Strategic Decision Making Quiz#1

Why analytics matters

- Competitive global environment - Reinforced emphasis on quality -Context

What you need to know before using Winston's book

- How to enter a formula in Excel - How to work with cell references

Why analytics matters -Reinforced emphasis on quality

- Need to understand how organizations create quality goods and services - Understand process, understand performance

Why analytics matters -Competitive global environment

- Rude awakening for US (and others) in 70s and 80s -- lost market share, especially in autos and electronics

How to work with cell references

-Absolute cell reference, $A$4, copy of formula will always refer to cell A4 (think of $ as a nail) -Mixed cell reference, $A4, copy of formula will keep the column fixed but the row will update

Quality Tools for Analysis and Problem Solving

-Check Sheet -Run Chart -Histogram -Pareto Chart -Flowchart -Cause-and-Effect Diagram -Scatter Diagram -Control Chart -Benchmarking Analytic tools based on simple graphs and very basic quantitative analysis.

Six Sigma

-Danger in focusing only on average performance -Six Sigma focuses on average variation around that average -Goal is to refine process so that even variation around that average is still at acceptable quality standards -- In a normal distribution the mean +- (#) standard deviations accounts for 99.7% of observations. Six Sigma aims to achieve an accuracy of 99.966% (that's 3.4 errors per million opportunities) or better

Creating a KPI-oriented culture

-Detailed strategies to implement this culture -Implementation --Appropriate rewards and incentives --Eliminate fear (Deming) --Corrective rather than punitive approach --Organize improvement and performance preview meetings

Common problems with KPIs

-Measure everything (an organization had 200 KPIs; that set up a no-win game between labor and management) -Collect same KPIs as everyone else -Not use the relevant KPIs --Often an issue of easy to collect versus hard to collect -People should always come first (Deming) --KPIs are just a tool --People won't use KPIs if they feel threatened by KPIs

Marr, Ch. 4--Organizing Your KPIs

-Need a framework -Suggest that Balanced Scorecard (BS) as a KPI framework -BS implies that performance is multi-dimensional and performance dimensions interact with each other -BS considers... Financial performance Customer performance Internal process performance Learning and growth performance (essentially HR+)

Quality Improvement Programs

-Personnel Programs for Quality Assurance -Deming's 14 Point Program -Balrige National Quality Award -ISO 9000 -Six-Sigma

How to enter a formula in Excel

-must begin with = -use basic mathematical operators, + - * / ^

Experimental Design - Two key ideas in experimental research

A shorthand exists to describe experiments We RANDOMIZE each assignment to either the control or the treatment group We CONTROL who is exposed to the stimulus and how much of the stimulus they are exposed to

Other frameworks

Balanced scorecard is one useful framework, but not the only Recall from Fitzsimmons & Fitzsimmons chapter' on process other frameworks such as Six Sigma, etc.

Implementing KPIs

Create a KPI culture Select the correct KPI framework Use appropriate KPIs Analyze and report results

Customer performance

Customers ---> Revenue Customers react to their perception of the organization Customer performance KPIs have to address these perceptions

Six Sigma DMAIC Process Steps

Define - Define project objectives, internal and external customers Measure - Measure current level of performance Analyze - Determine causes of current problems Improve - Identify how the process can be improved to eliminate problems Control - Develop mechanisms for controlling the improved process

Different types of KPIs

Different types of management questions -Financial -Customer-focused -Operational -Employee-focused

Best practice for visualizing data

Don't use too many different types of visuals --You're teaching the reader; you're creating expectations about how you're presenting the data Avoid unnecessary frills Graphs are only useful if they show something more meaningful -Graphs are only useful if they make a point more clearly than you can in a simple sentence -Graphs only work when the reader gets 100% of your message without you being in the room to explain the visual

