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September 25, 2008

Ten Rules for Wall Street

Ten Rules for Wall Street

What are the rules? Did people break the rules, bend the rules, or ignore the rules?

Confidence in Wall Street went down the drain last week. The credit crisis gave business a bad name, and it gave government a bad name for not doing anything about it. Trust disappeared. 

It's time to rebuild trust in business and government.

Here are ten rules for restoring trust in business and government. These rules apply to everything from the global financial system, to Wall Street; from federal governments to local jurisdictions; from global corporations, to organizations and small businesses.

Companies that learn to define transparent rules that are sensible, consistent, easy to understand, and easy to follow will be easy trust. On the other hand, companies that rely on opaque rules that are complicated, confusing, illogical, inconsistent, or deceptive will be hard to trust. They will go out of business.

Rule 10 - Have guiding principles. Act on principles, independent of influence by greed or friends.

Rule 9 - Follow policies and guidelines about what is permissible and what will not be tolerated.

Rule 8 - Establish rules of behavior concerning what is right and wrong. Success in business depends on understanding the rules. The rules of the business are the way the business really operates. Design transparent rules that are logical, sensible, easy to understand, and easy to follow.

Rule 7 - Leverage knowledge and judgment. Know what you know, and know what you don't know. Document and retain what your experts know and how they think so their knowledge can be shared with those who need to know. Use wise judgment. Know when to follow the rules, when to bend them, and when to forget them.

Rule 6 - Make smart decisions informed by facts, rules, knowledge, principles, and judgment. Decide using clear, logical, and unbiased rules that explain each decision clearly. Use sound reasoning to make rules-based, principles-based, and knowledge-based decisions.

Rule 5 - Create enterprise architecture to deal with change and complexity. Use architecture to simplify complexity, and to understand how the whole business and the whole system works; Understand who, what, when, where, why, and how. Design the architecture to ensure that all the parts fit (interoperability), connect (integration), work (quality), work as intended (alignment), last (reliability), and can be shared (reusability). Design the architecture so the business can handle increases in complexity and increases in the rate of change (flexibility). Design the architecture to reduce time-to-market and reduce operating costs. Design the architecture to support rules-based and principles-based compliance.

Rule 4 - Do the engineering, to design systems that work, change, and last. Apply architecture and engineering design principles to ensure alignment, flexibility, quality, interoperability, integration, reusability, reliability, compliance, reduced time-to-market, and reduced costs. Build in risk management safety factors so the business and the systems can handle extreme stresses and excessive loads.

Rule 3 - Have a clear vision. Stand for brand.

Rule 2 - Instill confidence. Improve the quality, consistency, and accuracy of decisions and actions.

Rule 1 - Build trust. Align actions, decisions, and transactions with management's intentions. Align execution to goals, strategy, and mission. Align systems to business. Align implementation to intention.

Sept. 25, 2008   Rolando Hernandez   BIZRULES

Principles are Coming

Principles are Coming

More judgment and knowledge needed

While the finance industry is moving toward more rules and exceptions, and rules-based regulation, financial accounting and reporting is moving in the opposite direction, towards fewer rules and exceptions. Accounting and tax is moving towards more principles-based regulation.

The US is moving away from GAAP (Generally Accepted Accounting Principles) and towards IFRS (International Financial Reporting Standards). IFRS is the reporting framework used by most of the world today, and it has growing support in the US. IFRS relies on professional judgment rather than detailed rules. Under this principle-based approach, management will have a mandate and obligation to exercise its own best judgment when making decisions.

Companies will need to implement systems that use knowledge and judgment to make principle-based decisions.

It is time to adopt knowledgebase technology and knowledge management. It's time to build knowledge bases and embed knowledgebased technology into operations and existing systems.

Knowledgebased systems that are engineered and architected properly can

  • follow principles and guidelines
  • automate management's best judgment
  • ensure compliance
  • and deliver trust. These expert systems can be trusted because they use expert judgment to make the same decisions top experts would make, thus improving the quality, accuracy, and consistency of decision-making.

I don't believe there is any other practical or proven way of automating human judgment, other than building intelligent, knowledge-based systems.

Knowledgebased systems are the solution for principle-based compliance.

Rules are Coming

Rules are Coming 

More rules and regulations are coming

To restore trust in the financial system, the government is moving towards more rules and exceptions, and more rules-based regulation. The trend towards de-regulation is over. Regulatory reform is coming back. That means more rules and regulations than ever before.
 
Management will have an obligation to follow the rules and laws when making decisions. These decisions better be consistent, correct, complete, and compliant if you really want to stay in business. 

Companies will need to implement systems that follow the rules and make rule-based decisions.

It's time to adopt the business rules approach and business rules management. It's time to build rulebases and embed rulebase technology into operations and existing systems.

