Enterprise Performance Intelligence and Decision Patterns

Vivek Kale

• Publisher: Auerbach Publications
• Year: 2017
• ISBN:
  9781351230896
• Edition: 1
• Topic: Business
• Subtopic: Management
• Index: Business

"Vivek Kale has written a great book on performance management that focuses on decision-making; on continuous, incremental improvement; and on identifying common patterns in becoming a more intelligent organization." —James Taylor, CEO of Decision Management Solutions and author of Real-World Decision Modeling with DMN

"Introducing the concepts of decision patterns and performance intelligence, Vivek Kale has written another important book on the issues faced by contemporary organizations."—Gary Cokins, author of Predictive Business Analytics and Performance Management: Integrating Strategy Execution, Methodologies, Risk, and Analytics

Enterprise Performance Intelligence and Decision Patterns unravels the mystery of enterprise performance intelligence (EPI) and explains how it can transform the operating context of business enterprises. It provides a clear understanding of what EPI means, what it can do, and application areas where it is practical to use.

The need to be responsive to evolving customer needs and desires creates organizational structures where business intelligence (BI) and decision making is pushed out to operating units that are closest to the scene of the action. Closed-loop decision making resulting from a combination of on-going performance management with on-going BI can lead to an effective responsive enterprise; hence, the need for performance intelligence (PI).

This pragmatic book:

Introduces the technologies such as data warehousing, data mining, analytics, and business intelligence systems that are a first step toward enabling data-driven enterprises.

• Details decision patterns and performance decision patterns that pave the road for performance intelligence applications.
• Introduces the concepts, principles, and technologies related to performance measurement systems.
• Describes the concepts and principles related to balance scorecard systems (BCS).
• Introduces aspects of performance intelligence for the real-time enterprises.

Enterprise Performance Intelligence and Decision Patterns shows how a company can design and implement instruments ranging from decision patterns to PI systems that can enable continuous correction of business unit behavior so companies can enhance levels of productivity and profitability.

1

DATA-DRIVEN PERFORMANCE

1.1 Agile Enterprises

The difficult challenges facing businesses today require enterprises to be transitioned into flexible, agile structures that can respond to new market opportunities quickly with a minimum of new investment and risk. As enterprises have experienced the need to be simultaneously efficient, flexible, responsive, and adaptive, they have transitioned themselves into agile enterprises with small, autonomous teams that work concurrently and reconfigure quickly, and adopt highly decentralized management that recognizes its knowledge base and manages it effectively.

Enterprise agility is the ability to be:

1. Responsive. Adaptability is enabled by the concept of loosely coupled interacting components reconfigurable within a unified framework. This is essential for ensuring opportunity management to sustain viability.
   The ability to be responsive involves the following aspects:
   • An organizational structure that enables change which is based on reusable elements that are reconfigurable in a scalable framework. Reusability and reconfigurability are generic concepts that are applicable to work procedures, manufacturing cells, production teams or information automation systems.
   • An organizational culture that facilitates change and focuses on change proficiency.
2. Intelligence intensive or able to manage and apply knowledge effectively whether it is knowledge of a customer, a market opportunity, a competitor’s threat, a production process, a business practice, a product technology, or an individual’s competency. This is essential for ensuring innovation management to sustain leadership.
   The ability to be intelligence intensive involves the following aspects:
   • Enterprise knowledge management
   • Enterprise collaborative learning

When confronted with a competitive opportunity, a smaller company is able to act more quickly, whereas a larger company has access to more comprehensive knowledge (options, resources, etc.) and can decide to act effectively and more thoroughly.

Agility is the ability to respond to (and ideally benefit from) unexpected change. It is unplanned and unscheduled adaption to unforeseen and unexpected external circumstances. However, we must differentiate between agility and flexibility. Flexibility is scheduled or planned adaptation to unforeseen yet expected external circumstances.

One of the foremost abilities of an agile enterprise is its ability to quickly react to change and adapt to new opportunities. This ability to change works along two dimensions:

1. The number or “types of change” an enterprise is able to undergo
2. The “degree of change” an enterprise is able to undergo

The former is termed range and the latter is termed response ability. The more response able an enterprise is, the more radical a change it can address gracefully. Range refers to how large a domain is covered by the agile response system; in other words, how far from the expected set of events one can go and still have the system respond well. However, given a specific range, how well the system responds is a measure of response or change ability.

Enterprises primarily aim progressively for efficiency, flexibility, and innovation in that order. The Model Builder’s kit, Erector Set kit, and LEGO kit are illustrations of enterprises targeting for efficiency, flexibility, and innovation (i.e., agility) respectively.

Construction toys offer a useful metaphor because the enterprise systems we are concerned with must be configured and reconfigured constantly, which is precisely the objective of most construction toys. An enterprise system architecture and structure consisting of reusable components reconfigurable in a scalable framework can be an effective base model for creating variable (or built-for-change) systems. For achieving this, the nature of the framework appears to be a critical factor. We can introduce the framework/component concept by looking at three types of construction toys and observing how they are used in practice, namely erector set, LEGO, and Model Builder’s kits.

You can build virtually anything over and over again with any of these toys, but fundamental differences in their architectures give each system unique dynamic characteristics. All these systems consist of a basic set of core construction components, and also have an architectural and structural framework that enables connecting the components into a huge variety of configurations. Nevertheless, the model builder is not as reusable in practice as the erector set and the erector set is not as reusable, reconfigurable or scalable in practice as LEGO, but LEGO is more reusable, reconfigurable, and scalable than either of the other two. LEGO is the dominant construction toy of choice among preteen builders who appear to value experimentation and innovation.

