are affected. Before presenting this framework, I want to review how organizations store and process knowledge.

Earlier, I described the construct of the action theory that consists of both explicit knowledge that everyone sees and knows about and tacit knowledge that describes why people actually do what they do in an organization. In my prior article, I discussed the structure of organizational knowledge as seen in Figure 4.


Figure 4: Action Theory Encoded in Organizational Knowledge

Figure 4 illustrates that the action theory is "encoded" in a schema of three levels of knowledge that comprise the organization's institutional memory.3 Artifacts are the visible and tangible products of culture in an organization and include items such as the physical layout, reward systems, important business processes, information systems (e.g., the BI suite), symbols of status, logos and dress codes. Espoused values are what people in the organization say that they believe; they are the organization's official view of itself and usually come into being as a result of management action (e.g., a mission statement or promotion of people who exemplify some desired behavior). Finally, basic assumptions are the real operative principles that underlay a culture. Basic assumptions tell the members of the organization what to pay attention to, how to react emotionally, and what to do in various situations; they are embedded in the organization's unconscious knowledge and are less visible. All of these are the repository for explicit and implicit rules that comprise the organization's action theory and, depending on the level of change that a BI project entails, need to be considered.

Putting It All Together

Figure 5 is a framework for BI designers to assess the level of change and risk that a project requires and to plan accordingly for implementation. The framework shows the scope of the learning or change effort for a BI implementation (single-loop and double-loop) matched to the levels of organizational knowledge that the effort entails.


Figure 5: Framework for BI Change

For example, a data mart that is used for financial analysis by a few users would likely involve only single-loop change; it is not changing the organization's business model or impacting many other users. Thus, its impact is mainly at the artifact level of technology and business processes. My guess is that most departmental BI projects fall into this category and are represented in the lower left-hand corner of the diagram in Figure 5.

In contrast, BI projects that initiate double-loop learning impact the more nebulous levels of organizational knowledge and are represented by the right-hand side of Figure 5. An enterprise CRM system that connects an analytic DW to e-business contact channels such as a user Web site, a contact center and a sales force automation application is likely to involve a lot more organizational change. This type of system could provide both the information and functionality that changes the organization's view of itself and its environment. It will impact the levels of artifacts, espoused values (there might be quality standards involved, especially with customer service functions) and possibly even basic assumptions (e.g., moving to a relationship pricing model with customers). Thus, the project that implements this level of change will need to consider the impact on the higher and more nebulous levels of institutional knowledge. This is represented in the upper right-hand corner of Figure 5. Working at this level of organizational change is sometimes referred to as organization development or OD. The main issue for BI implementers working at this level is to help senior managers to understand what their basic assumptions actually are and how the BI project is likely to influence them (and vice versa).

In short, the BI implementer is faced with the task of assessing the degree of change that a project will require in the target organization and factoring this into his/her plans. The more that a BI project impacts knowledge levels above that of artifacts, the more change effort is required of the organization and on the part of BI project leadership to assure success. Planning and budgeting for the organizational impact of BI, especially when it involves double-loop learning, can greatly increase the likelihood of success of the BI project as a business initiative.

In this article, I have attempted to explain how designers can plan for successful BI implementation using the constructs of organization theory. There are two key areas where designers can exercise leverage over BI implementation to help assure success:

  1. Correctly assessing the level of organizational learning and intervention that the BI project requires to be successful.
  2. Integrating change into the right components of the organization's institutional memory or knowledge structure.

This is accomplished by assessing whether the change that is needed for BI can be accommodated within the organization's current schema of knowledge (single-loop learning) or requires a revision of the schema (double-loop learning). Subsequently, BI designers have to focus change efforts at the right levels of knowledge within the organizations' collective or institutional memory.
References:
1. Argyris, Chris & David A. Schon, Organizational Learning II. Reading: Addison-Wesley, 1996
2. ibid, p. 21
3. Schein, E. Organizational Culture and Leadership. San Francisco: Jossey-Bass, 1997

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