Management Process Is Key

1
Management Process Is Key

• Management Process How It Impacts the
  Organization
• Best Practice of IT Strategy Driven by Management
  Process
• - Pepsi-Cola Case Example
• 3. Where to Position the Analytical System
• 4. The Critical Success Factors Approach
• - GE Power Systems Case Example
• 5. The Balanced Scorecard
• 6. Market-Driven Performance Measurement
• - Dannon Yogurt Case Example
• 7. Planning vs. Control Systems
• 8. Expert Systems Potential for Automating
  Processes
• - OceanSpray Case Example Extracting News from
  Data
• 9. Automated Decision Technologies The New
  Frontier
• - DeepGreen Financial Case Example

2
Linking Strategy to Operations - A Closed-Loop
Management System
Stage 1 Develop the Strategy
Stage 2 Translate the Strategy Into Specific
Objectives And Initiatives of a Strategic Plan
Stage 6 Reassess the Strategy And Update it

• Stage 3
• Plan Operations
• Map out the Operational
• Plans and resources to
• achieve objectives

Stage 5 Monitor Learn
Stage 4 Execute the Strategy Operational Plans
Source R.S. Kaplan D.P. Norton, Mastering the
Management System, HBR, Jan. 2008, p.65
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Management Process
- The Glue that Holds the Organization Together
Organization Structure and the Corporate Culture
EXTERNAL ENVIRONMENTSocial, Economic, Political
EXTERNALENVIRONMENTTechnological
The OrganizationsStrategy
Technology
MANAGEMENTPROCESSESPlanning,Control,Rewards
Individualsand Roles
Competitors
Customers
Adapted from M.S. Scott Morton J.F. Rockart,
Implications of Changes in IT for Corporate
Strategy, Interfaces, Jan-Feb, 1984
4
Management Processes That
Merit Examination

• Planning and Budgeting
• Performance Measurement and Reporting
• Resource Allocation
• Human Resource Management

LESSON Investments in providing good quality
information are a waste if managers do not use
the system. Hence, improve the management
process first and then develop the information
system to support the improved management
process.
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PEPSI-COLA CASE EXAMPLE
PEPSI-COLA COMPANY
Sell "Concentrate"
PEPSI BOTTLERS
Convert "Concentrate" into Products
Bottles Cans
Fountain Syrup - Restaurants
Vending
- Stores
CONSUMERS

• The Bottler has to be well-managed for the
  Pepsi-Cola Company to prosper.

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Focus on the Management Process
Identify the Revenue Drivers and Cost Drivers of
the Bottler's operations.
Develop the Management Process or "how-to"
procedures for managing these drivers.
An Information System to implement the
"how-to" procedures.
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PEPSI - COLA'S Thinking in 1982

• All Bottlers face essentially the same problems
  with regard to improving their operating
  efficiency and profitability.
• Why should each Bottler reinvent the wheel?
• Pepsi-Cola Company will make the investment in
  developing an information system that can be used
  by all Bottlers.
• The PC will enable a "standard" software package
  to be developed for the Bottler Information
  System.

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A Comprehensive Information Systemto Support
the Management Process
Developed over a three-year period
Phase I Sales Analysis Tank/Cylinder
Monitoring Phase II Equipment Tracking
Service Analysis Phase III Financial
Analysis
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Information Provided by the System - Some
Examples

• How are My Route Drivers Performing?
• What is the Average Drop Size for Each
  Route?
• Are the Trucks being Overloaded?
• What is the Sales Trend in Different
  Channels for Pepsi-Free?
• Where are My Tanks?
• How Many Pieces of Equipment are on Loan?
• What is the Productivity of My Mechanics?
• Which Makes of Equipment are Less
  Dependable?

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Where to Position the Analytical System ?
Initial Target of Most BI Systems -
Corporate Financial Data Why? - Area of
great interest for top management - Data
readily available - Easy to implement Is a
Corporate Financial BI Really Useful ?
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A Corporate Financial BI SystemIs Useful
IF...

