Organizational Decision-Making and Process Management (BPM) BSAD 141 Dave Novak BDIS: Chapter 2

Topics Covered Decision-making and types of decisions Decision-making and the organizational pyramid Metrics CSFs and KPIs Efficiency versus effectiveness Terminology associated with BPM Changes at different decision-making levels Scope of decision

Decision-Making Essentials Organizational Pyramid Decision-making and problem-solving occur at each level in an organization

Decision-Making Essentials Operational decision making Operational Decision Making - Employee Type: lower management, analysts, staff Focus: Internal, functional Time Frame: Short term, day-to-day operations Decision Types: Structured, recurring, repetitive MIS Type: Information Metrics: Key performance indicators focus on efficiency Examples: How many employees are out sick? How many products need to be made today? What are next week’s production requirements? How much inventory is in the warehouse? How many problems occurred when running payroll? Which employees are on vacation? What are some examples of types of systems or activities at this level? Payroll Training & development Accounts payable & receivable Employee record keeping Scheduling Order processing Order tracking OPERATIONAL

Decision-Making Essentials Tactical / Managerial decision making Managerial Decision Making Employee Type: Middle mgmt., managers, directors Focus: Internal, cross-functional Time Frame: Short term, daily, monthly, yearly Decision Types: Semistructured, adhoc, reporting MIS Type: Business Intelligence Metrics: KPIs focusing on efficiency, and CSFs focusing on effectiveness Examples: Who are our best customers by region, by sales representatives, by product? What are the sales forecasts for next month? How do they compare to actual sales for last year? What was the difference between expected sales and actual sales for each month? What was the impact of last month’s marketing campaign on sales? What types of ad hoc or unplanned reports might the company require next month? What are some examples of types of systems or activities at this level? Sales management Pricing & profitability Contract analysis Production costs Sales analysis by region Inventory Audits MANAGERIAL

Decision-Making Essentials Strategic decision making – STRATEGIC Strategic Decision Making Employee Type: Senior management, presidents Focus: external, industry, cross company Time Frame: Long term, yearly, multi-year Decision Types: Unstructured, nonrecurring, one time MIS Type: Knowledge Metrics: CSFs focusing on effectiveness Examples: How will changes in employment levels over the next three years impact the company? What industry trends are worth analyzing? What new products and new markets does the company need to create competitive advantages? How will a recession over the next years impact business? What measures will the company need to prepare for due to new tax laws? What are some examples of types of systems or activities at this level? Sales trend forecasting Budget forecasting Profit planning 5-year forecast planning

Decision-Making Essentials Types of Decisions Structured Unstructured

Decision-Making Essentials Information Requirements Source: Gelinas, Sutton, and Fedorowicz, 2004

Why Does This Matter? The decision-makers at different managerial levels are responsible for making very different types of decisions – some decisions are much more structured than others Each decision-making level requires very different types of information MIS are more useful with respect to some decisions

Supporting Decision-Making with MIS Type of Decision Decision support system (DSS) – models information to support managers and business professionals during the decision-making process Executive information system (EIS) – a specialized DSS that supports senior level executives within the organization Decision-Making Level from Organizational Pyramid

Operational Support Systems Transaction processing system (TPS) – Basic business system that serves the operational level and assists in making structured decisions Online transaction processing (OLTP) - Capturing of transaction and event information using technology to process, store, and update Source document – The original transaction record Transactional Information – encompasses all of the information contained within a single business process or unit of work, and its primary purpose is to support the performing of daily operational or structured decisions. Transaction processing system (TPS) - basic business system that serves the operational level and assists in making structured decisions. Online transaction processing (OLTP) – capturing of transaction and event information using technology to process, store, and update. Source Documents – Using systems thinking, the inputs for a TPS or the original transaction record. Analysts typically use TPS to perform their daily tasks What types of TPS are used at your college? Payroll system (Tracking hourly employees) Accounts Payable system Accounts Receivable system Course registration system Human resources systems (tracking vacation, sick days)

Operational Support Systems Systems Thinking View of a TPS Create, read, update, and delete (CRUD) are the common processes associated with a TPS Common inputs are source documents and outputs are reports

