Valero Energy, Elkay Manu-facturing, J&J, and Over-stock.com: The move toward Fact-Based Decision Making

20101192 Mu Sung Lee20131290 Sung Ju Lee

• Valero Energy • Elkay Manufacturing• J&J• Overstock.com• Case study & Real world

Activities

Index

- One of the largest oil refiners in the United States.

- 16 refineries in the United States, Canada, and Aruba

- produce gasoline, jet fuel, asphalt, petrochemi-cals, and other refined products

Valero Energy

- Valero rolled out its dashboard in early 2008 at the behest of COO

- He wanted to see real-time data related to plant and equipment reliability, inventory management, safety, and energy consump-tion.

Valero Energy

- Valero’s Refining Dashboard is a series of monitors

centered by a giant screen with a live display.

- Whether the executives are in the room or connected remotely, all eyes are trained on the Web-accessible gauges and charts, which are refreshed with the lat-est data every five minutes

- Real-time performance data are compared against daily and monthly targets. There are executive-level, refinery-level, and individual system-operator-level dashboard views.

Valero Energy

- If there is any deviation, the manager explains what's going on at their plant.“

- The point of the dashboard isn't to call managers out;

it's to give executives timely information so that they can take corrective action

Valero Energy

- A major focus is reducing energy consump-tion

- Based on the data, managers can share best practices and make changes in operations to reduce energy consumption while maintain-ing production levels

Valero Energy

-Benefit$140 million per year for the seven plants where the dashboards are in use, with ex-pected total savings of $230 million per year once the dashboards are rolled out at all 16 refineries

Valero Energy

-The terms “scorecard” and “dashboard” are often used inter-changeably, but there’s an important distinction

-Scorecards are all about tracking against defined metrics, and most scorecards are attached to a methodology

-Dashboards display key performance metrics , but they don’t tend to show predefined targets or goals established by man-agement and aligned to strategy

Valero Energy

-only a small percentage of leading companies have actually mapped out enterprise-wide goals with a formal methodology.

-A much larger chunk of companies use dashboard-style inter-faces that simply monitor the health of the business. These de-cision-support tools aren’t often attached to a grand methodol-ogy.

Valero Energy

- Plumbing mixture and cabinetry maker- Plumbing (stainless steel sinks, bathroom

fixtures, water coolers, drinking fountains)

Elkay Manufacturing

- the CFO has led the company to embrace both the Balanced Scorecard and the Beyond Budgeting/Continuous Planning Framework.

- The idea behind continuous planning is to be adaptive, revising plans and forecasts each quarter and always looking out six quarters rather than four.

Elkay Manufacturing

- Elkay’s stated strategy is to grow profitably, so its sales-related scorecards and dash-boards include profit metrics so that sales-people don’t just drive revenue at the ex-pense of the bottom line

Elkay Manufacturing

- It tapped Host Analytics’ software as a ser-vice financial performance management sys-tem, which it uses for budgeting, planning, reporting, and end of quarter financial con-solidation. (supported the move in 18-month budgeting and planning cycles)

Elkay Manufacturing

- Elkay chose Acorn Performance Analyzer software for activity-based costing–analyses that reveal the true cost of delivering prod-ucts as well as the true cost of sustaining customers

Elkay Manufacturing

- For decision support, Elkay already had both Oracle and SAP ERP systems. Oracle Business Intelligence Enterprise Edition pulls informa-tion from all of these systems to deliver mul-tilevel scorecards and dashboards

Elkay Manufacturing

Johnson & Johnson- There is an iterative process of assessing

opportunities, developing goals, implement-ing improvement, and then monitoring their success with the aid of decision support tools.

- Fact-based decision making is now “part of the culture at J&J” says Karl Schmidt, vice president of business improvement, who leads a 9 person internal management con-sulting group.

Johnson & Johnson-Johnson & Johnson is decentralized, so there’s no single, overarching corporate dash-board.

-There are separate dashboards.

-The key performance indicators include a mix of financial metrics (revenue, net income, cash flow); customer metrics (satisfaction, loyalty, market share); internal process metrics (prod-uct development, manufacturing efficiency, fulfillment); and employee metrics (engage-ment, satisfaction).

Johnson & Johnson•“It comes down to fact-based decision mak-ing” he says.

•“In tough economic times, you want the best available data and analysis to make better de-cisions.”

Overstock.com•Some of the most decision-support-savvy ex-ecutives can be found in e-commerce.

•For example, Patrick Byrne, chief executive officer of Overstock.com, is said to use dash-boards to help set his daily schedule.

Overstock.com•Overstock can roll up its profit and loss state-ment every two hours

•That capability gives executives accurate, up-to-date insight into the financial results they can expect, and it also drives operational deci-sions.

Overstock.com•Digital marketing channels like e-mail, social media, and online advertising networks are in-creasingly important.

•Thus, top executives should be watching for-ward-looking, upstream measures such as Web site performance, Web-driven lead generation, and sales pipeline information.

•You must be careful to select the right met-rics.

Overstock.com•“A lot of people are measuring the wrong thing, like how many people came in the door” Schrader says.

•“What you really want to measure is how many people came in the door and became qualified leads.”

•Good or bad customers.

•Analyses such as activity-based costing and customer segmentation.

•Lessons learned should come full circle and be reapplied to lead-generation campaigns and marketing offers.

Overstock.com•All the IT systems

•There’s no doubt that data-driven decision making is the way forward.

•The key questions are: How prepared are these organizations to synthesize and share key performance indicators? And How prepared are executives to draw insight from informa-tion?

Case Study Questions

What is the difference between a “dash-board” and a “scorecard”?

Question 1

Differences

- DashboardNot attached to a methodologyMonitors the health of a businessFlexible

-ScorecardTracking against defined metricsAttached to a methodology

Case Study Questions

Why is it important that managers know the difference between the two?

Question 1

Importance

Dashboards and scorecards are hot topics. Managers should understand the differ-ences and implications of these differences in order to be conversant in these subjects. The outputs from these systems may help determine, in large part, their performance review.

Case Study Questions

What can they learn from each of them?

Question 1

Utility

Scorecards measure the organization's progress against a defined set of objectives. They help managers stay focused on achieving predefined goals. As a result, scorecards are very team-oriented.Dashboards provide operational measures. They leave it up to managers how to inter-pret and use them. This gives managers greater flexibility in determining when and how to act.

In what ways have the companies men-tioned in the case benefited from their adoption of “fact-based” decision making?

Case Study QuestionsQuestion 2

Benefits

Improved efficiencyDevelop innovative productsGet closer to customersOutsell competitors

Case Study Questions

Provide several examples from the case to illustrate your answer.

Question 2

Examples

Valero's system gives managers time to take corrective action – specifically in en-ergy consumption.Elkey's system helps its sales staff focus on profits and not just revenues.Johnson & Johnson uses metrics as the basis for their continuing improvement cycles.Overstock.com's system helps drive its CEO's daily call schedule.

Information quality is central to the ap-proach that these organizations have taken toward decision making. What other ele-ments must be present for this approach to be successful (technology, people, culture, and so on)?

Case Study QuestionsQuestion 3

Required elements

Forward looking metricsAppropriate goalsUp to date budgeting approachesTechnology literate executivesAn organizational culture prepared to share key performance indicatorsExecutives prepared to draw insights from information

Thank you