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Management Process Is Key
1. Management Process: How It Impacts the Organization
2. 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
Dr. Lakshmi Mohan
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Linking Strategy to Operations
- A Closed-Loop Management System
Stage 1
Develop the Strategy
Stage 2
Stage 6
Translate the Strategy
Into Specific Objectives
And Initiatives of a
Strategic Plan
Reassess the Strategy
And Update it
Stage 3
Stage 5
Plan Operations
-Map out the Operational
Plans and resources to
achieve objectives
Monitor & Learn
Stage 4
Execute the Strategy &
Operational Plans
Dr. Lakshmi Mohan
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Source: R.S. Kaplan & D.P. Norton, “Mastering the Management System,” HBR, Jan. 2008, p.65
Management Process
- The Glue that Holds the Organization Together
EXTERNAL ENVIRONMENT:
Social, Economic, Political
The Organization’s
Strategy
Competitors
Organization Structure
and the
Corporate Culture
MANAGEMENT
PROCESSES:
Planning,
Control,
Rewards
Individuals
and
Roles
EXTERNAL
ENVIRONMENT:
Technological
Technology
Customers
Adapted from M.S. Scott Morton & J.F. Rockart, “Implications of Changes in IT for Corporate Strategy,” Interfaces, Jan-Feb, 1984
Dr. Lakshmi Mohan
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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.
Dr. Lakshmi Mohan
4
PEPSI-COLA CASE EXAMPLE
PEPSI-COLA COMPANY
Sell
"Concentrate"
PEPSI BOTTLERS
Convert "Concentrate" into Products
Bottles & Cans
- Stores
Fountain Syrup
- Restaurants
Vending
CONSUMERS
The Bottler has to be well-managed
for the Pepsi-Cola Company to prosper.
Dr. Lakshmi Mohan
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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.
Dr. Lakshmi Mohan
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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.
Dr. Lakshmi Mohan
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A Comprehensive Information System
to 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
Dr. Lakshmi Mohan
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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?
Dr. Lakshmi Mohan
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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” ?
Dr. Lakshmi Mohan
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A Corporate Financial BI System
Is “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
Dr. Lakshmi Mohan
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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 doesn’t mean it’s important.
Dr. Lakshmi Mohan
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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
Dr. Lakshmi Mohan
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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
Dr. Lakshmi Mohan
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Goals vs. CSFs For For-Profits
GOALS
•
•
•
•
Earnings per share
Return on investment
Market share
New product success
Dr. Lakshmi Mohan
CSFs
• 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
CSFs
Prime Measures
1. Image in financial markets

2. Technological reputation with
customers
3. Market success





4. Risk recognition in major bids
and contracts


5. Profit margin on jobs

6. Company morale

7. Performance to budget
on major jobs
Dr. Lakshmi Mohan
Price/earnings ratio
Orders/bid ratio
Customer “perception” interview results
Change in market share (each product)
Growth rates of company markets
Company’s years of experience with similar
products
“New” or “Old” Customer
Prior customer relationship
Bid profit margin as ratio of profit on similar
jobs in this product line

Turnover, absenteeism, etc.
Informal feedback

Job cost budgeted/actual
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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
Dr. Lakshmi Mohan
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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"
Dr. Lakshmi Mohan
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What Are the “MUST - KNOWs” ?
Quote Performance
Shipment Performance
New Data on "DATES"
Dr. Lakshmi Mohan
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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
Dr. Lakshmi Mohan
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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.
Dr. Lakshmi Mohan
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The Balanced Scorecard
• Translates a company’s 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.
Dr. Lakshmi Mohan
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Rockwater’s Balanced Scorecard
Financial Perspective
Return-on-Capital Employed
Cash Flow
Project Profitability
Profit Forecast Reliability
Sales Backlog
Customer Perspective
Internal Business Perspective
Pricing Index, Tier II Customers
Customer Ranking Survey
Customer Satisfaction Index
Market Share
Business Segment, Tier I Customers,
Key Accounts
Hours with Customers on New Work
Tender Success Rate
Rework
Safety Incident Index
Project Performance Index
Project Closeout Cycle
Innovation & Learning Perspective
% Revenue from New Services
Rate of Improvement Index
Staff Attitude Survey
# of Employee Suggestions
Revenue per Employee
Dr. Lakshmi Mohan
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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 management’s
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.
Dr. Lakshmi Mohan
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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.
Dr. Lakshmi Mohan
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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.
Dr. Lakshmi Mohan
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The Management Cycle
Establish
Objectives
Formulate
Plan
Implement
Plan
Revise
Objectives
Replan
Monitor
Performance
Control the Implementation,
React to Deviations
between Plan and Actual
Dr. Lakshmi Mohan
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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
Dr. Lakshmi Mohan
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A BI TO SUPPORT PLANNING
IS 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"
Dr. Lakshmi Mohan
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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
Dr. Lakshmi Mohan
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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?
Dr. Lakshmi Mohan
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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
Dr. Lakshmi Mohan
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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
Dr. Lakshmi Mohan
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Aggregating Data Evens out Market Fluctuations
BUT… must be balanced with burden of collecting data
Dr. Lakshmi Mohan
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REQUIREMENTS OF
A 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
Dr. Lakshmi Mohan
35
“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
Dr. Lakshmi Mohan
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Standard vs. “What If” Sales Reports
Standard Year-to-Date Sales Report for December
Product
Actual
Target
% of Target
P1
100
120
83%
P2
100
180
56%
P3
100
90
111%
Totals
300
390
77%
“What If” Sales Report for December
Product
Actual
Annual Target
BTA
Current
Speed
BTA
Change
Speed
P1
100
150
50
11.11
16.67
50%
P2
100
240
140
11.11
46.67
320%
P3
100
120
20
11.11
6.67
(39%)
Totals
300
510
210
33.33
Fiscal Year: April-March
Dr. Lakshmi Mohan
210%
37
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 lowlevel 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
Dr. Lakshmi Mohan
38
Using Expert Systems:
Extract 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
Dr. Lakshmi Mohan
39
"CoverStory"- An Expert System
Replaced 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
Dr. Lakshmi Mohan
40
Case Example:
Ocean 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
Dr. Lakshmi Mohan
41
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
Dr. Lakshmi Mohan
42
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
Dr. Lakshmi Mohan
43
Case Example: DeepGreen Financial
Competitive 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
Dr. Lakshmi Mohan
44
Automated Credit Decision Process
Joan applies online
for loan ( 5 mins.)
Joan’s Credit Report pulled out from Online Database
- Joan’s Credit Score is calculated by system
Checks for Fraud &
Flood Insurance
Joan’s Property Evaluation
- Based on Online Data
Loan Approved?
(2 mins)
NO
End
YES
System selects a Notary Public near to Joan’s
home
Joan chooses Closing Date
Loan documents printed from system
- express-mailed to the Notary
Notary visits Joan’s home to get signatures on loan documents
Dr. Lakshmi Mohan
45
DeepGreen’s Shrewd Strategy Feasible
Because …
… 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
Dr. Lakshmi Mohan
46
Lessons Learned
1. Identify Revenue Drivers and Cost Drivers with
Significant Bottom-Line Impact – the “MUST DOs”
2. Examine the Current Management Process for
Managing These Drivers
- Improve the Process
- Develop Detailed “HOW-TO” Procedures
3. Determine the Key Performance Indicators (KPIs) for
Each Driver
4. 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”
5. Reward System Must Be Aligned to KPIs
Dr. Lakshmi Mohan
47
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”?
Dr. Lakshmi Mohan
48
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
Dr. Lakshmi Mohan
49