Reducing bias in business experiments

Ensure representative samples are used -Avoid systematically excluding certain types of people, situations, etc. Collect data more regularly -Representative sample of time Triangulate data -More valid conclusions if different data sets or different ways to measure the concept all result in the same conclusion Measure actual behavior when possinle -Intentions=behavior -If you must measure intentions, short time between intention and behavior is better than longer time Will I go to McDonald's today for lunch versus will I go there tomorrow/next week/next month/next year

The Benchmarking Process

Fitzsimmons & Fitzsimmons talk about benchmarking as best practice S1: Identify process for improvement S2: Identify organization that excels in the process S3: Make contact, pay visit, and study the process S4: Analyze the findings S5: Implement and improve your process Identification of best practice, peer group performance, aspirational groups, typical performance Often in hospitality, benchmarking involves typical performance, e.g., -ADR -RevPAR -Average occupancy in hotel -Fox and STHM use aspirational and peer group benchmarking

Quality and Productivity Improvement Process

Foundations of Continuous Improvement -Customer Satisfaction -Management by Facts -Respect for People Plan-Do-Check-Act (PDCA) Cycle This approach is in response to quality checking of finished product, argues that comes too late to matter

Characteristics of good KPIs

Goldlilocks zone -Not too many, not too few -Not just things that are easy to measure -Distinction between leading (predictive) and lagging (descriptive) Each KPI must be linked to a target goal or objective -These targets can be absolute or they can be relative -Absolute --increase number of stores by 7 in the fiscal year Relative (internal)--increase RevPAR by $2 over last year Relative (external)--have a higher occupancy that the Days Inn

Internal process KPIs

How the product or experience is delivered Organization has to ask itseld, "what SHOULD we be best at?" Quality is a dominant concern, but... quality where it matters (example of hotel and bed sheets from Marr)

10 Steps to create good KPIs

Identify 1---3 high level KPQs for each strategic objective KPQs must be performance related Get feedback about selected KPQs KPQs should be clear, short, and punchy KPQs phrased as open questions KPQs should be forward looking Refine and improve KPQs over time Use KPQs to identify KPIs Use KPQs to evaluate/refine existing KPIs Include KPQs in all communications

Best practice performance reports

Include strategy map to reinforce the connection between data and strategy Frame the report around KPQs Support KPQs with appropriate and meaningful graphs and charts Use headings to provide structure and walk the reader through your story Explain the data in words to add depth and contextualize graphs and tables

Personal programs for quality assurance

Individual development Management training Human Resources planning Standards of performance Career progression Opinion survey (employee) Fair treatment Profit sharing

KPI culture

KPI--tool to achieve organizational success NOT management weapon Problems when using KPIs as carrot-and-stick "tangible rewards tend to have a substantial negative effect on intrinsic motivation" "higher incentives led to worse performance" "financial incentives... can result in negative impact on overall performance" "financial incentives... can result in negative impact on overall performance"

Marr, Ch. 5--Developing a KPI

KPIs answer questions--have to answer the right questions? Develop Key Performance Questions (KPQ) Work from strategy map

Marr, Ch. 2 --Types, Targets, and KPI Mistakes

KPIs can be strategic or operational -Strategic-- are we achieving our goals? -Operational--monitor real time performance Measurement If something is real, we can measure it Never a question of CAN WE MEASURE IT?, frequently a question of HOW WELL CAN WE MEASURE IT? Some things are easy to measure, and how we can measure it gives us an exact answer to our question But other times, what we can measure is best a proxy for what we're interested in Example--sales (exactly what we're interested in) vs. number of page views (we're interested in involvement, since involvement leads to sales, but involvement is an unobservable mental state, so we count how many pages a customer looks at as a proxy for what we're really interested in)

Financial Performance

KPIs depend on organizational goals--what kind of financial performance? Revenue growth? Improve profit margins? Shareholder returns compared to competition? Maximize shareholder value? Long-term sustainable income? Etc.