• It has Micro-Level Data
• e.g. Expenditures at the Detail Level
• Data on Individual Debtors by Ageing Period
• BI System can then Trace Problems to the Root
  Causes

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The CSF Approach
What Is It?
A method to determine the information
requirements to improve management effectiveness.
Why?
Existing MIS systems are data-rich but
information-poor - too much financial data -
unfiltered data - irrelevant operational data -
no external environment data
We need information about what really counts
just because data is available doesnt mean its
important.
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Critical Success Factors are ...
The key areas where things must go right for
the business to flourish
They should receive constant and careful
attention from management - Determine the Key
Indicators
Measure the performance of each indicator
- Determine the data needed for each indicator
IDENTIFY MUST - DOs ? FOCUS BI ON MUST -
KNOWs
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The Critical Success Factors Approach
Identify the specific factors most responsible
for the organization to achieve its goals
Determine the KPIs for monitoring each CSF
Define the data requirements for measuring each
KPI
Develop prototype system. Modify prototype based
on user feedback
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Goals vs. CSFs For For-Profits
CSFs
GOALS

• Earnings per share
• Return on investment
• Market share
• New product success

• Automotive Industry
• Styling
• Quality dealer system
• Cost control
• Meeting energy standards
• Supermarket Industry
• Product mix
• Inventory
• Sales promotion
• Price

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Measures for Tracking CSFs -- An Example
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Merits of the CSF Approach
1. Focuses on what management absolutely needs
to do and know -- not those which would be
merely nice to do and know 2. Sets priorities in
the Information Systems Plan 3. Limits data
collection to what is necessary 4. Avoids the
trap of building systems on data which is readily
available or easy to collect 5. Forces
consideration of external and soft
data 6. Highlights the need for change in
information systems in response to environmental
and business changes
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GE Power Systems Focus BI on MUST - DOs
Changing Business Focus from new machine to
replacement parts market from U.S. to
international more price sensitive
Increase Productivity Reduce Costs
Improve "Customer Service"
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What Are the MUST - KNOWs ?
Quote Performance Shipment Performance
New Data on "DATES"
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Data On Dates Needed For BI
"QUOTE CYCLE" FROM - Date of request for
quote - Date of quote release "REQUESTED
CYCLE" FROM - Date of order - Customer
"want" date "SHIP CYCLE" FROM - Date of
order - Date of shipment
Tracking Cycle Times Important For Changing
Organization Culture From Technology-driven to
Market-driven
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Traditional Performance Measurement Systems Are
Inadequate...

• Each function has its own set of results
  measures. For example
• Marketing - Market Share
• Operations - Inventory
• Finance - Costs
• These narrow functional measures could
• lead to overall system Suboptimization.
• The few cross-functional results measures are
  financial
• Revenues, Gross Margins, Operating Income,
• Return on Investment, etc.
• Report on what happened last period without
  indicating
• how managers can improve performance on the
  next
• What is Needed Process Measures
• To monitor activities throughout the organization
  
• that produce a given result.

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The Balanced Scorecard

• Translates a companys strategic objectives into
  a coherent set of performance measures with four
  different perspectives
• Customer
• Financial
• Internal Business Processes
• Innovation and Learning
• A limited number of critical indicators should be
  selected within each perspective - about 15 to
  20.
• Real benefit Scorecard is the core of the
  management system - the way the business is run.

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Rockwaters Balanced Scorecard
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Market-based Performance Measures...
MUST be linked to Reward Systems Measurement and
reward systems are critical in developing a
market-oriented business. Just as managers will
emphasize those things that top managements
statements of beliefs and values focus their
attention on, they will also do those things for
which they are evaluated and rewarded Source
F. Webster, Rediscovering the Marketing
Concept, Marketing Science Institute Working
Paper, 1988.
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The Dannon Yogurt Case Example

• Critical Success Factor Customer Service
• Key Performance Indicators
• For Each Customer
• Fill Ratio of Each SKU Shipments ? Orders
• Freshness of Product of Each SKU Shelf-Life of
  Shipments
• New Data Requirements
• Fill Ratio of the SKU Orders for that SKU from
  Customer
• Freshness of Product of SKU Code Dates on
  Containers of SKU Shipped to Customer
• (Available Shelf-Life Code Date minus Ship
  Date)
• Result The legacy Invoicing System, which only
  had data on
• Shipments, had to be replaced with a new system
  that
• captured the additional data needed for
  management control.

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A Market-Driven Performance Measurement System

• Customer Service became the metric in Dannon for
  measuring performance of Marketing Sales
  Distribution AND Production
• Uniform Performance Measurement is critical for
  integrating the important functional areas in the
  business process.

