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systems thenry

is one of tbe main intellectual tbe 20th century. It arose in frspecialization in the sciences as a lore integrated view of knowledge Id.' Systems theory attempts to understand tbe c o m m o n structure, attributes and emergent properties of all types of systems - physical, biological and social - by viewing them as systems per se rather than an economy or a business o r a machine, for example, A systems theory of business intelligence (Bl) w o u l d position Bl in tbe context of its surrounding system - the organizational environment in whicb it operates - and w o u l d predict the impact of that c^ontext o n Bl design. This theory w o u l d give designers a tool tbat guides tbem on wbat Bl technology can do and what it cannot do in a given environment and the risks involved. In this article, I want to develop a general outline of tbis tool. In previous articies in DM Review, I noted tbat organizations are coijmlive systems in dialog witb their environment. In order to learn irom their experience, organizations collectively need to perform several important c^ognitJve tasks: 1) sense and monitor their environment (e.g., using customer and supplier contact channels); 2) relate tbe information gained from this to the operating norms that guide tbe business (e.g., campaign m a n agement); 5) detect deviations from tbese norms; and 4) initiate corrective actions when deviations exceed some preset level. If these tasks are done well, a process of cybernetic information excbange is created between tbe organization and its overall environment.^ Some pundits describe Bl as the cornerstone of this cognitive process, but, as I have shown previously, B! is more accurately described as a technical artifact that encodes a description of tbe business environment (i.e., the data model).^ Bl helps users to understand their environment in terms that are meaningful, sucb as key performance indicators (KPls) and dashboards, and facilitates predicting and controlling tbe business. This is built into the front-end design of the Bl system as statements of purpose, scope, fiinctionality objectives, outputs and so forth, al! o( w h i d i are intended to align tbe Bl system with the organization's strategy. The problem arises wben the organization's environment exhibits a strategy o f its o w n . This bappens when tbe feedback cc:)ming in irom channels, customers and the larger world (e.g., regulators and competitors) doesn't matcb tbe predefined

c^ategories of knowledge, queries and otber outputs anticipated in tbe Bl system design. If we have designed the Bl system to be very specific in the types of data it collects and reports, then its functioning is vulnerable to environmental disturbance. On tbe other band, if we are too general in our specifications - the "toolbox" approach - we need to design on tbe fly for every unique situation. Wbat design approach is rigbt for a given environment?

A Human Systems Model


Let's start with the general buman systems model shown in Figure I tbat positions the firm in a larger context, including relationships with its environment and resource base. The systems view of tbe world attempts to see individual entities in tbeir larger, connected context; a solution is seen in its relationship to other entities. Tbus, when you push at one end of a problem you can anticipate tbe effects tbat might bappen at anotber end. This is in contrast to a reductionist view of the world tbat looks a( problems or situations in isolation. In Figure 1, tlie firm is seen as a human system in its relationship to: Tbe larger world system or the environment in which the firm, its suppliers, competitors, customers and everything are embedded.

A Systems Theory
By Jerry Kurtyka

of Business Intelligence
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The external environment i.e., everything that the firm encounters externally in its world and with which it has relalionships. but has little control over: customers, regulators, competitors, etc. The resource base, i.e., everything that the firm owns, uses or buys (inputs) or has some general control over: labor, capital, suppliers, etc. The boundaries of the firm itself that include: 1) business adious consisting of prespecified goals, processes, rules, procedures and actions of the firm; and 2) a business inodd that includes tiie physical plant distribution, organization .structure and menial models (presuppositions) within which business actions take place. histitutional memory that holds all of this in context and is accessible to the organization's members. BI is a technical artifact of institutional memory but not the entire memory which is much broader in scope and content Feedback from the environment is the force that drives change, Singk-bop jeedback only requires that the firm respond by actions within the scope of its current operating framework tliere is no revision of the firm's business model, its organization, vision and mission. Doubk-ioop Jeedhack impacts and challenges the firm's more basic assumptions and commitments resulting in deeper inquiry into experience to examine the basis of the assumptions by which it governs itself, and it may change those assumptions in the process. The general human systems model of Figure 1 is scalable. For the firm as a whole, it applies to both the immediate environment (i.e., its marketplace and resources) and the larger world system (i.e., its industr}'). For a given department within the firm, the environment is its user community', and the firm is the larger world system. This is likely to be the case with Bl. For the IT department, the BI user is the environment; for the BI user, the environment is likely to be a funcwww.dmreview.com