The Model Builder’s kit can be used to construct one object like an airplane of one intended size. As a highly integrated system, this construction kit offers maximum esthetic appeal for one-time construction use; but the parts are not reusable, the construction cannot be reconfigured, and one intended size precludes any scalability. However, it will remain what it is for all time—there is zero variability here.

Erector Set kits can be purchased for constructing specific models, such as a small airplane that can be assembled in many different configurations. With the Erector Set kit, the first built model is likely to remain as originally configured in any particular play session. The erector set, for all its modular structure, is just not as reconfigurable in practice as LEGO. The erector set connectivity framework employs a special-purpose intermediate subsystem used solely to attach one part to another, for instance a nut-and-bolt pair and a 90-degree elbow. The components in the system all have holes through which the bolts may pass to connect one component with another. When a nut is lost, a bolt is useless, and vice versa. And when all the nuts and bolts remaining in a set have been used, any remaining construction components are useless, and vice versa. All the parts in a LEGO set can always be used and reused, but an erector set, for all its modularity, is not as reusable in practice as LEGO.

LEGO offers similar kits, and both toys (LEGO and Erector Set) include a few necessary special parts, like wheels and cowlings, to augment the core construction components. Watch a child work with either and you’ll see the LEGO construction undergoes constant metamorphosis; the child may start with one of the pictured configurations, but then reconfigure the pieces into all manner of other imagined styles. LEGO components are plug-compatible with each other, incorporating the connectivity framework as an integral feature of the component. A standard grid of bumps and cavities on component surfaces allows them to snap together into a larger configuration—without limit.

A Model Builder’s kit has a tight framework: a precise construction sequence, no part interchangeability, and high integration. An erector set has a loose framework that does not encourage interaction among parts and insufficiently discriminates among compatible parts. In contrast, each component in the LEGO system carries all it needs to interact with other components (the interaction framework rejects most unintended parts), and can grow without end.

1.1.1 Stability versus Agility

Most large-scale change efforts in established enterprises fail to meet expectations because nearly all models of organization design, effectiveness, and change assume stability is not only desirable but also attainable. The theory and practice in organization design explicitly encourage organizations to seek alignment, stability, and equilibrium. The predominant logic of organizational effectiveness has been that an organization’s fit with its environment, its execution, and its predictability are the keys to its success. Organizations are encouraged to institutionalize best practices, freeze them into place, focus on execution, stick to their knitting, increase predictability, and get processes under control. These ideas establish stability as the key to performance.

The stability of a distinctive competitive advantage is a strong driver for organization design because of its expected link to excellence and effectiveness. Leveraging an advantage requires commitments that focus attention, resources, and investments on the chosen alternatives. In other words, competitive advantage results when enterprises finely hone their operations to perform in a particular way. This leads to large investments in operating technologies, structures, and ways of doing things. If such commitments are successful, they lead to a period of high performance and a considerable amount of positive reinforcement. Financial markets reward stable competitive advantages and predictable streams of earnings: a commitment to alignment reflects a commitment to stability.

Consequently, enterprises are built to support stable strategies, organizational structures, and enduring value creations, not to vary. For example, the often-used strengths, weaknesses, opportunities, and threats (SWOT) analysis encourages firms to leverage opportunities while avoiding weaknesses and threats. This alignment among positive and negative forces is implicitly assumed to remain constant, and there is no built-in assumption of agility. When environments are stable or at least predictable, enterprises are characterized by rules, norms, and systems that limit experimentation, control variation, and reward consistent performance. They have many checks and balances in place to ensure that the organization operates in the prescribed manner. Thus, to get the high performance, enterprises put in place practices they see as a good fit, without considering whether they can be changed and whether they will support changes in future, that is, by aligning themselves to achieve high performance today, enterprises often make it difficult to vary so that they can have high performance tomorrow.

When the environment is changing slowly or predictably, these models are adequate. However, as the rate of change increases with increasing globalization, technological breakthroughs, associative alliances, and regulatory changes, enterprises have to look for greater agility, flexibility, and innovation from their companies. Instead of pursuing strategies, structures, and cultures that are designed to create long-term competitive advantages, companies must seek a string of temporary competitive advantages through an approach to organization design that assumes change is normal. With the advent of the Internet and the accompanying extended “virtual” market spaces, enterprises are now competing based on intangible assets like identity, intellectual property, ability to attract and retain customers, and their ability to organize, reorganize frequently, or organize differently in different areas depending on the need. Thus, the need for change in management and organization is much more frequent, and excellence is much more a function of possessing the ability to change. Enterprises need to be built around practices that encourage change, not thwart it. Instead of having to create change efforts, disrupt the status quo, or adapt to change, enterprises should be built-for-change.

To meet the conflicting objectives of performing well against the current set of environmental demands and changing themselves to face future business environments, enterprises must engender two types of changes: the natural process of evolution, or what we will call strategic adjustments, and strategic reorientations.

1. Strategic adjustments involve the day-to-day tactical changes required to bring in new customers, make incremental improvements in products and services, and comply with regulatory requirements. This type of change helps fine-tune current strategies and structures to achieve short-term results; it is steady, incremental, and natural. This basic capability to evolve is essential if an enterprise is to survive to thrive.
2. Strategic reorientation involves altering an existing strategy and, in some cases, adopting a new strategy. When the environment evolves or changes sufficiently, an enterprise must significantly adjust some elements of its strategy and the way it executes that strategy. More often than not, enterprises have to fa...

Table of contents

• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Figures
• List of Tables
• Preface
• Acknowledgments
• Author
• Other Books by Vivek Kale
• Chapter 1 Data-Driven Performance
• Chapter 2 Aligning Business and IT Strategy
• Part I: Genesis of Performance Intelligence
• Part II: Road to Performance Intelligence
• Part III: Performance Intelligence
• Part IV: Performance Intelligence Applications
• Epilogue
• References
• Index