If you are an executive exploring whether or not optimization will help your company raise its level of competitive play, I don’t advise running out to sign up for a crash course in advanced mathematics. There’s no need for you to become a quant, but it would help to think a bit like one. Begin by asking a few optimization questions, such as:
- What are my company’s underutilized assets? For example, for a newspaper, it might be ad space; for a pharmaceutical company it might be the “face time” that sales reps spend with doctors; for an agricultural company, arable land or available seeds might be the undervalued asset; for a railroad, train capacity might qualify. Which of your assets, if tapped for optimal value, have the potential to take your organization to a significant new level?
- Where and how are repetitive decisions about key assets being made in my company? Assume you could improve the accuracy of these decisions by 10 percent—or perhaps make them twice as fast. What would be the potential impact on profitability, customer service, or sales?
- When and how are we forecasting, and how accurate are our forecasts? What would be the impact on your competitive position if the accuracy of these forecasts could be improved by 10 percent—or if they could be derived one month earlier?
- Where are we repeatedly having lengthy debates over strategic decisions or operational issues? Can you collect better data upon which to base these decisions? Could you make these decisions more empirically, rather than relying so heavily on the “three H’s”: history—“It’s the way we’ve always done it,” hunches—“It feels right,” and hierarchy—“Because I say so, and I’m the boss.”
- What does “best” mean? The next time you hear someone in your organization say, “This is the ‘best’ decision,” ask what factors constitute best: cost savings, service, profitability, speed of resolution, capacity utilization? Are these factors the right ones, do we have a way of quantifying them, and are they carrying the right amount of weight in the decision process?
This post is excerpted from The Optimization Edge: Reinventing Decision Making to Maximize All Your Company's Assets (McGraw Hill) by Steve Sashihara, www.optimizationedge.com.