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Business Rules are the Key to CRM and One-to-One Personalization

By Rolando Hernandez, Founder & CEO, BIZRULES. Published in the August 2001 issue of the Business Rules Journal.


The secret to success in business is customers. They are hard to get and easy to lose. You win customers by making it easier for them to do business with you than with your competitors. CRM personalization software helps companies do just that. It helps companies build and manage individual relationships with customers. It also helps companies personalize interactions with customers. Personalization is really a new way of doing business: Building systems that are customer-focused instead of product-focused; Treating customers individually based on their preferences and permissions; Treating customers the same in person or online; Locking in your profitable customers; and Building stronger relationships with customers.

But CRM personalization doesn't work well without business rules. Many CRM implementations fail because they do not use the business rules approach and because business managers have never been trained to create or manage business rules.

Customers rule the Web

E-Business has evolved so fast that suddenly online customers demand and expect instant access to your products and services, and they expect the same level of service online as well as off. They want to access their account information in your database, and they want it at their convenience. Customers decide when and how they want to reach you. They decide whether to call you and speak with a representative, or visit your website using a PC, PDA, or cell-phone. They decide whether to send you an e-mail, fax, or letter.

Customers want the same answers no matter how they contact you or whom they talk to. They expect great service, fast response, and privacy. They have questions or need information about your products and services, they want to help themselves, and they want the best price.

CRM personalization software can help you serve this modern customer. CRM software helps companies build and manage individual relationships with customers. They also help companies personalize interactions with customers. Personalization is really a new way of doing business: Building systems that are customer-focused instead of product-focused; Treating customers individually based on their preferences and permissions; Treating customers the same in person or online; Locking in your profitable customers; and Building stronger relationships with customers.

CRM personalization doesn't work well without business rules

CRM software has come under attack recently by the usual suspects that continue to plague IT: It's too hard to develop, too hard to implement, and too hard to change. Gartner Group estimates that 60 percent of CRM software implementations fail. [1]

One of the biggest problems in IT has always been that systems are too hard to build and even harder to change. The other is that no one knows what the rules or where they are in the existing systems. I've heard more than one manager say, "Of course we have specs and requirements. The requirements are whatever's in the old program." Companies today are held hostage by business rules buried in the code. The business rules approach aims to solve these problems.

Many CRM personalization implementations fail because they do not use the business rules approach. Like all other business applications, CRM personalization revolves around business rules like these:

  • If a visitor on our website adds a shirt to their shopping cart, show a picture of a matching tie and add a coupon to the next page

  • Show first-time visitors to our website a coupon for 10% off if they buy right now

  • Give 5% discounts to customers with more than $100,000 in sales last year

  • Add 2% commission if the sale was online

  • Notify our top 10% of customers about upcoming sales 30 days before we advertise to the general public

  • Give customers 15 days to return a defective product before charging their credit card

  • Automatically upgrade a customer to a suite if he has over 500,000 points in our frequent-guest program and more than two suites are available

The whole point of CRM is building and managing individual relationships with customers, and personalizing interactions with customers. Just implementing a commercial off-the-shelf CRM package is not enough. You need to take advantage of its personalization features and incorporate your own business rules into the CRM package. That will make your CRM implementation unique. What if your competitors buy the same CRM package? Then your business rules become even more important - They differentiate you from the competition and give you a competitive edge.

CRM personalization implementations work best when they use business rules and the business rules approach. Companies that focus on business rules when designing and implementing CRM systems lower their risk of failure.

Bruce Kasanoff agrees. Bruce was a longtime partner at Peppers and Rogers Group, the group that created the one-to-one personalization movement. He is an expert in one-to-one and personalization and the author of "MAKING IT PERSONAL: How to Profit from Personalization without Invading Privacy." Bruce has talked with executives at leading CRM software companies and discovered that many CRM personalization implementations fail because business managers have never been trained to create or manage business rules. "CRM Software companies train you how to use their rule manager, but they don't teach you about business rules. They just teach you how to get their software working," Bruce said. A combination of business rules, collaborative filtering, and expert systems may be the best way to deliver successful CRM and personalization solutions. Collaborative filtering is the statistical correlation technique that Amazon uses to find visitors with similar patterns of behavior, and then uses their product selections as the basis for product recommendations. Expert systems can make expert recommendations and decisions using the same rules the experts use. They can also troubleshoot and diagnose complex problems. "Business rules are one of the technology approaches that's necessary for CRM personalization. I don't think that business rules by themselves are enough. You need other approaches and processes as well," said Bruce.