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tiondl depdrtment such as SHICS, marketinj^, finance and production. Positioning Bl in the Larger System In Figure I, Bl is the compont-nt ol the institutional memory of tht- firm that holds thf results of feedback from the environment relating to the firm's business actions. This is shown in Figure 1 as single-loop feedback that tells the firm how it is doing with respect to preset goals, objectives, process measurements and -SO forth. A single feedback loop connects an outcome of action mismatched by expectations to trigger some reaction, similar to how a room thermostat works. A dashboard for markeling, production, sales and finance does exactly this when it is coupled with the management decisions that respond to the information the Bl system is delivering. Bl can represent the elements of the firm that have a tangible reality and can be measured or quantified in the process of cybernetic information exchange. The business model of the (irm gets its "orders" to change from so-called double-loop feedback. Bl does nol directly intluence the business model functions of institutional memory such as the firm's mission, values and cultural norms except to show when they are out of step with the environment At the business-model level, an additional learning loop connects observed events with the strategies needed to iormulate change - positive feedback. The business model and even the institutional memor)' can undergo revision. If Bl Is involved here, it is to integrate Bl technology in such a way as to change the firm's operating model, not just lo seek incremental improvemeni of current processes. The constructs in the bu.siness model are carried by the institutional memory mostly in people's minds, reward structures, how authority is distributed, who is included in the "core group" and so on. The bLisiness model tells the members of the organization what to pay attention to, how to react emotionally, where they fit in and what to do in various situations. It is embedded in the organization's conscious and unconscious knowledge and is less visible Ihan the components of the more visible and measurable business actions. A Systems Theory for Bl Having positioned Bl in ihc context of the firm's institutional memory, we can Figure 2: Impact of Environment on Bl Design

Genera) Human Systems Model


Organization Institutional Memorv
Business Model: Business Actions:

Mission Vision Values Culture Structure

Goals Processes Rules Actions

glil 2005 by Jerry Kurtyka

Figure 1: General Human Systems Model

System Environment
Rigid

How it behaves
Limited and well-guarded interactions witti the environment, e.g., an assembly line, alarm system, ttiermostat. ATM. e-commerce Web sites, iiumanmachine systems. Closely defined goals and operating rules, e.g., bureaucracies, power plants, contact/cati centers, railroads and regulated industries.

Impact on Bl design
Very structured; known data inputs; transacttonal; stable data model; known metrics; well-defined report and query outputs; formulaic optimization; low risk implementation.

Deterministic

Dash board-type Bl in support of known goals; stable data feeds; stable data model; well-defined report and query outputs; formulaic optimization; regulatory reporting; medium risk implementation. Dastiboard-type Bl in support of known goais; many data feeds; complex data model; flexible report and query outputs; difficult formulaic optimization; implementation risk medium to high (but very challenging!).

Purposive

Have clear goals (purpose) set ejrternaily but are more open in the ability to select the operational means to achieve goals, e.g., the military, public schools, large manufacturers, financial institutions, healthcare delivery systems. Formulate their own goals that may be piuralistic, coevolve with the environment, e.g., new ventures, technology companies, R&D, investment firms, intelligence organizations, ad agencies, media networks.

Heuristic

Workbench-type Bl suite in support of shifting goals and ad hoc projects; mix of regular and irregular data feeds; mmimaljst data model to accommodate rapidly changing needs; flexible report and query outputs; statistical and predictive modeling; less risk due to constrained, ad hoc scope of projects. Workbench'type Bl suite in support of shifting goals and ad hoc projects; irregular data feeds; minimalist data model to accommodate rapidly changing priorities; flexible report and query outputs; simulation modeling; increased risk due to "fuzzy" goals and siiifting staff and management commitment.

Piirpose-Seehmg

Guided by ideals and a vision more than by specific goals and rules, coevolve with their environment, complex and systemic, e.g., academic ttiink tanks, spiritual and community organizations, artistic and social service endeavors.