Rulebased systems that are engineered and architected properly:

  • follow the rules
  • automate management's decisions
  • ensure compliance
  • and deliver trust. Rule engines can be trusted because they implement the decisions management intended.

Rulebased systems and business rules management are the solution for rule-based-compliance.

September 12, 2008

Bosch drives into the rule engine market

Bosch has joined the club. On September 8, 2008 The Bosch Group acquired Innovations Software Technology. Both companies are based in Germany. This move heats up the BRE/BRMS market consolidation that was already sizzling:

Sep. 2008 –The Bosch Group acquired Innovations Software Technology
Jul. 2008 - IBM announced their intent to buy ILOG
Nov. 2007 – RuleBurst acquired Haley Rules
Oct. 2007 – SAP acquired Yasu
Aug. 2007 – Trilogy acquired Gensym
Oct. 2006 – Planet Group acquired ACI Worldwide
Jan. 2006 – Trilogy acquired Versata
Jan. 2006 – MDA acquired Mindbox
Sep. 2005 – Fair Isaac acquired RulesPower

(click to see the new BRE Family Tree

Oracle and Microsoft entered the business rule engine (BRE) market by building their own rule engine technology. Competitors, however, took a different approach. Global technology leaders IBM and SAP acquired BRE vendors ILOG and Yasu. Insurance software vendor MDA acquired BRE vendor Mindbox. And rule engine vendors Fair Isaac and Trilogy acquired smaller BRE vendors RulesPower, Versata, and Gensym.

I asked David S. Kim, Managing Director and CEO of Innovations Software Technology, to share his thoughts and tell us what this means to customers, end-users, and to the rules market. Here’s what he had to say in our email discussion.

How does the Bosch acquisition of Innovations compare to the other acquisitions and consolidation in the rules industry?

“The big difference is that we were not acquired to have our product line integrated into a stack of other software. We were acquired to be the core of a new software and systems company within The Bosch Group. We will be creating new technologies and value chains within Bosch and open the door to new lines of business,” Kim said.

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August 22, 2008

Army mandates 12 knowledge management principles

"Connecting those who know with those who need to know." That is a great definition of knowledge management. And it's right out of the Army manual. The US Army recently released a knowledge management memo outlining 12 principles to encourage and reward sharing knowledge throughout the organization.

"Knowledge management is about connecting those who know (know-why, know-what, know-who, and know-how) with those who need to know and leveraging that knowledge across the institutional Army and to contractors, nongovernmental organizations, the other military services and coalition partners,” states the memo.

A few months ago I wrote about classifying knowledge as either critical knowledge or common knowledge.  Common knowledge is about your experience and what you know.  Critical knowledge is about your expertise and how you think.

Continue reading "Army mandates 12 knowledge management principles" »

July 12, 2007

Interview with Fair Isaac VP James Taylor on EDM and Smart (enough) Systems

Say hello to Enterprise Decision Management, or EDM for short. EDM is the new buzzword that business rules folks are buzzing about lately.

It sounds like it was dreamed up by marketers to put a new spin on something that great companies have been doing all along, albeit probably manually. In fact, it’s a great acronym invented by James Taylor, Vice President of Enterprise Decision Management at Fair Isaac, to describe what their customers were essentially doing with Fair Isaac’s Blaze Advisor rule engine: Building smart rule-based systems to manage and automate decisions.

It turns out that all sorts of companies are using business rule engines to build EDM applications. James just figured this out first and gave it a great name. By now many of the leading BRE vendors are probably updating their marketing materials with the EDM buzzword.

(shameless plug – I just added EDM to the BIZRULES website in the decisioning solutions page.)

James just published a new book, along with co-author Neil Raden, about EDM and their ideas for building smarter systems. I had an opportunity to chat with James recently and interview him about his new book called, appropriately enough, Smart (enough) Systems. (see http://www.smartenoughsystems.com/wp/main

BIZRULES: Tell us about your new book, Smart (enough) Systems 

Taylor: The book is being published by Prentice Hall Professional, and it describes how companies can use the computer-based systems they have in place rather than purchasing new ones to build smarter systems - and how these systems can help companies thrive through Enterprise Decision Management.  

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April 05, 2007

Why business rules? Why not expert systems?

James Taylor over at Fair Isaac has a really good list of "Why business rules?" I agree with most of the points, except the stuff about expert systems.

Maybe the question should be "why not expert systems?"

The dirty little secret is that a lot of the rule engines out there were originally called "expert systems" or "inference engines", then they were called "business rule engines", and today they are known as "business rule management systems. (See the business rules hype cycle)

Of course, everything is better today. And faster. And connected. When expert systems first came out, the Web wasn't even born yet, and PCs were running at 10 mHz. 

The biggest problem we had at Mobil Oil between 1988-1994 when we were building the Global Expert System Strategy and Lube Knowledgebase Strategy was making and mailing floppy disks to all our affiliates.