Only 40% of CRM personalization implementations succeed today. Business rules could help improve that success rate.

CRM Personalization is the killer app for business rules

Ron Ross has said that personalization is the killer app for business rules. It's the first really groundbreaking application that really leverages and needs business rules. It's bringing business rules out of obscurity. And it's also bringing business rules out of IT and into the business management side.

As business managers start working with business rules on CRM personalization projects, their awareness of the business rules approach will grow. As business managers realize that business rules can be automated, and once they understand that the business rules approach is faster, cheaper, and better than traditional development techniques, the business rules approach will become mainstream.

Personalization business rules can get very complicated. "If I've got 10 different customer segments and I'm trying to figure out how to manage the interactions between each different segment, it gets hopelessly complex," said Bruce. You need a rule engine or a rulebase to manage all your rules, just like you need a database to manage all your data. You need a rule management system to test and verify new rules before they are implemented in production. You need controls to ensure that a new rule won't duplicate or conflict with a rule that somebody else wrote a few days ago. Writing good CRM personalization business rules is very challenging, and it requires both business knowledge and technical skills.

Who writes the rules in your business?

Just using business rules isn't enough to succeed at CRM personalization. You also need to make sure that your rules are correct and complete. You have to simplify your rules, and you need to design rules to attract and retain customers. Bad rules drive away good customers. Good rules attract and retain good customers.

Recently my wife ordered flowers from a dot com flower shop for one of her employees who was in the hospital. The flowers never arrived. She called back and they promised to send them the next day. Next day, still no flowers. She gave up and called a local flower shop, which delivered the flowers within two hours. She called the dot com back to cancel the order. They transferred her a few times and gave her a few numbers to call. They promised they would not charge the $60 bill to her credit card, but they did anyway. We learned that one of their business rules is to call the recipient and ask if they got flowers. They actually called the employee and asked if she got flowers. She said yes, and they went ahead and charged the credit card. Had they taken the time to ask who delivered the flowers, they would have realized that another company had delivered these flowers, and they would not have lost this customer. A few weeks later they refunded the credit card and sent us a gift certificate for $11, along with a very nice apology letter.

Bad rules drive away good customers. This rule was intended to cut fraud, but it was inadvertently designed to lose good customers instead. It doesn't work well at all - We won't buy anything else from this dot com.

Now let's imagine that this company decides to implement a CRM personalization application to improve customer service. They decide to use business rules and collaborative filtering. They take their top customer service agents and decide to build expert systems for product selection and problem troubleshooting.

Because the agents are experts at handling customer complaints, their rules on saving the customer are built into the CRM personalization system. If I ever call back to place a another order, their system will fire a rule that reminds them that I had a lot of trouble last time. That rule might recommend that they offer me a 50% discount for giving them a second chance, or it may even recommend that I get free flowers. It will be up to the business to make the rules to attract and retain customers. It will be up to the CRM personalization system to execute them.

I had a much better experience with and their CRM personalization rules. Their business rules are clearly designed to make the customer happy. A few months ago I went to and bought a Dell laptop with 256MB of memory for a new project at a client site. I ordered one 256MB DIMM instead of two 128MB DIMMs in order to leave room for expansion. A few months later I got a letter from Dell telling me that during their normal quality control process they discovered that they had accidentally configured my PC with two 128MB DIMMs instead of one 256MB DIMM. They enclosed a 256MB DIMM and asked me to return just one of the 128MB DIMMs. They basically offered to upgrade my memory to 384MB in order to take care of a problem that I didn't even know I had! Dell understands that a customer could easily discover this mistake and have a good reason to be disappointed in Dell. They designed this rule to prevent that from happening.