Managerial Support Systems Decision support system (DSS) – Computer-based model(s) to support managers and business professionals during the decision- making process Includes a combination of data and analytical tools Decision support system (DSS) – Models information to support managers and business professionals during the decision-making process Analysts typically use TPS to perform their daily tasks – Ask your students what types of TPS are used at your college? Payroll system (Tracking hourly employees) Accounts Payable system Accounts Receivable system Course registration system Human resources systems (tracking vacation, sick days)

Managerial Support Systems Interaction Between a TPS and DSS The TPS supplies transaction-based data to the DSS The DSS summarizes and aggregates the information from the many different TPS systems, which assists managers in making informed decisions. Burlington Northern and Santa Fe Railroad (BNSF) regularly tests its railroad tracks Each year hundreds of train derailments result from defective tracks Using a DSS to schedule train track replacements helped BNSF decrease its rail-caused derailments by 33 percent

Metrics: Measuring Success / Performance Critical success factors (CSFs) – The crucial steps companies make to perform to achieve their goals and objectives and implement strategies Create high-quality products Retain competitive advantages Reduce product costs Increase customer satisfaction Hire and retain the best professionals

Critical Success Factors (CSFs) CSFs are larger picture performance measures that directly relate to a specific goal When you look at the individual CSF examples, you should note that they don’t refer to specific quantifiable measurements but provide specific focus areas for achieving the goal

Metrics: Measuring Success / Performance Key performance indicators (KPIs) – The quantifiable metrics a company uses to evaluate progress toward critical success factors Turnover rates of employees Number of product returns Number of new customers Average customer spending

Key Performance Indicators (KPIs) Much like objectives are tied to goals, multiple KPIs can be tied to a specific CPI When you look at the individual KPI examples, you should note that they CAN be explicitly measured

Metrics: Measuring Success / Performance External KPI Market share – The portion of the market that a firm captures (external) Internal KPI Return on investment (ROI) – Indicates the earning power of a project http://www.youtube.com/watch?v=R0rdMMfFyPQ Measuring market share and especially ROI, are getting harder and harder to track when you add to the equation social media and online marketing. There are debates on both sides of how to measure these effectively, but truly only time will tell the actual impact of all these new technologies have on the business environment.

Efficiency Versus Effectiveness Measures MIS Efficiency metrics The extent to which a firm is using its resources in an optimal way – getting the most from its resources Measure the performance of MIS itself, such as throughput, transaction speed, and system availability Efficiency MIS Metrics Focuses on the extent to which a firm is using its resources in an optimal way. Doing things right – getting the most from each resource (Peter Drucker)

Efficiency Versus Effectiveness Measures MIS Effectiveness metrics How well a firm is achieving its goals and objectives Measures the impact MIS has on business processes and activities, including customer satisfaction and customer conversation rates Effectiveness MIS Metrics Focuses on how well a firm is achieving its goals and objectives Doing the right things – setting the right goals and objectives and ensuring they are accomplished

System availability – the number of hours a system is available EFFICIENCY -VS- EFFECTIVENESS Throughput – the amount of information that can travel through a system   Usability – the ease with which people perform transactions or find Info Transaction speed – the amount of time a system takes to perform a transaction Customer satisfaction – measured by satisfaction surveys, how many retained, and increase in revenue per customer System availability – the number of hours a system is available Conversion rates – how many ‘touches’ it takes to convert a first time user to become a customer and purchase the product Information accuracy – How often a system generates the correct results when doing the same transaction many times Financial – ROI, cost-benefit analysis, break-even analysis Response time – how long it takes to respond to user interactions.

Relationships Between Measures Benchmark – Benchmarking – You can’t Improve what you don’t measure!! Benchmarks help assess how an MIS project performs over time If a system held a benchmark for response time of 15 seconds, the manager would want to ensure response times did not deviate from this point – including increases or decreases.

