Agenda and Announcements – 2/14
• Agenda
– Kmart Buys Sears Case Study
– Complete Chapter 4 – Decision Making
– Review Chapter 13 - Leading
–Material Review – Chapters 4,9,12,13
• Announcements
– Test 2/16
• Same Parameters – 60% Multiple Choice, 40% Essay
• Allowed One Page Single Sided Reference Sheet
• Bring Scantron and Pencil
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–1
Stages in the
Creative Process
Innovation and Creativity
Become familiar with the problem; generate
as many solutions as possible.
Take some time before working on the
problem again to gain additional insight.
Before implementing the solution, evaluate
the alternative to be sure it is practical.
Exhibit 4–6
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4–2
Group Decision-Making Techniques That Foster Creativity
Exhibit 4–7
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4–3
Generating Creative Alternatives
•
Brainstorming (Very frequent)
–
–
–
•
Synectics (Used to Invent Items we don’t have a need)
–
•
The process of suggesting many possible alternatives
without evaluation.
Build on Ideas, NO Evaluation
Group into Alternatives
The process of generating novel alternatives through role
playing and fantasizing.
Nominal Grouping (Can Follow Brainstorming)
–
The process of generating and evaluating alternatives
using a structured voting method that includes listing,
recording, clarification, ranking, discussion, and voting to
select an alternative.
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4–4
Generating Creative Alternatives (cont’d)
• Consensus Mapping (Ringi)
– The process of developing group agreement on
a solution to a problem.
• Delphi Technique
– The process of using a series of confidential
questionnaires to refine a solution.
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4–5
Responses That Kill Creativity
•
•
•
•
•
•
•
•
“It can’t be done.”
“We’ve never done it.”
“Has anyone else tried it?”
“It won’t work in our department
(company/industry).”
“It costs too much.”
“It isn’t in the budget.” “Let’s form a committee.”
“This is the way we have always done it”
“There’s no reason, it’s just our policy”
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4–6
Kmart Acquires Sears
•
Instructor Pull Up Web Q Responses
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4–7
From 11/17/04 Merger Announcement
• Mr. Lacy (Sears) said, "The combination will greatly strengthen both
the Sears and Kmart franchises by accelerating the Sears off-mall
growth strategy and enhancing the brand portfolio of both companies.
This will clearly be a win for both companies' customers while
significantly enhancing value for all shareholders. We will have a total
combined store base of nearly 3,500 stores and the leading service
organization in the industry capable of a major expansion to serve the
needs of existing Kmart and Sears customers."
• Mr. Lewis (Kmart) said, "Kmart has made great progress over the
past 18 months to strengthen the organization in terms of profitability
and product offerings. We believe the combination of Kmart and
Sears will create a true leader in the retail industry -- both as a key
part of local communities and as a national presence. Together, we
will further enhance our capabilities to better serve customers by
improving in-store execution and ultimately transforming the
customer's in-store experience."
• The combination of the two companies is conservatively estimated to
generate $500 million of annualized cost and revenue synergies to be
fully realized by the end of the third year after closing.
• Edward Lampart (Kmart) will be Chairman.
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–8
Sears Holding Corp. 10/4/05 Announcement
Kmart Names New Senior Vice President For Kmart Stores And Executive
Vice President, Restructuring And Business Improvement
• Oct. 4 -- Kmart Holding Corporation, a wholly-owned subsidiary of
Sears Holdings Corporation (Nasdaq: SHLD), today announced
Donald J. Germano, as senior vice president and general manager
for Kmart's more than 1,400 stores and Dene L. Rogers as executive
vice president, restructuring and business improvement..
• Rogers previously served as executive vice president of Kmart
stores., "Dene has made substantial progress in improving the
performance and the efficiency of the stores. We have asked him to
apply his considerable change management skills more broadly
across Sears Holdings.
• Rogers joined Kmart in 2003 and served in a variety of roles before
assuming the position of senior vice president, stores in 2004. Before
joining Kmart, Rogers was senior vice president, planning,
development and new products for Starwood Hotels & Resorts
Worldwide Inc. He also served as senior vice president, business
development at General Electric Capital.
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–9
Example Problem
•
•
•
•
•
Symptom: Long Lines at Balmer Cafe
What kind of Problem? (Routine or Complex?)
What are the penalties? (So What)
Why, Why, Why, Why, Why?
Redefine Problem
• PROBLEM PROCESS? GROUP OR INDIVIDUAL?
• Determine Objectives/Criteria
• Generate Alternatives
– Financials & Stakeholder Impacts
• Analyze Alternatives & Select Decision
• Plan and Implement
• Control (Monitor) P-D-C-A
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4–10
Decision Tree
Exhibit 4–8
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4–11
Analyzing the Feasibility of Alternatives
• Quantitative Techniques
– Break-even analysis**
– Capital budgeting (Investment)***
•
•
Payback
Discounted cash flow
– Net Present Value (NPV)
– Linear programming
– Queuing theory
– Probability theory
•
Sensitivity Analysis - Used on all
– Combination***
Use Whatever the Organization Uses Unless It’s Wrong
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–12
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4–13
The Kepner-Tregoe Method
(a.k.a. weighted factors)
1. Assess each alternative with regard to the
“must” criteria.
2. Rate the importance of each “want” criterion on
a scale of 1 to 10 (10 being the most important).
3. Determine how well each alternative meets the
“want” criterion.
4. Compute the weighted score (WS) for each
alternative on each criterion.
5. Select the alternative with the highest total
weighted score.
