Introduction to

Management & Business - 11

with Ken Pope

Morning
Fri-08-Jan-16
 Last class we:
 Discussed current business issues
 Explored a little more (your request):
 Discounted cash flow (DCF) – ungraded exam
 Considered some alternative ways of operating:
 Types of organization
 Common organization structures
 Matrix management
 The problems of integrations vs. differentiation
 Begin to explore business processes and some ways to
measure them

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 This week we will:
 Discuss some current business issues
 To complete our look at organizations:
 We’ll look at a real start-up company, and
 Consider Strategic Alliances
 Move to a new topic: Business Process Management:
 Learn some business process vocabulary
 Reconsider the Change Request Department case
 Understand the big value of Little’s Law – theory and practice

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 Current business issues? Source: bbc.co.uk/news

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 Finishing on organization
structures
 A real start-up company

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 Example of new software business:
The company structure at start:

Friends and
colleagues as
advisors and
occasionally giving Entrepreneur
some help

Software Engineer Software Engineer

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The President/Chairman

company
within a year
Advisory Board P/T legal support

CEO (new person) CTO (entrepreneur)

Assistant R&D

Marketing/Sales Financial controller Resp. Technical

4 Technical
3 Engineers
sales people

Numbers correct? Why/why not?

Network
manager
 What is an strategic alliance?
(hint: it is not a merger)

Team task: how might AML

create, and benefit, from
alliances with other firms?
Give examples

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 Alliances: problems & benefits

1. An alliance is a source of innovation

2. An alliance tests your processes in a
new context
3. An alliance can improve your own
management processes
4. Hidden benefit: alliances expose more
of your organization to the outside world

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 Introduction to Management
& Business: course status
 Introduction
 More on the manager’s role
 Why businesses exist:
- strategy, objectives, value creation, risk mgt.
 Measuring and controlling (incl. risk evaluation)
 Organizations & structures
Moving to  Operations management:
- business process management
 Marketing and sales (incl. competitive intelligence)
 Human capital management (possibly not this)
 Knowledge Management
 Ethics
 Understanding financial markets (shares, investing . .)
 Personal strategies

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Business Processes:
An Introduction
 A definition

“A business process is a network of

activities performed by resources
that transform inputs into outputs”

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 Business Process Architecture:
1. Inputs & Outputs

Inputs Outputs
Process

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 Business Process Architecture:
2. Flow Units
“Flow units” are a measurement of activity: may be:
• unit of input (customer, calls, number of widgets, etc.)
• unit of output (served customers, finished products)
• unit of intermediate product/service (customers in queue)
• set of inputs or outputs (subassemblies for final assembly)

Inputs Outputs
Flow units A Process
Flow units B

Examples of flow units?

Which flow units should you use? Why? 15
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 Business Process Architecture:
3. Network of activities & buffers
Two main types of buffer:
• Inventory
• Queue (really special type of ‘inventory’)
Network of activities & buffers

Inputs Outputs
Flow units A Goods &
services
Flow units B

Key: Activity Buffer (‘inventory’)

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 Business Process Architecture:
4. Resources
Resources:
• Capital: land, buildings, IT systems, machines etc
But, resources
• Labor: operators, clerks, servers, etc.
are utilized
Note: not consumed
Flow units are (except depr. etc)
consumed by
the process
Network of activities & buffers
Inputs Outputs
Flow units A Goods &
services
Flow units B

Resources (labor + capital) 17

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 Business Process Architecture:
5. Information structure
Information:
• Needed/available to make management decisions
• Needed/available to manage activities
Process management
Information
structure
Network of activities & buffers

Inputs Outputs
Flow units A Goods &
services
Flow units B

Resources (labor + capital) 18

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 The Change Request Department

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KPZ sarl for CERAM masters' programs Case study for Operations Management
CR's Add note on
awaiting additional input CR's returned to applicant for additional info.
return to
Change Request Process applicant
required, and
return to
(Department overview flowchart) applicant

Incomplete
Note to
CR's Rejected CR's returned
Rejected applicant on
rejected to applicants
reason for
awaiting
rejection
note

Change CR's
awaiting Initial review of CR's
Requests Needs further evaluation
review CR's awaiting
received
evaluation

