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Enterprise Decision Management's Business Impact

Enterprise decision management (EDM), the automation and improvement of operational business decisions to improve their precision, consistency and agility, is on the rise. Using a combination of business rules and predictive analytic technologies and focusing on the operational decisions often hidden in organization's information systems, EDM is about making systems smart enough to have a business impact. But what kind of business impact?

Organizations find that the adoption of EDM impacts them in expected and unexpected ways, at the operational, tactical and strategic levels, as well as with their customers. The net result of these different impacts is that organizations achieve greater profitability and effectiveness.

As EDM focuses primarily on operational decisions, you might expect the business impact to affect the operational level in terms of cost reduction, and in many cases, you would be right. Interestingly, our analysis shows that companies who implement EDM systems also realize benefits in revenue gain and resource scalability. Strategic benefits also accrue in terms of improved alignment and more precise risk management. Organizations trying to be more customer-centric find that EDM can significantly improve the customer experience. Finally, adopting EDM helps organizations enhance the way they make operational decisions, which ultimately translates into a significant competitive advantage.

Operating Cost Reduction

Operational cost reductions can come from a wide variety of sources as automation has the potential to eliminate or reduce a wide range of costs.

The first element of cost reduction is perhaps the most obvious - time. The amount of staff time required to process transactions in which the decisions are automated is dramatically reduced for organizations that have implemented EDM. Automating decisions can virtually eliminate the staffing cost from many types of transactions.

However, few decisions can be fully automated, so there will always be some referrals for manual decisions. An EDM approach, however, can deliver very high percentages of automation, often reaching 95 or 99 percent for highly repetitive decisions like auto underwriting. Even when the remaining manual, highly complex decisions represent the majority of the workload, typical organizations can still enjoy a timesaving of up to 30 percent.

With many business processes, the volume of transactions is such that automation is required. Direct to consumer marketing, for instance, or contacting shareholders for large publicly traded companies are two great examples. If the decision about what to send to everyone involved is not made well, then time and money will be wasted. Perhaps more importantly, if the right decision is not made, junk mail could be created - and nobody likes that.

Another area for cost reduction is in the area of fraud. Automating fraud-related decisions, such as accepting or rejecting a credit card, is an opportunity to reduce the amount of fraud incurred and the associated expense that comes with it. The decision that determines whether a particular transaction is fraudulent, or at least potentially so, can allow the vast majority of allowed transactions to be processed quickly while still allowing organizations to identify and review those that are risky. One bank using EDM to detect fraud estimated that they weathered an economic crisis with 50 percent of the losses they would have seen otherwise.

Revenue Generation

One gain organizations often see after automating decisions is revenue gain at the point of sale. Customers are not typically ruthless comparison shoppers - they like instant gratification. Pushing decisions to the point of contact and reducing the decision time so that there is no wait (or an acceptable one) can mean closing the business at once. For instance, an online bank gained an additional 1.5 percent in revenue from increased acceptance rates.

Consider the example of insurance underwriting. Unlike manual decision-making, automated decisioning happens fast enough that customers do not need to wait or return later, risking that they will find a better offer elsewhere. An insurer using EDM to automate the underwriting of decisions will find that more prospects will accept a policy at a given price when the price was offered in real time over the phone or via the Web than if it was offered later by email.

In addition, many opportunities to boost revenue through cross-sell and up-sell offers are missed because there is nobody there to make them. Taking advantage of every interaction with a customer or prospect, regardless of channel or device, can grow revenue in new ways. One bank using EDM to up-sell insurance products through its ATMs saw a 14 percent increase in up-sells in the first 90 days.

Complex decisions are increasingly common in self-service. Customers no longer want to have to request the pricing based on their contract; they want to see it as they build their order. This is not enough anymore. Now organizations need to automate these decisions so that customers can serve themselves, even when the decisions are complex. What's more, customers want to be able to serve themselves in this way 24x7 - they expect decisions to be made when they ask, not when it is convenient. Companies must automate the decisions behind customer service requests and problems so that customers can help themselves when they want to. One mortgage company, for instance, used EDM to create a twenty-minute, self-service home loan approval application, while an insurance company cut its online application's abandonment rate from 90 percent to just 40 percent.

Resource Scalability and Focus

Organizations are always looking for ways to grow their business without adding staff. Automating decisions with EDM can be a primary enabler of this kind of scalability. For instance, an insurance company adopting an EDM approach to underwriting was able to grow its business by 35 percent without increasing the number of underwriters thanks to the automation of its key underwriting and renewal decisions. Without EDM, more transactions will mean more staff at a more or less proportional rate. As business grows, so will costs. EDM can break this linkage and create a more scalable business.

Delivering this kind of result means refocusing what your expert staff actually does day-to-day. By automating run-of-the-mill transactions, your staff can focus on more value-add activities. Advertising managers at one company were able to spend an additional 30 percent of their time on customer management once the pricing of ads was automated. Having expert staff focus on business growth has a huge potential upside.

