The Data-Driven Decision

May 13, 2008 by Jeff Reich, freelance journalist, Berlin, Germany

Using technology to make better decisions has long been a hot topic for the IT industry and for business. As early as the late 1960s, researchers began experimenting with computer systems capable of making decisions for repetitive activities like production planning, investment portfolio management, and transportation logistics. And technological advances in the field continue at an impressive pace.

Yet managers – the very people responsible for making the daily decisions that can make or break a company’s fortunes – seem to have taken little notice. Companies have spent more than a trillion dollars worldwide on information technology and systems that enable them to make better, more informed decisions. But the actual relationship between enterprise resource planning (ERP) software and good decision making still remains unclear in the minds of many business leaders.

In fact, when Accenture’s Institute for Strategic Change surveyed organizations in 2002 that had recently implemented ERP systems, 50 percent reported that making better decisions was one of the top three reasons for their investment while another 22 percent ranked better decisions as their first priority. But surprisingly, none of the firms had taken concrete steps to actually improve decision making.

Human intuition versus hard data

ERP systems have enabled strategy execution at the operational level for years. With the advent of business intelligence (BI) software and systems, companies have an important new tool in their decision-making arsenal: the data-driven decision. One of the underlying tenets of BI is the idea that informed decisions can be made based on solid data rather than on intuition or partial information. Modern BI software allows organizations to treat decision making like any other business process – one that can be evaluated and continuously improved. And as BI continues to claim a more prominent status among today’s enterprise software landscapes, many organizations are moving to take full advantage of real-time reporting and analytics in their decision processes.

In doing so, companies stand to reap significant business value, both in the short and long term, argue Thomas Davenport, president’s distinguished professor of information technology & management at Babson College, and Brad Power, executive director of the process management research center at Babson College, in their recent SAP white paper (The Future of Decisions: Pushing the Frontiers of Human and Technical Capabilities).

Decision management systems

Companies are likely to continue their widespread use and adoption of business processes based on BI tools in the near future, and for good reason. BI has a strong track record in helping firms apply business rules to sets of data to automate redundant or recurring decisions. Coupled with the power of the SAP solutions for governance, risk, and compliance, the embedded analytics technology of the SAP NetWeaver technology platform and Business Objects solutions are behind many of the most significant developments in the field. And in the long-term, Davenport and Power predict that the trend will continue, creating IT landscapes in which decision making, embedded in business processes, will increasingly be automated or semiautomated.

But before companies can take advantage of these new technologies, managers will have to gain a better understanding of how they make decisions in the first place. Ironically, most organizations today do not know what their key decisions are – making it difficult, if not impossible, to improve them. Davenport and Power offer a simple, straightforward methodology in which organizations can take an inventory of the key decisions they make every day and categorize them by type.

Organizations can then establish priorities, focusing the greatest number of management resources on key decisions that have a critical impact on their business. Decision management systems, which would include the same advanced BI analytical functionality found in SAP NetWeaver and Business Objects, would be able to categorize and inventory decisions to

  • Indicate the best decision approach for a problem
  • Structure a decision and move it through a workflow
  • Provide documentation of inputs, outputs, assumptions, and participants
  • Allow collaborations, votes, prediction markets, and so on as required.

Organizations of the past succeeded on their managers’ good intuition and experience. Successful organizations of the future will move beyond this traditional model – to embrace modern IT-driven processes for greater business value and competitive advantage with a strategy creation to execution paradigm. Moving forward, it may be the single greatest opportunity organizations have to succeed.

Business Intelligence Scenarios

Davenport and Power identify five classic scenarios that are ripe for automation through BI technology and decision management systems:

  • A customer care representative in the customer maintenance and care process decides how valuable a particular customer is.
  • A demand planner in the procure to pay process decides how much of a commodity to buy at what time.
  • A sales manager in the lead to cash process decides how much of a product he or she can sell.
  • A product development engineer in the product/service development process decides which features and functions to incorporate in a new product.
  • A marketing manager in the idea to product process
    decides which products to invest in or stop selling.

For more information on how SAP can enable better decision making, contact Patricia Fletcher (patricia.fletcher@sap.com) from the Performance Optimization Applications solution management organization.

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