Rejected
Urgent Note on
Evaluation and Status reports
status of CR to
Team task: prioritization
Accepted
applicant

Now, who CR's

awaiting
does what? assignment

Change Request assigned for development

Publication
Development Test Test OK Awaiting
Awaiting of change
test publication

Failed test

(c) 2002 KPZ sarl Version: Jan-2002

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 Business Process Management:
introducing Little’s Law*
 Relates:
» flow rate (R): throughput: how many flow units
(per unit of time)
» flow time (T): time for flow units to go through the
process (per unit of time)
» inventory (I): how many flow units are in the
process
» (note: marginal inventory change is:
output flow units - input flow units)

 Formula: R x T = I Hint:
Remember this!
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 I little practice . . .
 The Change Request Department handles requests for changes to
internal and customer software.
 On average, the department completes 30 projects a month
 A Eurecom intern discovers that the Department has 488 projects in
work. Hint: Check units of time!
 The Head of the Department claims that the average time to
complete a project is less than six months.
 How many months do you estimate it takes on average for the
department to complete a new project:
(a) Impossible to estimate
(b) About 5.6 months R x T = I (Little’s Law)
(c) About 8.9 months T = I/R
(d) About 16.3 months T = 488/30
(e) None of these T = 16.3
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 Team exercise
 Marketing forecast demand for an increasingly sophisticated product
as: Year 1: 2,300 units/year Year 2: 3,450 Year 3: 4,850
 Engineering estimate that the time taken to make each unit,
because of increasing sophistication, will be:
Year 1: 2.3 weeks, Year 2: 2.9 weeks, Year 3: 3.6 weeks
 Production say that they can produce at the demand rate, and,
because of JIT, Purchasing do not need to add significantly to their
goods inwards inventory
 Finance say material cost will be constant at €100 per unit
 We work 50 weeks a year.
 1. What will be the average value of material in stock each year?
 2. What improvement in productivity on Year 1 levels of 2.3 wks/unit
must we achieve by year 3 to have no overall increase in
average inventory?
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 Exercise results
 1. Inventory:
Using Little Law that I = R x T
» Year 1: 2,300 x 2.3/50 = 105.8 units = €10,580
» Year 2: 3,450 x 2.9/50 = 200.1 units = €20,010
» Year 3: 4,850 x 3.6/50 = 349.2 units = €34,920
» Yr 3 production (flow rate) up 2.1 times, but inventory up
3.3 times due to longer flow time.
 2. Flow time:
» Needs to be 2,300/4,850 of Yr. 1 level = 1.0907 weeks
» Proof: 1.0907/50 x 4,850 = 105.8 units = €10,580
This is 53% cumulative productivity improve plus the
implications of the increased sophistication 24
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 Another classroom case using
Little’s Law:
 Shopping mall car park:
» costs €345,000 a year
» open 08:00 daily, closed 20:00 daily
» average 65 cars per hour entering
» average 92 cars in park at end of each hour
 Q1. Charge per hour?
 Q2. Other business issues Don’t forget this task

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 So, using Little’s Law
 I=RxT
» I = Inventory was 92 cars
» R = Flow Rate was 65
» T = Average Flow Time to calculate
 Re-arranging Little’s Law:
» T = I/R
» = 92/65 = 1.415 hours average parking time
 Parking hours per year:
» 1.415 x 6 (days) x 52 (weeks) x 65 (per hour) x 12 (hours)
» = 344,354 parking hours per year
» = approx. €1.00 per hour at €345,000 per year
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 Some practical issues . .
 Cost of installing and maintaining system
 Cost of collecting money, plus cash security
 Legal liabilities for car/people security now
 Negative impact on mall sales due to:
» cost of parking, deters entering, or ‘browsing’ mall
» delay in entering end leaving park, especially at peak times
 Average cost of €1.42 but wide variability:
» some short-stay people might be asked to pay trivial amounts
» cost collection may exceed these trivial amounts
» free stay period for short stay boosts costs to others
 Possible solutions:
» fixed charge €1 or €2
» minimum charge €1, say, after first 30 minutes free
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 Learning Logs

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