In this section of Smart (Enough) Systems you'll learn why operational decisions matter to businesses and how to...
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turn operational decisions and data into corporate assets so they can be measured, controlled and improved. You'll also learn about the five characteristics of effective operational decision making and what characteristics your operational decisions need in order to be strong corporate assets.
Table of contents:
- The importance and benefits of operational decision making
- How to make operational decisions and data corporate assets
- Benefits of operational, real-time capabilities in smart systems
- How to create automated operational decisions
Operational Decisions Matter
"Most discussions of decision making assume that only senior executives make decisions or that only senior executives' decisions matter. This is a dangerous mistake."
When most organizations think about the decisions that matter, they think about the decisions executives or boards make: the major strategic decisions that can make or break an organization. However, Peter Drucker noted that the decisions front-line workers make matter. They interact directly with your customers, partners, suppliers, and other associates but are often among the lowest-paid staff you have. They probably also have the highest turnover and are among the most likely to work for a third party or on a contract basis, yet they make crucial decisions about how your organization treats associates every day.
However, at least you actually have someone interacting with your customers or other associates when front-line workers are making decisions. Sometimes no one is involved when your computer systems interact directly with your associates. The options your interactive voice response (IVR) system lists, the way your Web site promotes products, the letter your campaign management system decides to send, the price your online booking system calculates for a customer—these operational decisions also influence your associates.
Although the influence of each operational decision is small, their cumulative effect can be huge. As shown in Figure 1.1, the value of individual strategic decisions is much higher than that of individual operational decisions. However, the cumulative value shows a more balanced picture. The large volumes involved in operational decisions mean that their cumulative impact can meet or exceed that of strategic decisions.
Although a single big strategic decision has a high value, it's likely to be made with planning and analysis, thoughtfully and by the best minds in your organization. In contrast, operational decisions often aren't made so deliberately. This lack of focus is the result of several factors:
- Each decision has a low individual value; it doesn't seem that important to get the cross-sell offer for this customer just right, for example.
- The sheer volume of decisions involved is high—hundreds, thousands, and even millions for larger organizations. The number of workers who handle operational decisions makes managing these decisions seem impossible.
- The time available to make most operational decisions is short, not lending itself to time spent in analysis.
- The "right" way to make these decisions changes constantly, so investing in the current approach can seem ill advised.
- Many of these decisions have been effectively delegated to the IT department by embedding them in the code of an existing system, making the decision logic hard to find or change.
Your organization will perform at its best if these high-volume operational decisions can be made at a lower cost, in real time, and with maximum consistency. The systems frontline workers use aren't smart enough to make decisions, however—certainly not good ones. These workers also need technology to help them discover, assess, and address new opportunities and threats as they present themselves. The first person in a position to notice a customer who's unhappy or seems interested in a new product or service is likely to be a front-line worker, not someone in an office looking at a report.
What front-line workers need is better decisions. They need to be able to make decisions in high volume and narrow time windows. If they can't make or execute decisions, they can't deliver good service or effective support. If the decisions are wrong or even suboptimal, your organization will suffer. Operational decisions are critical, and making them poorly undermines productivity, prevents customer-centricity, and lowers revenue. Poor decision making reduces your organization's overall ability to be successful.
Likewise, your associates assume that the way your systems treat them is the way you want them to be treated. If the Web site, ATM, or IVR system is ineffective, that reflects badly on you. If the systems can't do what customers want, customers will call and speak to representatives, creating wait times that delay other customers.
The operational decisions at the front-line of your organization are, cumulatively, essential to your ability to run your organization the way you intend. Unless these decisions, too, are driven by your strategy and carried out with maximum effectiveness and efficiency, your organization won't perform at its best. Making good operational decisions, however, is getting harder.
Operational Decisions Are Under Pressure
Napoleon Bonaparte said, "Nothing is more difficult, and therefore more precious, than to be able to decide."Making the right operational decision is only getting harder as pressures on the decisions you must make grow:
- Decisions that once might have taken days now have to be made at the speed of the transaction, such as while your customer is completing an online purchase.
- Business objectives used to be simpler and set at the local level. Now those objectives are often set at the corporate level and involve trade-offs between risk, resource constraints, opportunity costs, and other factors.
- You're being forced to comply with more new regulations, stricter and more complex rules, shorter deadlines, and more serious consequences for noncompliance.
- You need to change your strategy—such as how to manage customers to retain them in the face of competition—more frequently and more rapidly to deal with competitive forces, environmental changes, and changes in your customer base.
- Decisions once owned by a single group might now be shared by multiple departments and have to be coordinated across channels and regions.
- Some decisions that were handled with manual review processes now occur in volumes or time frames that make manual processes impractical.
- The value of a decision could once be measured in terms of the cost and time needed to make it; now other objectives are also used to measure value.
Implementing your strategy means making decisions that support it every day and at all levels. It means making these decisions quickly and keeping them aligned with a strategy that adapts and changes. It means turning operational decision making into an asset, not a liability.
