Using Decision Management to Your Competitive Advantage
IBM Software IBM Analytical Decision ManagementBusiness Analytics Decisions that drive success Using decision management as a competitive advantage Decision management is a highly effective approach for optimizing Contents: and automating transactional decisions at the point of impact to consistently maximize outcomes for the organization. Supported by 2 Organizational decision types predictive analytics, rules, scoring and optimization techniques, it offers 3 Making better decisions organizations the ability to empower employees and systems on the front lines with automated recommended actions in real-time – so they 5 Decision management optimizes and can make the right decision each time. automates decisions 6 The path to decision management One of the bigger challenges for organizations competing in this paradigm is how to utilize data more effectively in decision making. 7 Conclusion A business manager may have access to voluminous reports and dashboards to monitor business conditions, but the critical step of using that information to guide business processes and customer interactions is usually a manual process, sluggish in its response to changing conditions. Organizations that wish to gain a competitive advantage must find a better way. The better way involves creating a robust system that automatically manages decisions. It is made up of five key elements: • Business rules help with decision logic and flow. • Predictive models connect data to a future state. • Access to disparate types of data – including structured, unstructured and social media data – provides insight. • Simulation enables you to test it in the back office sandbox before trying it with customers. • Optimization helps your organization maximize profits and minimize costs.
IBM Software IBM Analytical Decision ManagementBusiness AnalyticsFor example, consider how vending machines work. The Organizational decision typesvendor must decide what to put in the machines, what to Before exploring how to optimize decisions, it’s essential tocharge, how much change to load in the machine and how understand what types of decisions are made in organizations,to capture feedback. A good decision system uses analytics and which people or processes carry out those decisions. Fromto integrate all of these decisions into business processes; a broad perspective, there are three primary organizationalit enables people and systems, and ties strategy to execution. decision types: strategic, operational and transactional.IBM’s version of such a decision system is called IBMAnalytical Decision Management. Although the people who typically make certain types of decisions are listed in Figure 1, it’s important to note that there is crossover between roles. It’s not unusual for a person at any level of an organization to make a strategic, operational or transactional decision. Decision type Definition Examples Decision makers Strategic Often sets the long-term direction for • “We will lower our fraud rates by • C-level executives an organization. Could be an objective 10 percent in the next six months.” • VPs or an initiative which results in guidelines • “We must increase cross sell to meet • Line-of-business managers from which operational decisions are our sales targets.” made. • “We will acquire Company A to complement our capabilities and expand market coverage.” Operational Includes the formation of policies or • “Insurance claims greater than $5000 • Business managers processes. They are driven by the will be sent to the special investigative • Systems managers need to establish efficient, repeatable, unit for review.” • Business analysts scalable processes using accurate • “Seasonal items will be stocked at the and timely information. front of the store.” • “We will offer customers a discount when products A, B and C are purchased together.” Transactional Commonly “front line” actions that • “You’ll receive your claim check in • Customer service representatives apply a policy, process or rule set to a seven days.” • Financial services representatives specific case. These types of decisions • “While I have you on the phone, can • Branch managers lend themselves to automation and I interest you in …” • Salespeople make outcomes more consistent and • “Would you like fries with that?” • Automated systems such as website predictable. They require accurate recommendation engines information and often real-time information for peak effectiveness.Figure 1: Organizational decision types. 2
IBM Software IBM Analytical Decision ManagementBusiness AnalyticsMaking better decisions In most organizations, however, decisions are not optimizedConsider the multitude of strategic, operational and or automated in ways that establish data-driven businesstransactional decisions that define your business. Some of strategy as the foundation for action. For instance, a C-levelthese decisions, such as determining strategic initiatives, do executive may task a business manager with increasing thenot lend themselves to automation. But there are thousands sales of value-added services. The business manager then callsof other daily decisions that can be automated and optimized upon a professional analyst to determine the best services tofor significant – and measurable – financial benefit. offer customers when they call. The analyst uses data mining and statistical analysis to determine relationships betweenFor example, what if an insurance firm were able to accurately products and services. The business manager and analystpredict which claims were likely to be fraudulent and then conduct a multi-step process for identifying the bestautomatically send those to its special investigative unit? offer for a “typical” caller. But because callers are individualsThis would allow the firm to accelerate the payment of valid with unique needs and expectations, targeting a “typical”claims for a positive