Modeling and Simulation Approach for Corporate Improved Decision Making
70% of Organizational Change Projects have not Ideal Outcome: How not to get there?
In today’s world, the ability to change is the key to a company’s survival in the market. Inertia and unwillingness to change are fraught in the long run with degradation and, as a result, losing to more active and flexible competitors. However, according to McKinsey&Company, 70% of company change attempts fail. Disagreements in the management of the company due to the lack of a reliable plan of action and the resulting mistrust on the part of employees in the decisions taken make these statistics worse.
The reasons may be different, but a clear program for making changes, formulated and supported by the top management of the company, creating a sense of confidence among the employees in the future, involving them in the development of decisions, and appropriate compensation to the participants in the work on changes can significantly increase the likelihood of success. Decisions that take into account the interests of all parties as much as possible and adopted on the basis of objective data, and not on the basis of speculative conclusions, will be met with less resistance by the people who affect these decisions, and there will be more agreement in the management team. The development of such solutions requires a thorough analysis and design of how the changes made in one part of the system will be reflected in the remaining parts of the system and to what end they will lead the whole system as a whole (the key idea of a systematic approach to management).
Here is an example. When optimizing the system in one place, reducing the number of testers (the goal is the notorious optimization of payroll software), you can worsen the system as a whole. The load on the technical support and implementation departments will increase, which will ultimately lead to an increase in costs for them. Then the outflow of dissatisfied customers will begin, and as a result, instead of saving, we will receive not only additional costs but also a blow to our reputation.
The risks of making managerial decisions when introducing organizational changes are especially pronounced when the business system becomes more complex (increasing the scale of the business, the appearance of new products, distribution channels, etc.). The number of management objects involved in the business system, their properties, relationships, etc., is elementarily increasing. This volume becomes so large over time that it becomes impossible to process it without automation. To check the quality of management decisions already at the stage of their design (and not at the implementation stage!), this article proposes to consider the method of simulation modeling.
Let us draw your attention to the fact that all methodological generalizations and recommendations are based on personal experience using the declared management technologies in organizational development projects (using the example of an IT company).
A BRIEF SUMMARY OF SIMULATION MODELLING
The method allows you to virtually make up a certain period of time with the given activity parameters and see what results the company will receive for this period.
For the initial data in simulation modeling, the results of the company’s work for the past periods are taken. Based on them, a simplified model is built, which is a model of your company that exists only in electronic form. Such a model works tens of thousands of times faster than your employees. Thus, you can see in a few minutes how the changes will affect the company as a whole and in each individual unit.
Thus, you can, for example, check how the proposed solutions will affect the work of the company before they are put into practice. Modern business modeling systems allow you to conduct several calculations with various parameters and choose the most effective option from the proposed team of managers.
8 STEPS TO IMPROVE ACTIVITY WITH APPLICATION OF THE SIMULATION MODELLING METHOD
The sequence of steps to optimize the company is presented as follows:
1. Consolidation of information of the accounting systems of the company.
In order to “digitize” the activities of the company, it is necessary to collect statistics on process indicators based on credentials from the information systems of the company.
2. Description of the processes of the company, the creation of an activity model. Testing the model based on data from the accounting systems of the company.
To build a model of the company, its activities must be described. The activity as a whole can be represented as separate actions, and their interrelationships can be represented in the form of a diagram. Depending on the detail of the study, such a scheme may contain large blocks describing the entire work, and each individual operation can be scheduled. The complexity of the description and analysis of business processes can be reduced using modern business modeling systems designed to automate this work.
3. Collection of proposals for optimization from managers and employees.
Technologies and approaches for the implementation of this stage may be different depending on the specifics and scope of the company. The main thing is to observe the principle of involving all interested parties in the discussion process.
4. Redesigning the model, taking into account the proposed organizational changes.
To assess how the proposed measures will affect the work of the company, you first need to create a copy of the current business model and make changes to it. To begin with, it is worth considering the changes independently for each decision, and then repeat the validation of the selected solutions in a complex to take into account the possible impact of their results on each other (systematic approach).
5. Conducting simulation to predict the results of the company, and assess the effect of the proposed changes.
At this stage, we actually launch the “virtual” work of the company and assess the compliance of the simulation results with the current and previous results of the company. Checking the simulation results after making changes to the business architecture can be done by comparing these results with the estimates made when developing proposals for these changes.
6. Development of the project of changes in the company
The topic of organizational change is quite extensive, there are numerous recommendations on how to organize this process, for example, 8 steps of John Cotter change management.
7. Carrying out activities according to the project of changes
In the process of carrying out organizational changes, it is almost inevitable that you will encounter the resistance of interested parties. However, the more carefully you reacted to the interests of people in the previous stages, the higher the likelihood of success in this difficult matter will be!
8. Evaluation of the effectiveness of changes. Return to item 3.
When the changes are implemented, it is necessary to conduct a retrospective: to analyze the results and errors that were made, to make adjustments to the model and to the optimization work technology. And start a new cycle of improvements!
To demonstrate the relevance of the presented methodology, I will give an example of the implementation of these steps during the project of organizational changes in the company specializing in software development.
INSTEAD OF CONCLUSION
The experience in the application of simulation has shown that this method allows predicting the work of the company in the future, which helps in the development of sound management decisions. Using this tool in conditions of limited costs allows you to find ways to optimize activities that fully take into account the characteristics of the relationships of all company processes.
Based on the results of the project of organizational changes using simulation, we were able to note the following successful practices:
1. Optimization of business processes by improving their structure
When the whole process is clearly visible, it is easier to track its problem areas and to find a problem is, as you know, to solve it by half. Alternatively, by reinforcing an additional employee, you can get rid of the bottleneck and thereby increase the overall performance of the company.
2. Bench-marking business processes
So, we were able to restructure the business based on a comparison of internal business processes and outsourcing and choose more efficient process execution options. Often, managers get rid of those processes that they do not understand or that they simply do not want to engage in, and not those that are really more efficiently transferred to a more competent company in this business. The use of objective evaluations allows restructuring the business and reallocating resources to more efficient areas, improving its performance with lower risks.
3. The decrease in risks of decision-making in the presence of a greater volume of information
Reducing the risks of managerial errors is closely related to checking the correctness of the selected methods, the assumptions made and the model constructed. Obviously, the model of the company is a simplification, it is built, omitting many details, in particular, the psychology of people. It is also obvious that the model may contain errors. Therefore, blindly trust the simulation results is not worth it. But you do not need to be afraid of mistakes in the model – you need to be able to check the simulation results!
Also, as a result of this project, we got another third-party result that is not directly related to simulation:
4. Reducing the cost of business processes due to regulation
This is another result not directly related to the use of simulation but obtained during the project. When the work is described in the form of detailed instructions, it can be performed by a less skilled worker or even, as mentioned above, a robot. This is one way to reduce the cost of production in large quantities.
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