Good rules attract and retain good customers. This rule is designed to retain customers, and it works well. This was my second PC from Dell. Guess where I'm going to buy my next PC?

You need to think about who will write the rules in your CRM and personalization system. Will it be Executives, Sales, Marketing, Customer Service, Accounting, Finance, or IT? Everyone should be involved, but IT and Marketing need to take the initiative. These rules will ultimately differentiate your company from your competitors. Business rules will either help you get customers or help you lose them. Remember that your best customers are one click away from your competitors.

If you can't beat them, rule them

Many CRM personalization packages today rely on business rules and rule engines to enable users to change their own business rules. "Most software applications are now externalizing business rules so business managers can access and maintain them," Bruce said. As a result, there is a growing need to train the business to create and manage business rules.

CRM vendors have realized that it is much easier to integrate someone else's rule engine into their product than it is to build their own rule engine. BroadVision, for example, embeds the ILOG rule engine technology into the BroadVision One-to-One suite of CRM applications. Blue Martini embeds the Blaze Advisor rule engine into the Blue Martini Customer Interaction System. Manna's FrontMind CRM personalization package combines collaborative filtering and rules-based engines. NetPerceptions, a pioneer in personalization using collaborative filtering, is now forming partnerships and alliances with CRM rule engine vendors BroadVision and Art Technology Group in order to combine collaborative filtering with rule engines. [2]

It's not just software vendors that are embedding rule engines into existing applications. Companies are also starting to add rule engines to their internal applications in order to separate code and data from rules, and to add intelligence to their existing applications. It's much easier for companies to buy a Business Rule Management (BRM) system than it is to build their own. Do you know any company that builds their own database management system instead of buying Oracle or SQLServer?

CRM personalization doesn't make sense unless you do three things

CRM personalization and product recommendation don't make sense unless you do three things in the process: You select the right product for the person, you select a product for which the customer is eligible, and you select a product that you will make money on. Rule-based expert systems can help you do all three.

One of the pioneers of expert systems and AI was MindBox. Originally known as Inference in the 1980's, it became Brightware in the 1990's, and spun off into MindBox last year. According to Richard Barfus, President and CEO of MindBox, "The very process of personalization is enhanced when you use business rules and AI technology. And I mean personalization for complex products - I'm not talking about buying books. For complex products, personalization only makes sense if you talk about eligibility in conjunction with profitability. It doesn't make any sense to find precisely the right product for a person, but they're not eligible for it. In addition, it doesn't make sense to find the right product for a person, for which the company loses money. You want to guide them to a product that satisfies their needs, but you also want to make money on the transaction."

"To be successful at CRM personalization, you need to have business rules and AI technology. In those products that support a sales force, how do you get all your salespeople to work at the level of your best expert salespeople? In those products that don't support a sales force, how do you give a customer expert advice directly from your website?" Richard said. "This is the classic application of expert systems. The combination of rules technology, case-based reasoning, and expert systems is really very powerful for these applications. And there's a lot more acceptance in the business community of rule technology and expert system technology now."

Expert systems add intelligence to CRM personalization

Expert systems are a great way to deliver expert advice and product recommendations in a CRM personalization application. Expert systems are one of those emerging technologies that have been around 20 years before they were 'discovered', like the Internet. The Internet was 20 years old when Tim Berners-Lee wrote three programs called WWW, HTTP, and URL and invented the World Wide Web in 1991.

Although rule-based expert systems haven't had to change much during the last 20 years, they have evolved in order to support new technologies like eBusiness. Today expert systems are contributing to many eBusiness and CRM personalization success stories, although it is hard to find a company willing to talk about it. "Expert systems didn't really go away. They went undercover," explained Richard.

"When we implement a successful system we'll want to do a press release and they say 'Are you crazy? We love it, but we won't talk about it. We love it, it works great, by the way here's all the money we're saving and here's all the money we're making, but I don't want anybody to know about this.' There are many, many examples of expert systems where people see it as their secret sauce, and they just don't want to publicize it because they don't want anyone else to be doing it," said Richard.