impact on productivity, competitiveness caller often misses the mark – resulting in a lost salesand the bottom line. opportunity or even an adverse reaction from an otherwise satisfied customer.Optimized decisions: Automotive The problem with such an approach is that insightful business input is not part of the process. In most organizations,A major automobile manufacturer in the United States relies on IBM transactional decisions often need to be made in an instant.Analytical Decision Management to help improve customer satisfactionand its reputation for quality by reducing warranty costs. Since there is no time to process and analyze the staggering volumes of ever-changing data, these decisions are oftenResult: The company is identifying the root causes of part failures and based on a mix of corporate policy, experience and gut feel.addressing any problems quickly and proactively. There is no full-circle feedback to help determine which scenarios lead to failure and which increase the possibility of success, so inconsistent decision making within a department or throughout the organization is likely. The situation is compounded by the fact that business users and professional analysts typically don’t speak the same language regarding business issues requiring analysis. The business users focus on the business processes involved, while the analysts typically focus on the techniques needed to perform analytical tasks. 3
IBM Software IBM Analytical Decision ManagementBusiness Analytics More significantly, the business manager has the powerOptimized decisions: Insurance to adjust priorities and processes in real time to optimizeA major insurer used IBM Analytical Decision Management to improve its decisions. The analyst uses the insightful input from theservice to customers by settling claims faster and keeping premiums low. business manager to fine tune the models for increasedTo achieve this, the company needed to optimize operational efficiency and accuracy. Feedback from the results of the actual customerfind smarter ways to combat fraud. interactions are then included to create a virtuous cycle,Result: Employees were able to significantly improve customer service a closed loop system in which decisions grow more effectiveby settling legitimate claims within an hour, which was more than 70 times with each iteration. Having a plaform for decisions is whatfaster than before. closes this loop.This company also relied on IBM Analytical Decision Management toenhance its ability to detect fraud, foiling a major crime syndicate and In this scenario, business strategy now drives the process.saving $2.4 million in the first four months of operation. The business manager holds the cards for timely input while the analyst uses his technical skills to fine tune the results. It’s an open environment in which customer interactions areIn contrast, some organizations use analytics to incorporate precisely anticipated and effective responses are planned.business insights into their decisions to gain a competitive True business-based analysis becomes the link between theadvantage. For instance, when the business manager tasks “languages” of the analyst and business manager.the analyst with finding the best services to offer callers,decisioning technologies could be employed. The analyst Decision management optimizesnow has the capability to create predictive models that score and automates decisionseach customer in real time and build corresponding rules The concept that makes these advances possible is calledbased upon business processes and regulations. Marrying decision management, and IBM’s offering in this space isrules and models to gain the advantages of both is one of called IBM Analytical Decision Management. It employsthe strengths of IBM Analytical Decision Management. predictive analytics, localized rules, scoring and optimization techniques to generate recommended actions, enhance outcomes and solve specific business problems. It includes all aspects of managing automated decision design and deployment that an organization uses to manage its interactions with customers, employees and suppliers. In essence, decision management enables optimized decisions to become part of the DNA of your business processes. 4
IBM Software IBM Analytical Decision ManagementBusiness Analytics • Scoring – Decision management automates and appliesOptimized decisions: Retail scoring, and distributes scores throughout an organization.A large apparel and home furnishing company in the United States used • Optimization – Decision management provides constraint-IBM Analytical Decision Management to deliver the optimal response to based optimization techniques with the power and speedeach customer interaction, whether from point-of-sale, via its website or to solve large, real-world optimization problems comprisedfrom the customer call center. The company developed individualized of millions of constraints and variables.cross-sell and up-sell offers as well as more targeted promotions.Result: The company increased website revenue through improved According to a published report by James Taylor, an expertchannel conversion and larger basket sizes. who has written and consulted extensively on this topic, “Decision management makes it possible, for the first time, to use predictive analytics as an integral part of a real-timeDecision management is usually focused on high-value decision process.”1decisions and implemented with the use of rule-based andanalytic model-based applications. So, although decision That’s a groundbreaking distinction for organizations thatmanagement is relatively new, it is supported by proven have traditionally used historical data and static informationtechnologies. Here are a few examples of how decision as the basis for business decisions. Predictive analyticsmanagement touches existing enterprise technologies: provides the insight to anticipate what customers will do next, which are likely to leave for a competitor or respond• Rules – Decision management uses rules designed by favorably to up-sell or cross-sell campaigns. Predictive business users to represent operational policy. insights can identify areas of potential risk and fraud or• Data management – Decision management uses the spot new and emerging market opportunities. Predictive data stored in data warehouses and managed with master analytics can also help organizations proactively manage data management technologies. resources to contain costs. Organizations that can automate• Predictive analytics – Decision management employs and optimize decisions informed by predictive analytics predictive models to provide real-time insight to have a significant advantage over competitors that cannot. decision makers.