I remember one day we were showing the customer (an executive in Mobil Marine division) a demo of the expert system, his comments were:

  1. This is like an intelligent checklist, it never asks un-needed or dumb questions!
  2. I like that I can click on an underlined word (a hyperlink) and popup a definition, photo, go to the next page, or whatever!
  3. This is not like our other DOS or mainframe apps. Our users will not like the fact that this works on a "one page at a time" metaphor,
  4. because we're forcing users to fill out information or answer questions on the page (screen), then they have to press enter to go to the next page (screen).

That one page at a time metaphor he described was basically how the World Wide Web works. We were doing this in a business rule engine (BRE), aka an expert system (ES) in 1988. Before WWW. Before Windows.

(Want proof, go here and click on the photo on the right. There's a picture from back then, in my younger days... the program on the PC behind me is 1DirPlus or something like that.... Definately B.W. Before Windows). And so back then we built expert systems that did reasoning, chaining, hypertext / linking, and of course inferencing. Basically they would fire rules exactly the same way a modern rule engine would today. And give the same answer the expert would give,

Even after the experts retired long ago!

We did that in AION. We could have used Neuron Data (which evolved into Fair Isaac Blaze Advisor), or we could have done it in ILOG. Or any number of other ES tools at the time. Some of them are still around today. (See BRE Family Tree)

Distribution of expert systems, and access, is one of the reasons they "never took off". People used to say expert systems were a solution looking for a problem. Deploying expert systems on the web solves those problems.

I think the Web is "the problem" that expert systems were looking for. The Semantic Web is reigniting a lot of the good stuff from the AI/ES days. Adding intelligence and reasoning to applications is what expert systems have been doing all along.

And by the way, not everyone agrees that expert systems never took off. I certainly don't.

As Richard Barfus, CEO of MindBox, (an ES/BRE/BRMS firm) likes to say, "Expert systems didn't really go away. They went undercover."

 

March 16, 2007

Best Buy + Secret Website = State Investigation of Best Buy Sales Rules

Best Buy uses a “secret website” in their stores to mislead customers and deny them discounts advertised on BestBuy.com  

On February 9, 2007 George Gombossy, Staff Writer/Consumer Watchdog reporter for The Hartford Courant, wrote this article on how Best Buy salesmen in the West Hartford, CT, and  Newington, CT, stores refused to honor $150 discounts offered on a Toshiba laptop advertised on Best Buy's public website - bestbuy.com.

The salesmen justified their refusal by showing the customer a secret website that appeared to be BestBuy.com. This secret website that they accessed in the store did not have the sales price.

Best Buy spokesman Justin Barber called the reporter back and said Best Buy's policy is to always honor the lowest advertised price, whether from its Internet site or from a competitor.  Barber insisted that "nothing improper was going on and that there was no secret website that virtually duplicates the public site so salesmen can dupe customers."

On February 10, 2007 the Connecticut Attorney General's office started an investigation into whether Best Buy maintains a secret intranet site that may have been used by some salesmen to deny customers discounts that appear on the company's public Internet site. The AG's office office informed Best Buy that he wants answers about its Internet policies and to disclose whether it has an intranet site that could be used to mislead customers. His office will also look into whether other chain stores may be using similar sales practices.

"The key question is whether consumers were advertised one price, and then denied that price when they got to the store," Connecticut Attorney General Richard Blumenthal said last week.  Under pressure from state investigators, Best Buy later confirmed that its stores indeed do have a "secret intranet site that has been used to block some consumers from getting cheaper prices advertised on BestBuy.com."

What happened at Best Buy is a great example of what can go wrong when business rules and processes are not managed properly. At a minimum, this is clearly an example of poor business rules management practices and poor process management practices. At a maximum, executives, employees and the company could be liable for damages.

This situation shows why business rules management is vital to the corporation.

See: Best Buy, Bogus Prices: Confusion about pricing rules reveals need for business rules management

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July 02, 2005

Famous Quotes (about resistence to change and predicting the future)

I am reminded of these quotes every time I talk to someone who believes that rulebases, knowledgebases, and expert systems are a fad...

"The telephone has too many shortcomings to be seriously considered as a means of communication.”
Western Union internal memo, 1876

"The Americans have need of the telephone, but we do not. We have plenty of messenger boys."
Sir William Preece, chief engineer of the British Post Office, 1876 *

"Drill for Oil? You mean drill in the ground to try and find oil? You're crazy."
Response reported by Edwin Drake as he tried to hire workmen who knew oil just bubbled out of the ground, 1895 *

"Everything that can be invented has been invented.”
Charles H. Duell, Commissioner, U.S. Office of Patents, 1899

"It must be accepted as a principle that the rifle, effective as it is, cannot replace the effect produced by the speed of the horse, the magnetism of the charge and the terror of cold steel."
British Cavalry Training Manual, 1907 *

"Airplanes are interesting toys but of no military value."
Marshal Ferdinand Foch (who become the supreme allied commander in World War I), 1911 *

"The wireless music box has no imaginable commercial value. Who would pay for a message sent to nobody in particular?"
David Sarnoff's associates in response to his urgings for investment in the radio in the 1920s.