Business Processes

Business Process Management BPM – a systematic approach for creating, documenting, evaluating and improving all business processes throughout the organization

Business Process Management Offers a holistic management approach that focuses on aligning the organizations business processes with its goals and objectives Think about how processes might be improved to create better performance within the primary and secondary activities and improve the flow of information and material within the organization’s value chain

Business Process Management Evaluating current processes and designing better, “more effective” processes Provide more value to the customer Reduce “costs” Increase “benefits” Requires an established data collection and benchmarking process

Business Processes and Systems Short video from Chase about the importance of process and systems http://www.youtube.com/watch?v=O8oVibj2-58

There is A LOT of similar terminology… These 3 terms all fall under the umbrella of Business Process Management (BPM) / Business Process Improvement but mean different things Continual improvement process Total quality management Six Sigma

Continual Improvement Process (CIP) CIP – specifically refers to incremental improvement based on small changes rather than on completely reengineering processes Is CIP just another term for (or another way to view) the automation component of Business Process Improvement? Source: http://en.wikipedia.org/wiki/Continuous_improvement_process

Total Quality Management (TQM) TQM – captures the idea that the quality of products, services, and processes is the responsibility of everyone in the organization (all people and processes involved in the creation, dissemination, and use of the products and services offered) This concept is not new, but stresses that upper- level management alone is not responsible for “quality management” Source: http://en.wikipedia.org/wiki/Total_quality_management

Six Sigma Six Sigma – a business management strategy attributed to Motorola that seeks to improve quality by eliminating errors associated with variations in manufacturing and business processes Is Six Sigma just another term for (or another way to view) product / service consistency? Is it simply detailed documentation and strict adherence to engineering and management practices? Source: http://en.wikipedia.org/wiki/Six_Sigma

BP Changes with MIS Magnitude of Change and Potential Benefits A true BPR effort does more for a company than simply improve it by performing a process better, faster, and cheaper Progressive Insurance’s BPR effort redefined best practices for its entire industry The figure displays the different types of change an organization can achieve, along with the magnitude of change and the potential business benefit What is an example of each type of change on the change spectrum? Automate – answering phones with computers, auto grading an essay or Excel project Streamline – remove duplicate jobs in the process, use a different tool to perform the same task Reengineering – taking an airplane instead of a bike, horse, or car, taking BPR to the level where you redefine an entire industry – such as Progressive Insurance Managerial Decision-Making Level

Changes at Each Decision-Making Level Automation is an operational level change Streamlining is a tactical level change Business process reengineering (BPR) is a strategic level change

Changes at Each Decision-Making Level Automation –automate specific tasks or activities in an existing process Streamlining – simplify, refine, eliminate (an incremental change) in an existing process BPR – dramatically or completely change how things are done Could involve completely eliminating old processes and adopting new ones

Business Process Management Viewing and evaluating BPs in isolation or in functional area / departmental silos may not be that useful and has limited benefits Changing a process without considering how that process integrates with other processes in the value chain can: Address symptoms of a problem rather than the problem itself Impact other processes in unexpected ways Lead to interorganzational conflict

Not Necessarily Simple… Are people / systems that are taking the orders communicating with operations people / systems, and with people / systems delivering the orders? Functional area “silos” present a huge problem

Not Necessarily Simple… FedEx conflicting KPI example from book Sales team sets 2 KPI Increase # of orders Increase sales $ Operations team sets 2 KPI Reduce cycle time Reduce lead time

Not Necessarily Simple… There are some potentially HUGE issues associated with BPM What does automation imply for some lower-skilled workers? Can the organization find the skilled workers it needs to manage, maintain, and operate new systems / technologies?

Not Necessarily Simple… People are generally resistant to, and suspicious of, change – especially big changes As an organization implements larger changes such as streamlining and BPR (that can have substantial impacts on employees and how things are currently done) there tends to be more push back

Business Process Management As organizations change processes further up the organizational pyramid (higher management levels), the organizational-wide impact of these changes grows larger Systems View -

The scope of the processes versus the “decision-making” or management level How about the scope of the process? Who (inside / outside the organization) is involved in managing the process? What if a single organization doesn’t fully control the process?

The scope of the processes Functional processes – BPs that are very limited in scope and occur within a single department

The scope of the processes Cross-functional processes – BPs that are wider in scope and may involve several or many business units within a single organization

The scope of the processes Inter-organizational processes – BPs that are very wide in scope and involve multiple organizations

Lecture Summary Decision-making and types of decisions Decision-making and the organizational pyramid Metrics CSFs and KPIs Efficiency versus effectiveness Terminology associated with BPM Changes at different decision-making levels Scope of decision