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TECHNOLOGY

Who Makes the Decisions: You or Your Software?

Automating certain tasks can save a ton of time and money. But it can make you less efficient, too, if you're not careful.
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Reaching a decision before acting seems about as commonsense a notion as you might find. Would you send salespeople out to make calls before deciding on the type of product you want to sell, a price point, or the nature of your target audience? Absolutely not. Doing so would be a frightening waste of time and resources.

And yet, according to decision management automation expert James Taylor, with whom I recently appeared at some business events, that is exactly what happens in many companies of all sizes. The culprit can be traced to a combination of the way business processes grow and the software that runs the company. I know--talking about the structure of software may sound dry on the surface. But understanding what goes on under the hood and how to make it more efficient can free up a lot of cash for the average company.

Where Decisions Are Really Made

As Taylor explains it, companies tend to bury decision making into their business processes. Sounds like it makes sense, right? Where else would you put it? However, according to Taylor, the best way to handle decision making is up front and separate from the rest of a business process.

Even though key decisions should be made separately from (and before) such functional activities as processing an order, checking a credit rating, screening an order for fraud, deciding to underwrite an insurance policy, or handling a customer complaint, that's not what usually happens.

Instead, companies go through layers and layers of procedures only to discover halfway through the process that they're dealing with, say, a transaction that's a special case. Routing it to the appropriate handler should have happened minutes or even hours before.

A simplified example that Taylor gave was of a life insurance company that wanted to accept people under 21 as low-risk prospects, those from 21 to 49 as medium risk, and ones over 50 as high risks to be declined. But then the exceptions started. What if someone under 50 had a heart attack and might be higher risk? What if an over-50 applicant had been a good customer that the company didn't want to lose? What if someone under 21 engaged in dangerous sports?

Putting together a range of possible scenarios and exceptions at the beginning would have let the insurance company more expeditiously process applications. But, instead, you have the epitome of inefficiency: Employees spend time partially processing applications that will never go anywhere.

The Double-Delay Hangover

There are two results when decisions get pushed down deep into a business process and the software that supports it. One is that as business processes grow more complex, the decision making happens far removed from the place where it would most help you efficiently route people and resources to solve problems. Consider smart e-commerce companies that have become more efficient by noticing signs of fraud up front, based on complex statistical analysis of data that was already available, and then taking appropriate actions early on. Such predictive decision making reduces the number of false positives that would do nothing but overburden the fraud department.

Here's the other issue: The basics of how you process business are relatively stable. The decisions you make, on the other hand, change far more frequently with marketing needs, industry shifts, and changes in the environment. Back to the insurance company example, it might be that new tests could help pinpoint potential health issues up front, making the decision process even faster and more accurate. But if the decision making is buried in the software, going in to add these new factors becomes more expensive and difficult.

Whether you use home-grown software or third-party applications, take a step back and look at your actual business processes to see if moving decision making to the front of the queue might be one of the best things you could do for your company.

Last updated: May 30, 2012

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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