“Who the hell wants to hear actors talk?"
H.M. Warner, Warner Brothers, 1927

"I think there is a world market for maybe five computers."
Thomas Watson, chairman of IBM, 1949 *

“Computers in the future may weigh no more than 1.5 tons.”
Popular Mechanics, 1949

"I have travelled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won't last out the year."
Editor in charge of business books for Prentice Hall, 1957 *

"We don't like their sound and guitar music is on the way out."
Decca records rejects the Beatles, 1962 *

"There is no reason in the world anyone would want a computer in their home. No reason.”
Ken Olsen, Chairman, DEC, 1977

"I believe OS/2 is destined to be the most important operating system, and possibly program, of all time.”
Bill Gates 11/87

"640K of RAM ought to be enough for anybody.”
Bill Gates, 1981

"The best way to predict the future is to invent it”
Alan Kay

* Thanks to Jocelyn Paine for these quotes:

June 10, 2005

Top 10 Reasons Why We Should Not Manage Business Rules or use Business Rule Engines

Here is a list of what I call "the usual suspects" - - These are the quotes that you will hear many IT People say when someone proposes the idea of using a rule engine instead of hard-coding or hard-wiring rules.

The Proposer sees the rule engine as a way to increase IT productivity, improve time to market, and reduce IT costs.

The "Old IT" People see the rule engine as a threat because it means they won't have to write as much code. Less code to write means less money to make.

The "New IT" People see the rule engine as an opportunity because it means they won't have to write as much code. This will give them more time to do more higher value-added work.

So listen up next time someone suggests using a rule engine in your company: See if you can tell from the response and feedback who gets the "New IT" of the 21st Century, and who is still stuck in the "Old IT" of the 20th Century?

10. "This is different." - - I agree, yes, traditional procedural applications are quite different from declarative rule-based applications

9. "This is not how we build traditional procedural-IT systems around here."

8. "This is not the way we hard-code or "hard-wire" our rules in our systems."

7. "If we use a rule engine, we may not need as many IT business analysts." - - This is a fact. Subject Matter Experts and other Business People may indeed be able to author the rules themselves, without IT Business Analysts

6. "And if we really learn how use this rule engine well, we may not need as many IT Programmers either..." - - This is a fact

7. It's not object oriented." - - This is wrong on multiple levels. First of all, object oriented programming systems evolved from A.I. and expert systems research labs. The earliest inference engines and expert systems were actually among the first (if not the first) computer programs that were truly object oriented. Remember SmallTalk?

6. "The inference engine will be too slow." - - This is wrong. This statement may be made by somebody who has experience working on expert system projects back in 1985. Everything was slow back then. Inferencing is a lot like thinking - It's hard work! Remember, PC's were running at 10 or 20 MHz back then. Inference engines run fine on my 3 GHZ PC in 2005.

5. "It'll never work." - - Some people just don't get it. They cannot deal with change. Lots of very smart people say things like that, and they turn out to be dead wrong. See Famous Quotes

4. "We tried that years ago, but it was too slow." - - See #6

3. "This rule engine adds one more layer for our programs to deal with." - - Technically, you may be right. However, did you stop to consider how many layers of legacy rule code you will be able to get rid of once the way you throw out all the spaghetti-code rules logic and put the rules in a rulebase (aka rule engine) instead? Getting rid of all that "hard-wiring" is probably going to eliminate about 23.5 layers of junk. So, yes, I agree with you on this one: Using the rule engine will add "one more layer". Let's call it the "business logic layer" or the "knowledge layer"

2. "Our rules are too complex for a rule engine." - - Every time I hear this claim, my jaw drops, then I go speechless. After a few seconds, I will explain the fact that the more complex your business rules are, the more you need a rule engine. This is usually the right moment to bring up the RETE algorithm and discuss how it scales and handles more rules without degrading.

1. "We'll just write our own rule engine." - - This is usually the last gasp. Once all the claims above are debated and proven false, this is the one that seems to come up last. At this point, even the IT People realize the way to go is a rule engine. But the first thought is "He's right, we need one... We need a rule engine... We need to build a rule engine." Right.... Let's see. How about a database analogy? What you are saying is that you should build your own rule engine, the same way that you should build your own relational database management system instead of buying Oracle or SQL Server or DB2. OK. I see your point....

Well, if you're that smart, you may be better off writing your own programming language as well. VB is too slow. And Java just adds one more layer.

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