American Express' Authorizer's Assistant (AA) is a good example. AA is one of the oldest and largest rule-based systems ever built. AA is one of those classic expert systems that people read about and studied in the early 1990's. Then the publicity stopped and now you don't hear anything about it. I asked Richard whatever happened to AA because his company, MindBox, developed it in 1988. He said, "Authorizer's Assistant is a perfect example of all the wonderful things of these types of applications. It's been in continuous production for 13 years, and it's never been down. When we originally built it for AMEX it was for the Green card only. Now it applies to all of their card products both domestically and internationally. And only five people maintain a core system like that. If you look at a core system of that magnitude in most organizations, you're talking about 30-40 people in the IS department assigned to maintaining it."

It's one thing to hear that from a vendor, but another to hear it from the customer. So I called American Express and spoke with Marilyn Stark, Director, who leads the Authorizer's Assistant expert system. AA is an integral part of AMEX's Credit Authorization System (CAS) transaction processing system for receiving credit requests from merchants, processing those requests, and transmitting the approval or denial back to the merchant. AA analyzes the small percent of requests requiring human attention, and it uses business rules to simulate the decision process of experienced credit agents. [3]

According to Marilyn, the core AA application contains over 3,000 business rules, and the entire AA system contains about 35,000 rules. AA originally ran on a Symbolics machine, and it now runs on an IBM RS/6000 under AIX. It went into production in the 4th quarter of 1988, and it has been running 24x7 ever since. Even though it has evolved over the last 13 years, AMEX has not had to rewrite the rulebase. The original rulebase is still in production. I asked Marilyn why AMEX stopped talking about this system, and she said that the industry moved on to other new things like neural nets and other new technologies, but that "Authorizer's Assistant never went away."

If you use your American Express Card to buy something online, it is very likely that the Authorizer's Assistant expert system will process your transaction. Rule-based expert systems are key components of many large OLTP and CRM personalization applications.

Business Rules are the Key to CRM and One-to-One Personalization

CRM helps companies build individual relationships with their customers. But CRM personalization doesn't work well without business rules. Many CRM implementations fail because they do not use the business rules approach and because business managers have never been trained to create or manage business rules. Business rules can be the difference between a successful CRM implementation and one that fails. Companies that focus on business rules will improve their chance for success and reduce their risk of failure. Business rules should be a component of every CRM personalization strategy. A combination of business rules, collaborative filtering, case-based reasoning, and expert systems may be the best way to deliver successful CRM personalization solutions. That will help companies get and retain customers, and that is the secret to success in business.


[1] Dennis Callaghan, "CRM companies fight implementation blues", eWeek, Vol. 18, No. 8, February 26, 2001, Page 1.

[2] Sarah L. Roberts-Witt, "The Internet Business 100", Internet Business Magazine (PC Magazine), Vol. 20, No. 5, March 6, 2001, Page 9.

[3] Steven Alter, Information Systems, A Management Perspective - American Express Authorizer's Assistant,

Copyright 2001 Rolando Hernandez


Rolando Hernandez, Founder & CEO of, is an eBusiness and CRM consultant with over 13 years experience building expert systems and writing the business rules of Fortune 500 companies including Mobil Oil, Pepsi-Cola, Burger King, IBM, EDS, and Royal Caribbean Cruise Lines.

Rolando developed Mobil's Global Lube Knowledge Base Strategy and their global expert systems strategy. He programmed the business rules in Canada's Social Security System, and he is IBM's business rules SME for a large US Government system modernization program. Rolando is currently implementing a rules-based CRM/CRS reservation system for a major cruise line, where he is writing their revenue management and marketing promotion rules. He helped build the e-commerce websites and, which was recently selected as Best of the Web Travel Sites by Forbes on 5/21/2001. 

Rolando has an M.S. in Artificial Intelligence and a B.S. in Systems Analysis from the University of Miami, FL, USA. He is a speaker and author on CRM personalization, business rules, expert systems, and knowledge management.

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