Increase the chances of business success by keeping pace with change

The Origin of Business Rules

June, 1995

When our business partners present us with the business rules they want information systems (IS) to support, the rules are usually stated in an authoritative manner. As we analyze the business rules documented in the organization's product/service catalogs, marketing and business plans, policy and procedure manuals, and IS requirements specifications, the pages seem to be made of stone instead of paper. However, if you look at how business rules are formulated, you'll realize that this concreteness is really an illusion. The question is not whether an organization's business rules will change, but when they will change, how many will be impacted, and by how much.

It seems like life conspires to keep us from attaining our objectives. Numerous forces place constraints on our ability to achieve success. Therefore, we establish a set of rules we can use to chart a course through the obstacles in our way. These -rules govern our professional as well as our personal lives. The process of formulating business rules is similar to solving linear equations: We try to find the optimal mix that mitigates, as much as possible, all of the constraints imposed on our business activities while maximizing our ability to achieve our goals.

Understanding how business rules are formulated can help us design information systems that are amenable to change. I've observed several organizations as they have developed new sets of business rules and, in each case, have found that they used the following life cycle. The following tasks represent an unending cycle where-at any point in time-some portion of the enterprise's business rule portfolio is being scrutinized and refined:

1. Define objectives.

          2. Identify constraints that can impact success.

          3. Define business rules so that the constraints' impact is minimized and our ability to achieve goals is maximized.

4. Conduct business.

          5. Monitor activities and assess whether business rules are effective.

          6. Monitor constraints to determine whether changed conditions impact the effectiveness of the current business rules.

Let's illustrate the business rule formulation cycle by examining the rules I established for my teenage son's curfew. In this situation, the primary stakeholders' objectives were clearly at odds. He wanted to be able to stay out as late as possible, while I preferred to establish a set of rules that maintained my peace of mind and allowed me to get some worry-free sleep. When he was 15, my son and I negotiated an arrangement where he could stay out on weekends until 12 A.M.

For the next two years, he adhered to this business rule, with no curfew violations on his part. From my standpoint, the business rule was effective. However, as he got older, he began to feel overly constrained in our arrangement and reopened negotiations. A curfew rule had been established that was appropriate for the "age" constraint. His argument was that this constraint no longer applied to a mature 17 year old and that any curfew was overly restrictive. His most powerful evidence was the fact that he had to be home before his dates. Consequently, I relented, and the curfew business rule was eliminated entirely.

While the "age" constraint is relevant when parents establish family business rules for their children, you must consider a different set of constraints within the business environment. We can categorize the constraints that impact our ability to do business according to the degree to which the organization can control and alter them.

"Mother Nature" is the least within our control. The laws of Nature as discovered within the biological, chemical, and physical sciences often exert a force on our ability to do business that we can't ignore. We can often use technology to overcome constraints imposed by Mother Nature. For example, humans weren't designed to fly. However, we used our ingenuity to develop technologies that defy gravity.

Technology, or the lack thereof, can also represent a constraint. When designing information systems, we are often presented with business requirements for which technology either doesn't yet exist or isn't robust enough to use. About 10 years ago, when developing a problem-tracking and resolution application, my business partners wanted a system that automatically notified the investigations unit manager when a high priority investigation was logged. While this need could easily be handled if managers were logged onto the system, at that time, no technology existed to alert managers who weren't using the system when the notification was sent. Therefore, we were unable to support this business rule through automation. Of course, technological innovations have overcome this deficiency. Now, the system could simply send a message to the manager's pager.

Governmental organizations impose regulatory constraints because they're chartered with ensuring that business practices used in an industry are in society's best interests. Industries that have the potential of monumentally impacting society's well-being are heavily regulated-for example, banks, utilities, and transportation companies. When regulations change, an organization must be able to react quickly and modify its business rules to accommodate the new constraints. Within some industries, government has adopted a strategy of "deregulation" in which many of the long-standing regulations are eased or eliminated. This process has a profound effect on a enterprise's business rules as it enters a new age of competition.

Market and competitive constraints usually result from innovations introduced by one competitor in the industry who causes a shift in marketshare. The Automated Teller Machine (ATM) had this effect on the financial services industry. Self-service banking, a concept foreign to most banks when the first ATMs began to appear in the 1970s, has been embraced by a generation of computer literate consumers. Those banks that incorporated ATMs into their product lines early gained market advantage over their competitors. While the cost-effectiveness of delivering financial services through ATMs has always been debated, today every financial service organization must deal with electronic delivery of services directly to their customers. ATMs redefined banking in a manner that no bank could ignore.