Operational Decision Making as a Corporate Asset
If operational decisions must be made well for your organization to deliver on its strategy, they can't be made randomly. They have to be made systematically. You have to turn operational decision making into a corporate asset you can measure, control, and improve. After all, when associates interact with you, they consider every decision you make to be a "corporate" one—that is, a deliberate one.
Every day you must make decisions faster and across more channels and product lines, which makes it harder to ensure that the decisions your organization makes are the best ones and the ones you intended to make. What makes an operational decision the right one?
Characteristics of Operational Decisions
To be effective, an operational decision must be precise, agile, consistent, fast, and cost-effective:
- Precise—Good operational decisions use data quickly and effectively to take the right action, behaving like a knowledgeable employee with the right reports and analyses. They use this data to derive insight into the future, not just awareness of the past, and use this insight to act more appropriately. They use information about customers to target them through microsegmentation and extreme personalization. They use behavioral predictions for each transaction or customer to ensure that risk and return are balanced properly, and they use the information a customer (or supplier or partner) has provided (explicitly or implicitly) to improve the customer experience.
- Agile—Operational decisions can be changed rapidly to reflect new opportunities, new organizations, and new threats; otherwise, they rapidly decline in value. No modern business system can stay static for long. The competitive, economic, and regulatory environment simply doesn't allow it. When organizations automate their processes and transactions, they often find that the time to respond to change is affected largely by how quickly they can change their information systems. To minimize lost opportunity costs and maximize overall business agility, operational decisions must be easy to change quickly and effectively. The agility of these decisions—both the speed of identifying opportunities to improve and the readiness with which they can be changed—ensures that they remain aligned with an organization's strategy, even as that strategy changes and evolves.
- Consistent—Your operational decisions must be consistent across the increasing range of channels you operate through—the Web, mobile devices, interactive voice response systems, and kiosks, for example—and across time and geography. They allow you to act differently when you choose to—to offer a lower price online to encourage the use of a lower-cost channel, for example—but ensure that you don't do so accidentally. These systems support third parties and agents who act on your behalf and the people who work for you directly. They enforce your organization's laws, policies, and social preferences wherever it does business and make sure you avoid fines and legal issues. They deliver a consistently excellent experience for your associates.
- Fast—You need to take the best action that time allows. The saying on the Internet is that your competition is three clicks away. Your associates are learning to be impatient and have short attention spans. Meanwhile, your supply and demand chains are becoming more real-time, and the systems that manage them must respond quickly as well as smartly. With fewer employees handling more customers, partners, and suppliers, you must eliminate the wait time for these associates. You must decide, and act, quickly.
- Cost-effective—Above all, operational decisions must be cost-effective. Despite the massive efficiency gains and cost reductions of recent years, reducing costs continues to be essential. Good operational decisions help eliminate wasteful activities and costly reports. They reduce fraud and prevent fines. They help your people be more productive and spend their time where it really matters. They make sure you do as many things right the first time as possible and avoid expensive "do-overs." They reduce the friction that slows processes and increases costs.
Operational decisions are what make your business strategy real and ensure that your organization runs effectively, right down to the front-lines interacting with your associates. To ensure that operational decisions are effective, you need to manage operational decision making. The change in mind-set required is akin to the changing view of data over the past few years. Data is no longer just something needed to run systems; it has become visible to many and is managed as a resource for the whole organization—a corporate asset. Managing operational decision making as a corporate asset means treating it as strategic, managing it explicitly, making it visible and reusable across the organization, and improving it constantly.
Characteristics of Corporate Assets
A focus on operational decision making means treating decisions as corporate assets, which means ensuring that these assets have the following characteristics:
- Strategic—A corporate asset is strategic. Planning exercises consider how it can be used and applied to reduce costs, increase revenue, and expand the business. Ensuring that decision making is strategic means considering the process of making low-level operational decisions critical to the business and worthy of executive and management focus.
- Managed—Corporate assets must be managed, maintained, and kept in good working order. They must be reviewed and improved dynamically and continuously. Decision making is similar to equipment that needs constant maintenance, replacement of small parts, and upgrading. Because decisions must change and adapt, they must be managed.
- Visible—A corporate asset must be available and visible to management if it's to be used correctly. It must be understood as a competitive weapon and subject to reporting and analysis. Making decision making visible means managing decision-making assets as you would other aspects of the organization's infrastructure, storing information about decisions in technology designed for that purpose, and making the use of this technology and supporting techniques standard across your organization.
- Reusable—Assets aren't casually duplicated or left idle but are reused and leveraged as much as possible. Decision making must be reusable across manual and automated processes and systems, internally and externally.
- Improving—Decision making must improve constantly; in other words, you must close the learning-improvement loop. Closed-loop decision making, as shown in Figure 1.2, enables you to capture results from production systems and put what you learn from them into a useful form rapidly. It means updating decisions based on your results or outcomes. Decision automation requires supporting all these steps.
Systems that can treat operational decisions as a corporate asset, deliver the best operational decisions, and ensure that those operational decisions reflect your business strategy are what we call Smart (Enough) Systems.
Smart (Enough) Systems
by James Taylor and Neil Raden ISBN 0132347962
First printing June 2007
Prentice Hall Professional
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