10 step KPI template

Link KPI to strategic objectives Identify unanswered questions Isolate the decisions to take Check for existing data Collect meaningful data in appropriate time frame Assess the usefulness of KPQs Assess the usefulness to decision making Create awareness of cheating Evaluate the costs of collecting and analyzing data Collect the data

Deming's 14 points for management

Management by facts -- BUT PEOPLE MATTER

Marr, Ch, 3-- Creating a Culture of Fact-based Decision Making

Management should... -Visibly commit to KPIs -Communicate why KPIs matter -Be involved in the process -Move from inspector to supporter

Steps in the PDCA Cycle (Plan-Do-Check-Act) Cycle

S1: recognize problems/ establish priorities S2: form quality improvement teams S3: define the problem S4: develop performance measures S5: analyze the problem / process

Steps in the PDCA Cycle (Plan-Do-Check-Act) Cycle

S6: determine possible causes S7: select/ implement the solution S8: evaluate the solution/ follow-up S9: ensuring permanence S10: continuous improvement Steps 4 and 8--10 directly involve data and its analysis

The Seven-Step Method (SSM)

Step 1: Define the project Step 2: Study the current situation Step 3: Analyze the potential causes Step 4: Implement a solution Step 5: Check the results Step 6: Standardize the improvement Step 7: Establish future plans

Marr, Ch. 6-- Turning KPIs into insights

Stratgies and strategic goals are ASSUMPTIONS If---then framework If we achieve XXXX then we'll be more successful So the strategic map is a set of hypotheses about the relationship between actions and outcomes (success), As we said earlier, KPIs are models The scientific method suggests that we should test these assumptions or hypotheses Experiments are the Gold Standard in hypothesis testing

Learning and growth KPIs

These drive future value Human capital Information capital Organizational capital HC+IC+OC= ability to innovate, respond to change, etc.

Strategy Maps

These represent one way to figure out what to measure Explicitly incorporates linkage among types of KPIs

Characteristics of good KPIs

These targets should be specific These targets should be realistic

Marr, Ch. 7 Reporting and Communicating KPIs Effectively

To be used, information must be effectively communicated Keep in mind the target audience Who is going to read this report? What do they expect to see? What do they want to know? What will they do with this information?

Example KPQs

To what degree are our customers likely to recommend us to others? How well do we facilitate innovation in our culture? How engaged are our employees? How well are we communicating our strategy internally? To what extent are we growing market share in the Southwest region?

Best practice for visualizing data

Visuals should be simple. relevant, and deliver the information the audience wants Reader should be drawn to the most important information Use color sparingly; use only when necessary Remember that black and white copies will turn your colors to grey Remember that colors have cultural meanings Red= stop or financial loss Green=go Black=profit 10% of men and 1% of women are color blind Avoid 3D Graphs Unless the third dimension communicates real information

Why analytics matters -Context

W. Edwards Demings Red Bead Experiment (Quality control after the fact is too late!)

Datification

We each generate a large, growing behavioral record More and more organizations are using this data to achieve their goals Big Data 3 Vs Volume Velocity Variety Take advantage of datification through analytics Loyalty clubs generate a data stream for the host organization

An important point

We need to distinguish between what can be measured versus what SHOULD be measured -Appropriate KPIs help us Learn about and improve performance Report to stakeholders and/or demonstrate compliance Focus effort Monitor output

Marr, Ch.1 - Introducing KPIs

What are KPIs? KPIs are a tool that -Provides performance data about strategic goals and objectices -Helps us communicate information to key stakeholders -Helps reduce complexity Think of KPIs as a model "All models are wrong, but some are useful" "Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful" (Box & Draper, 1987)

Introduction to Key Performance Indicators (KPI)

Why KPIs? Aid decision-making when allocation scarce resources Competitive tool Continuous improvement Goal Effective design, implementation, and use of KPIs

Process Improvement

x axis - time y axis - quality level PLAN, DO, ACT, CHECK (circle)