Economic and financial constraints impact the amount of money an enterprise has available to finance its operations. During the early 1980s, when inflation was out of control, banks found their margins squeezed as interest rates on investment accounts were raised, but regulations didn't allow banks to increase loan rates accordingly. To respond to this economic threat, new business rules were formulated and new "membership" fees were imposed on credit cards. Not all financial constraints have their basis in external economic developments. If a company has implemented a business strategy that has resulted in declining profits, corrective action may be necessary by introducing a different course of action. Change in strategy is accompanied with some degree of change to the organization's business rules.

Resource quality has a profound effect on an organization's business rules. Resources are the people, equipment, and buildings a company uses to conduct business. A company exerts significant time and expense acquiring and managing high-quality resources. However, as technology, competitive, and economic constraints change, the resources that were highly effective under the prior rules may not perform so well under the current conditions.

As the PC has matured into a viable office tool, the ability of existing resources to support it comes into question. The cost of improving a mainframe-centric application and data management environment to support a distributed workforce can require replacing an inventory of character-based terminals with PC workstations, migrating from a centralized data management strategy to a distributed architecture, and incorporating wide area networks (WANs) and local area networks (LANs) into the network. "Brick and mortar" facilities are increasingly giving way to virtual offices located in salespeople's cars or IS developers' homes. Perhaps the greatest impact is on the ability of the human resource to meet the challenge of the new technology environment. For some managers or sales staff who are proud that they "never touch a terminal" and delegate all "computer work" to their administrative assistants, the cultural impact may be dramatic. "Retooling" the human resource can carry an emotional impact not associated with improving the quality of other business resources.

The last two constraints are the most within an individual organization's ability to control and optimize, yet often are the most difficult to change. They represent the essence of "corporate culture."

Management "values" set the organization's tone and direction. Often, these values aren't documented anywhere- they're just known. The degree to which a company is risk adverse impacts how it formulates its business rules for resolving exception cases that may arise while conducting business. For example, all financial institutions must be able to resolve situations in which a withdrawal causes an account to overdraft. A risk-adverse company may simply decide to let the offending checks "bounce." However, less conservative banks may adopt any of the following rules regarding the overdraft condition: attempt to contact customers and give them an opportunity to cover checks; allow the account to remain overdrafted for a period of time based on the perceived value of the customer; or cover overdrafts through low-interest loans. The environment that is established through these management values, although intangible, is often perceived externally. Customers examine these values when differentiating among competitors.

"Common practices" are closely linked to management values, but they can be established without management's awareness. The procedures adopted by an organization may have been originally intended to improve productivity but have become part of the organization's folklore. They probably made sense at one time but may not be applicable to the current environment. When we ask why these practices exist, the answer is often "because we've always done it this way."

We must assess business rules periodically to determine whether they're effective. If we have established optimal business rules, the organization should be closer to achieving its goals. However, if a company hasn't made significant progress, it has one of two problems: It has either established a set of suboptimal business rules, or a change has occurred in one or more of the constraints that the business rules were established to handle.

Constraints are often tightly coupled. A change in one area can often initiate a "domino effect" through the other constraints, causing the effectiveness of business rules to deteriorate rapidly. For example, client/server technology has matured quickly over the last couple of years, to the extent that many organizations find that their resources aren't equipped to accommodate a new way of doing business. These companies end up with an inventory of dumb terminals and PCs whose configuration is insufficient to meet the processing power demanded for office automation solutions. Likewise, the IS staff may consist primarily of designers who have experience developing character-based user interfaces when the business users are demanding graphical user interfaces (GUls). Suddenly, the organization finds itself with a resource quality problem that must be resolved either by retraining existing designers or bringing in experienced GUI developers. Until the resource quality issue is resolved, deploying GUI applications on the desktop will be difficult for the enterprise.

We must design IS to accommodate change in an evolving business environment. When we have built IS to anticipate the volatile portion of the enterprise's business rule portfolio, the organization can adapt to the dynamic business world rather than fall behind in the critical path of change and growth. Somewhere in your organization, business rules are changing. Is your application portfolio ready to support this change?

Terry Moriarty, president of Inastrol, a San Francisco-based information management consultancy, specializes in customer relationship information and metadata management. Her common business models have been used as the basis of customer models for companies within the financial services, telecommunication, software/hardware technology manufacturing, and retail consumer product industries. You can reach her at terry@inastrol.com.