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The Management Cycle
Formulate Plan
Establish Objectives
Implement Plan
Revise Objectives
Replan
Monitor Performance
Control the Implementation, React to
Deviations between Plan and Actual
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Management Process Planning and Control

• Plan
• Deciding Today what to do Tomorrow
• The Planning Horizon Strategic Planning may be
  Years
  Budgeting may be a Year
  Production may be Weeks
• Implement
• Get Organizational Buy-in
• Restructure Organization if necessary
• Monitor
• Measuring Actual Performance is Critical for
  Control
• Control
• How has Actual Performance deviated from Plan?
• What corrective action must we take?
• Deviations may also represent an opportunity

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A BI TO SUPPORT PLANNINGIS NOT EASY TO
DESIGN

• (1) Large number of available alternatives
• ??? how to determine the "best" plan
• (2) Uncertainty about the outcomes
• ??? how to evaluate the consequences
• (3) Multiple criteria for measuring outcomes
• ??? how to combine "apples" and "oranges"

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"SATISFICING" vs. "OPTIMIZING"IN
DECISION-MAKING
Choose a solution that is good enough using
manager's rules of thumb or
heuristics. Benefits Saves time and cost
Easy to implement
versus

• Search for the best solution using an optimizing
  model
• Problems Model may not fit the problem
• More data needed
• More time and cost
• Higher intellectual cost

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MONITORING PERFORMANCE

• (1) WHAT ?
• ??? What "readings" of actual performance
  should be
• taken?
• (2) HOW ?
• ??? Where should the "meters" for taking the
  readings be placed?
• (3) HOW OFTEN ?
• ??? How often should the "meters" be read?
• (4) HOW CURRENT ?
• ??? How quickly should the "readings" be
  transmitted to management?
• (5) HOW ACCURATE ?
• ??? How accurate do the "readings" have to be?

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MONITORING THE MARKET

• What ?
• Sales Volume? Value?
• Shares Total Market? Segments?
• How ?
• Internal data
• Market research
• Call reports of sales force

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MONITORING THE MARKET

• How Often ?
• Daily? Weekly? Monthly?
• How Timely ?
• Enough advance warning to steer around the
  iceberg
• How Accurate ?
• Satisficing versus Numerical accuracy

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Aggregating Data Evens out Market Fluctuations
BUT must be balanced with burden of collecting
data
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REQUIREMENTS OFA BI TO SUPPORT CONTROL

• (1) Summary reports not useful
• ??? they can hide problems
• (2) Exception reports
• ??? a "must" for reducing data overloads
• (3) Drill-down capability to access detailed
  data
• ??? to trace a problem to the root cause
• (4) Graphics capability
• ??? facilitates comparisons
• (5) "What happened" is not enough
• ??? analysis needed for "what if "
• (6) Intelligent drill-down
• ??? to signal problems at a detail level

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WHAT IF ANALYSIS - An Example

• Standard Sales Performance Report
• Actual vs. Target vs. Last Period
• Variances
• Achievement of Target
• What are the implications of performance to-date?
• THE Question Will Annual Targets be achieved?
• Compare Current Sales Speed with
• Balance-To-Achieve Sales Speed
• BTA Speed BTA Target / Balance of Months

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Standard vs. What If Sales Reports
Fiscal Year April-March
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What are Expert Systems?

• A technology that enables expertise to be
  distributed in a firm without the presence of the
  human expert
• Rule-Based System
• If This, Then That
• Rules are determined from expert knowledge and
  programmed in the software
• Feedback Loop to Improve Rules
• An HR Application
• Screening a large number of resumes for
  relatively low-level positions with well-defined
  and precise skill requirements
• - e.g., Call Center Agents
• Expert System can weed out applicants who do not
  meet the requirements

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Using Expert SystemsExtract News from
Scanner Data

• The Promise Better Data
• Compared to Retail Store Audits
• Frequency Weekly vs. Bimonthly
• Level of Detail UPCs vs. Brands
• Scope Top 50 Markets vs. Regions
• The Problem Too Much Data
• At least 100 times more data
• The Result Impossible to Use Quality Data

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"CoverStory"- An Expert SystemReplaced The
Human Analyst

• Before . . .
• ? Companies circulated top-line reports,
  including tables and charts from the retail store
  audit data. An analyst prepared the cover memo
  highlighting important news in the data.
• Now. . .
• Not feasible to have an army of analysts to sift
  through the mountain of scanner data. Instead,
  "CoverStory" automatically writes this memo !
• A model-imbedded expert system extracts the news
  from the data
• Another expert system composes the memo using a
  built-in thesaurus to eliminate repetitious
  wording