Opportunity Cost Reduction

Increased opportunity cost is one of the two main consequences of poor business agility (the other is strategic alignment), and both can be improved through EDM. Opportunity costs, revenue lost or costs incurred when failing to respond to market changes can be big problems. Taking advantage of an opportunity before a competitor does or while it is still relevant can be difficult if an organization must change how it makes pricing or product offering decisions. Responding to a competitive threat quickly, so as not to lose revenue and customers, can also mean rebalancing risk management decisions or repricing products. In both cases, EDM can reduce the opportunity cost. One insurance company justified the entire cost of an EDM implementation from the savings it achieved by responding to changes in trade credit markets caused by unexpected bankruptcies. An outsourced services firm was able to reduce its time to introduce a new product from six months to a few weeks.

Strategic Alignment

Another advantage of taking an EDM approach is the opportunity for top to bottom strategic alignment. At first sight, this may seem contradictory with the focus on operational, high-volume decisions discussed earlier. Many organizations are challenged to keep their operational execution - the way the front-line staff operates and the way self-service applications behave - synchronized with their strategic plans.

Using EDM to align strategy and operational decisions can help organizations reduce inefficiencies and improve effectiveness. For example, an EDM system can help brand managers assess and improve the alignment between the promotional campaigns executed in the call center; the mailing house and over the Web site; and their overall marketing strategy. By focusing on and automating the operational decisions that implement the strategy at the front-line, and by giving the business leaders control over how to take these decisions, companies can dramatically improve the likelihood that there is alignment between strategic intent and operational reality. The Department of Motor Vehicles in a large U.S. state used EDM to ensure that the centralized, local office and Web-based self-service calculations for license fees were consistent and up to date, ensuring alignment with legislative intent.

Strategic alignment relies heavily on business agility. Organizations must be able to respond to competitive pressures, regulations, legal rulings, product introductions and more. An EDM approach can ensure that decisions are automated once across all channels - this means that staff need only adjust one iteration (a decision service) to make a change. Further, the implementation of that decision service would make the change easy, helping to deliver real business agility. One health care claims processor reduced the time to implement a new regulation from 60 days to seven using an EDM approach, allowing it to remain compliant even with rapidly changing regulations - a strategic need.

Risk Management

Many interactions with customers involve an assessment of risk as part of deciding how to treat them. If you are going to offer a customer credit, you have to assess your risk of them becoming a bad debt and going into collections. The precision with which you can calculate this risk and apply it to your pricing, scheduling and marketing will have a direct impact on the profitability of a customer and the effectiveness of your business.

In theory, risk-based pricing can be done manually. In practice, however, people do a good job of discriminating between segments only when there are a relatively small number, around seven. Only by applying automation to the decision can you take advantage of this precision in risk assessment. Assessing collections or other forms of risk also benefits from increased precision and automation. A major telecommunications company used EDM to reduce its bad debt by 20 percent with 37 percent fewer staff, while a build-to-order manufacturer was able to bring both credit and fraud risk to bear on its pricing algorithms for the first time.

Customer Experience

The improvement of customer experience is a hot topic for many businesses today, and for good reason. Hiring and training staff to interact with customers a certain way is only part of the solution. Customer experience is the sum of the customer's perception of interactions with your brand. Interactions are what drive the experience, and perception of the experience is critical.

One of the challenges in using information effectively in the context of more customer segments, distribution channels, store formats and products is capitalizing on the insights organizations can gain from extra data. Organizations must generate tightly targeted and fine-grained insight. This is a complicated problem but just the beginning. Organizations must translate these insights into actions, often in high-volume operational systems.

One way of summarizing a number of these concepts is to talk about the re-creation of the feel of the corner store. The "mom and pop" store of old knew their customers, could predict their credit worthiness and likely, their interests remind them if they forgot something they usually ordered, never suggest things that made no sense, and generally interacted with them as though they knew the customer well - because they did. It is possible to use decision-making technologies and an EDM approach to recreate this feeling.

Competitive Edge

At the end of the day, organizations that adopt EDM will gain a significant competitive edge. They will balance risk and reward in their operational systems more effectively, allowing them to price more aggressively and target more precisely than their competitors. They will be able to change their information systems more readily to cope with threats and respond to opportunities, becoming more nimble than their competitors. They will have more loyal customers with whom they have a more profitable relationship because they use all the data they have on those customers to continuously improve and deepen their relationship. Their systems will be smart enough to give them a critical edge.


James Taylor is a principal and co-founder of Smart (Enough) Systems LLC, the only full-service, vendor-neutral company focused on the enterprise decision management (EDM) marketplace. The gap between most "dumb" applications and those smart enough to be useful can be bridged with today's technology, and Smart (Enough) Systems LLC helps customers cross that gap. Taylor works with clients providing research, advisory services and implementation expertise. Widely credited with the invention of the term and the best known proponent of the approach, Taylor helped create the emerging EDM market and is a passionate advocate of decision management. He is a highly sought speaker and author of Smart (Enough) Systems (Prentice Hall, 2007) with Neil Raden. Find out more about the book or read his blog at www.smartenoughsystems.com.

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