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–14
The Kepner-Tregoe Method for Analyzing Alternatives
Exhibit 4–9
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4–15
Cost-Benefit (Pros and Cons) Analysis
• Cost-Benefit Analysis
– A technique for comparing the cost and benefit
of each alternative course of action using
subjective intuition and judgment along with
math. (often financials become cost/benefit)
• Continuum of Analysis Techniques:
Exhibit 4–10
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4–16
Plan, Implement, and Control
• Plan
– Develop a plan of action and a schedule of
implementation.
• Implement the Plan
– Communicate and delegate for direct action.
• Control
– Use checkpoints to determine whether the
alternative is solving the problem.
• Schedule, Key Metrics, Observations, Surveys
• In Process vs. End Process Metrics
– Avoid escalation of commitment to a bad
alternative.
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–17
Time-Driven versus Development-Driven Model
Time-Driven
Development-Driven
Making effective decisions
with minimum cost
Focus
Making effective decisions
through maximum
development of group
members
Emphasizes timely
decision making
Value
Emphasizes group
development
Orientation
Has a long-term horizon,
as group development
takes time.
Has a short-term
time horizon
Must Also Adhere to Leadership and Group Style
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–18
Balmer Cafe
• Symptom – Long Lines
during Class Passing
Period.
• Penalties - So What?
– Late Students to Class
• Student Stress
• Faculty Dissatisfaction
– Lost Contribution Margin
• Estimate = $160/day
• $24,000 per year
– Hungry Students
– Non-caffeinated students
• #1 Why for lost business
– Long lines discourage
students
• #2 Why Long Lines
– Passing Period Demand Up
• Can’t do anything about this.
– Not Enough Help/Equipment
• #3 Why Not Enough
Help/Equipment?
– Custom Drinks Take Time
– Equipment too slow and not
enough cash registers
• #4 Why not buy equipment or
hire people?
– Never understood penalty or
alternatives
• #5 Why never studied?
– No Metrics to measure
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–19
Balmer Café – Objectives & Why
1. ___________________________
2. ___________________________
3. ___________________________
4. ___________________________
5. ___________________________
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4–20
Balmer Cafe - Decision Criteria & Why?
1. __________________________
2. __________________________
3. __________________________
4. __________________________
5. __________________________
Copyright © 2006 Thomson Business and Economics. All rights reserved.
4–21
The “Balmer Cafe” Case Decisions
• Based on our Root Cause Analysis, we have determined
that there are three root causes to the long lines (that we
can do something about) in addition and implementing
some waiting time metrics (no cost). The three options
are:
– Add another person ($7/hour with taxes) = $280/week
– Buy more and faster equipment for $35,000 that will last for 5
years.
– Simplify the menu and remove custom coffees (50 less
orders per day at $5.00 (direct cost is $3))
• We believe strongly that any of these changes will result
in an extra 20 customers per passing period (4 per day)
coming to “The Bottom Line” because of the lower wait
time and they will buy an average of $4 worth of products
(average direct cost is $2).
• What should we do?
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4–22
Financial Analysis
• Contribution Opportunity (C) (Revenue – Direct Expenses)
– = 20 add’l customers X 4 passing periods (80 Customers) X $2 = $160 per day.
• How many days/year will we make this extra money?
– 5 days/week X 10weeks/quarter X 3 quarters = 150 Days (= $24,000 Annually)
• Option 1 Analysis for additional Person:
– New Contribution = $160/Day; Extra Person = $56/day = $104/day
– Break Even = $56/$2 = 28 additional customers/day)
– Annual Cost = $8,400
• Option 2 Capital Budgeting - Investment Analysis:
– Invest new machine $35,000:
– Payback = If Contribution is $24,000/year = 1.5 years payback
• Option 3 Reduce Menu
– Sell 50 less sandwiches at $2 Contribution = $100/Day
– $100/day less Contribution X 150 days = lose $15,000/year
• Financially – Which one should we pick?
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4–23
Alternatives Decision Matrix
Option
Criteria
Option 1
Hire Person
Option 2
Option 3
Buy Equipment Reduce Menu
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4–24
Financial Analysis – Net Present Value (NPV)
(@ 10% Discount, No Inflation)
Year 1
Year 2
Year 3
Year 4
Year 5
Income - 80 $ 24,000 $ 24,000 $ 24,000 $ 24,000 $ 24,000
Customers
Per Day
Option 1 - Hire New
Cost
(8,400)
(8,400)
(8,400)
(8,400)
(8,400)
Cash Flow
15,600
15,600
15,600
15,600
15,600
NPV
$59,136
Option 2 - Hire New
Cost
(35,000)
Cash Flow
(11,000)
24,000
24,000
24,000
24,000
NPV
$59,161
Option 3 - Change Menu
Cost
(15,000) (15,000) (15,000) (15,000) (15,000)
Cash Flow
9,000
9,000
9,000
9,000
9,000
NPV
$ 34,117
Copyright © 2006 Thomson Business and Economics. All rights reserved.
Total
$ 120,000
$ (42,000)
78,000
$ (35,000)
85,000
$ (75,000)
45,000
4–25
Alternatives Decision Matrix
Option
Criteria
Option 1
Hire Person
Option 2
Option 3
Buy Equipment Reduce Menu
BEST
FINANCIAL
NPV = $59K
NPV = $59K
NPV = $34K
IMPROVE
HIGH
CUSTOMER
SATISFACTION
HIGH
LOW
LOW RISK
HIGH RISK
MEDIUM
$35k purchase
More customers
leave
MEDIUM
LOW
GOOD
EMPLOYEE
IMPACT
LOW RISK
HIGH
OTHERS?
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4–26
Alternatives Decision Matrix
Option
Criteria
Option 1
Hire Person
Option 2
Option 3
Buy Equipment Reduce Menu
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4–27
The Bottom Line – Our Recommendation:
• Solution:
• Benefits:
• Cost:
• Concerns/Risks:
• Implementation Plan:
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4–28