• Business intelligence – Decision management monitors success with reporting and analysis tools. 5
IBM Software IBM Analytical Decision ManagementBusiness Analytics The business manager can then prioritize the actionsOptimized decisions: Banking that should be taken when particular conditions are met. Decision management facilitates this with the balanced useA large European bank used IBM Analytical Decision Managementto enhance its focus on customers. of locally-defined rules, system-created predictive models and business objectives. Simulation of process outcomes,Result: The organization increased product penetration and revenue including the results of operational decisions over time, helpsper customer, improved its time to market to attract new customers andoptimized customer satisfaction and retention. business people tweak how each decision will be handled. Finally, organizations should make their optimal decision patterns an integral, repeatable part of their businessThe path to decision management processes. Decision management accomplishes this with itsOnce you understand the types of decisions that take place interaction-centric deployment architecture. Deploymentin your organization and the kinds of decision management approaches, including real-time scoring and bulk scoring,options available, you can begin building a decision ensure that best practices are embedded at the right time tomanagement infrastructure. Business managers should impact each interaction. Interactive questions help gatherfirst define their business challenges in the context of the important information at the point of decision to ensuredecisions that affect them; this is often called “decision proper outcomes.discovery.” A decision management platform like IBMAnalytical Decision Management can then optimize the Implementing decision management makes operationaltargeted decisions with decision-centric applications decisions deliberate, transactional business decisions moredeveloped for specific business problems. These applications personalized and ensures the consistency of decisionpresent information in terms with which business people processes while enabling flexibility within establishedare familiar, and fold in predictive analytics in the context guidelines. It provides the ability to predict (and thereforeof the decisions that affect the problem. manage) outcomes to help generate better results with every decision. With its closed loop reporting of results and continual refinement of rules and predictive models, decision management recommendations grow more accurate and effective with every decision. 6
IBM Software IBM Analytical Decision ManagementBusiness AnalyticsConclusion About IBM Business AnalyticsIn our personal lives, many people already use technology to IBM Business Analytics software delivers actionable insightsautomate some decisions, such as when to pay bills, or which decision-makers need to achieve better business performance.podcasts or blogs to subscribe to. And “smart appliances” are IBM offers a comprehensive, unified portfolio of businesson the horizon – such as refrigerators that “know” you need intelligence, predictive and advanced analytics, financialto buy more milk. It’s unlikely in the near future that we will performance and strategy management, governance, riskhave a device that automatically decides the wisest advice or and compliance and analytic applications.course of action to take during challenging life situations.But in the realm of business, proven technologies already exist With IBM software, companies can spot trends, patternsthat make automated, optimized decision-making a reality. and anomalies, compare “what if” scenarios, predict potential threats and opportunities, identify and manage key businessDecision management is that highly effective, proven method risks and plan, budget and forecast resources. With thesefor optimizing and automating your business decisions. deep analytic capabilities our customers around the world canSupported by predictive analytics, it offers organizations better understand, anticipate and shape business outcomes.the ability to move beyond reactive decisions to anticipatewhich actions are most likely to create successful outcomes For more informationin the future. As a closed loop system that continually For further information, visit ibm.com/business-analytics.incorporates valuable feedback into the decision-makingprocess, it’s an ideal approach for organizations that wish Request a callto react instantly to changing conditions and maximize the To request a call or to ask a question, go to ibm.com/benefit of every decision. And in a global marketplace in business-analytics/contactus. An IBM representativewhich many traditional sources of competition have been will respond to your inquiry within two business days.neutralized, it delivers a powerful capacity for outmaneuveringcompetitors and executing insightful business strategies.Find out how proven IBM SPSS technologies can helpyour organization increase profitability, improve businessprocesses and build relationships with customers throughdecision management. Go to ibm.com/spss. 7