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sec thiit for a BI dpplioition to be riently robust to serve its user comniLinit)', it must be designed with a view to the dynamics of the environment. Systems theorists will immediately recognize this as an instance of the Law of Requisite Variet\' which states that the degree of (ompk'xit)' in a controller must match the level of complexity in the environment in order for ihe controller to manage the environment. That's similar to saying a batter needs to understand as many of the pitches a given pitcher can throw or expect to strike out. In this case, the Bl application is the controller, a technical artifact that is used to organize, analyze, recommend, predict and measure ihe results of business actions. It is useful lo examine the range of complexity that could manifest in the external environment and within the overall system. This will determine how well the Bl application does its job, i.e., how robust it is for the task at hand and what can be reasonably attempted in the design. We can differentiate the overall system environment in terms of wheiher it is open or closed, focused on a few goals or more pluralistic in its intent, machinelike or organic in its operation. These ideas can be summarized as a continuum ol behaviors that describe the system environment listed in Figure 2.'^ I consider the environmental impact on BI design in lerms of its stability and struclure, how clearly design goals can be stated, data feeds to the ETL (extract, transform and load) process, complexity of the data model, outputs and metrics, how the Bl application can be used to guide management decisions and implementation risk.

The Bl application is a component of institutional memory and receives feedback from its environment in a process of cybernetic information exchange.
Designers can reference this figure to identify the type of environment they are dealing with and then choose the requisite complexity and function for the BI solution. One of the mistakes a design team can make is to overspecify the Bl solution in relation to the environment, e.g., build a complex and highly fimctional Bl suite to fit a heuristic business. I think that this happens as a result of scope creep and the pressure to sell a lot ol software and services versus defining the real need of the clienl. There is so much sales hype around BI and its customer relationship managemeni (CRiVl) and enterprise resource [ilanning (ERP) cousins that it is easy for a business to overspecify its needs and to run when it should first learn to walk. Figure ^ graphically summarizes the relationship between environmental complexity and implementation risk, as des{ribed in Figure 2, In Figure 5, as environmental complexity evolves from rigid and determinislic organizations, the Bi implementation risk generally rises to where it is highest for the purposive organization. This tracks my experience in that purposive organizations seem to be the largest market for Bl technology due, in part, to the attempts ot managers to integrate and control the plurality of goals pursued by multiple business units. Risk declines for heuristic organizations and rises slightly again for purpose-seeking organizations that may have trouble staying focused. This figure should give designers a clue to measure their Bl implementation risk exposure for a given type of environment. In this article, I have proposed a systems theory of BI that positions it in the context of a larger surrounding human system: the organizational environment in which it operates. The BI application is a component of institutional memory and receives feedback from its environment in a process of cybernetic information exchange. While BI technology can do a lot, there are some things it cannot do, and the limits of its capability are more likely to be determined by the dynamics of its surrounding environment than by the cleverness of designers or the technology employed. This is explained in terms of the Law of Requisite. Variety and how Bl function is con.strained by the complexity ot the surrounding business environment that spans a continuum from rigid to purpose-seeking. #

Implementation Risk High

I. Ttic "Idlher" ot systems tUvor)' is generally rccogni/fd to be the Gm^idian bjoluj^ist, Liidwij^ von RciLildiilTy (1901-1972). 1. St.iliii.ski, S "Orjitinizdlion.ii liitcilifji'iice: A Syslcms I'cr.sptxtJve." Oyiimitalioiuil DnrlopmaU loiiriuil. 21 (2004): 1. 1. Kurtyk.i, Jcrr\' "Ttic Limit.s ul Business Intelligence: An (>rj><iniAiti<)ndl Li-.irnin^ ApproiK h" DM Kcview, June 2005: 56-41. 4 t^tindthy, B. A Sv<.k\ni. I'lm (i( HnuiWon. Enjjtcwoac! Cltlls, MI: Kduaitiondl Tf(hnoloj^y Putiljiatjuiis, 2004. lary Kmlyka h luiiiiaifmti lUmloi fur Wliilahme TeclumkHiy, tin iiulqifiukiil ii'iisnUiiiuy iomsi-ii nn llu hiiiiuiiiislii mill Iviidcrshiji iisjicih ol (cifirrii/ncij. lie is
a i n i l c r iitiil ^pivker mi liw / i i / i t u it/ ()( niiil ("K.ll. lib

Low Rigid Deterministic Purposive Heuristic Purpose-Seeking

System Environment (Complexity)

(reilaHinii iiiihidr HKISIII/IIJI), '.iilcs niid iiuirkrlimj of CKM sii/lmrrc (u iiilniuiluiiuil l<iiiik\ iiiiil riijic ii-iin as a baukei, wlurc liv lield VI' /iii.si/mrf.s in slivild/ri j'diri

triiii), reliiil Iniiihiini mui Inr^iiiov ilnrhi'iua\l. kurlyka can (if mulwil al ikiirlykii@varthUnk.nfl.

Figure 3: Environmental Complexity vs. Implementation Risk for Bl


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