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Case ExampleOcean Spray Cranberries

• A 1 billion grower-owned agricultural
  cooperative
• Lean IS staff
• Only one marketing professional for analyzing the
  scanner data
• Scanner data for juices is imposing
• -- 400 M numbers covering up to 100 data
  measures, 10,000 products, 125 weeks and 50
  geographic markets
• -- Grows by 10 million new numbers every four
  weeks

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Impact of CoverStory

• Enables a department of one to alert all Ocean
  Spray marketing and sales managers to key
  problems and opportunities and provide
  problem-solving information
• Being done across 4 business units handling
  scores of company products in dozens of markets
  representing hundreds of millions of dollars of
  sales
• System is totally integrated into business
  operations because it delivers information of
  competitive value in running the business

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Automated Decision Technologies Are Coming of
Age!

• Best suited for decisions that must be made
  frequently and rapidly
• Information for making decisions is available
  electronically
• Knowledge and decision criteria must be highly
  structured
• Good Example Bank credit decisions
• Repetitive, Uniform Criteria Plentiful
  Customer Credit Data Available
• Poor Choice Whom to Hire as CEO
• Rare Occurrence, Non-Standard Criteria (e.g.,
  personal chemistry) that cannot be captured in a
  computer model
• Benefits
• More Consistent Decisions
• Respond Faster to Customers
• Leverage Scarce Expertise
• Reduce Labor Costs
• Enforce Policies

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Case Example DeepGreen FinancialCompetitive
Advantage Automated Credit Decisions

• Targeted Customers High-end Borrowers
• - Want a standardized loan for a small
  fraction of the value of their home
• Created an Internet-based system in 2000
• Customer completes home-equity loan application
  online in 5 minutes
• Receives decision within 2 minutes in 80 cases
• No upfront paperwork from borrowers
• - Traditional appraisal of credit worthiness
  not required
• USP Speed, Service and Convenience
• - NOT Interest Rates
• - Can tailor loan terms to needs of
  individual borrowers

• Skimming off customers with the best credit
• 8 Employees process 400 applications a day
• 5 years Originated over 4.4B of home-equity
  lines of credit

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Automated Credit Decision Process
Joans Credit Report pulled out from Online
Database - Joans Credit Score is calculated by
system
Joans Property Evaluation - Based on Online Data
Loan Approved? (2 mins)
System selects a Notary Public near to Joans home
YES
NO
Joan chooses Closing Date
End
Loan documents printed from system
- express-mailed to the Notary
Notary visits Joans home to get signatures on
loan documents
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DeepGreens Shrewd Strategy FeasibleBecause

• All data needed to make home-equity loan
  decisions available online
• Relatively easy to make credit decisions
  involving affluent, low-risk borrowers
• - Factors to be considered are well understood
• - Experts can readily codify the decision rules
• High-end customers tend to be Internet-savvy
• - Offer them what they need online, and they
  will come

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Lessons Learned

• Identify Revenue Drivers and Cost Drivers with
  Significant Bottom-Line Impact the MUST DOs
• Examine the Current Management Process for
  Managing These Drivers- Improve the Process-
  Develop Detailed HOW-TO Procedures
• Determine the Key Performance Indicators (KPIs)
  for Each Driver
• Measure the KPIs- Satisficing Information is
  Enough- But, Macro Information is Useless-
  Micro Information Needed to Pinpoint Root Causes
  to Enable Corrective Action - DE-AVERAGE
• Reward System Must Be Aligned to KPIs

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What Is Not The Solution
1. Give Users Access to the Data - They
will Drown in All That Data 2. System has
Everything - An Overdesigned System NOT
Usable 3. Build It and They Will Come -
Users need Help What to Do
with the Information?
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What Is The Solution - Some Pointers
1. A Rich Data Base - Business Problems
Cannot be Solved in the Aggregate -
Detailed Data Needed from Different Sources to
Trace Problems/Opportunities to the Root
Causes - Soft Data Vital in Marketing HR 2.
Data must be Converted into Actionable
Information - System Design Must Enable
Users to Glean the News in the
Data 3. A Compact System - Ability to Drill
Down to Detailed Data Where Needed 4.
Problem-Finding Capabilities Built into the
System - Ranking, Exception Reports, Trend
Graphs 5. System Must be Inviting to Use