Competencies 3 - Business Acumen, Consultation, Analytical Aptitude Flashcards
Value (definition, in business terms)
Generally, an organization’s success in meeting its strategic goals
Organizations aim to protect and enhance value of their assets, and to add new value where possible
Value chain
Process by which an organization creates a product or service and sells or delivers it
Each internal or external participant adds value; total value should be more than the sum of its parts
Value chain - HR contribution
HR adds value by:
- ensuring quality and availability of “pivotal talent pools” (employees with critical skills)
- managing labor supply to support optimal productivity
- providing leader and performance development training
Service Level Agreement (definition)
Defines the services HR (or another function) will provide to other functions
3-Stage Organization Life Cycle
3 Stages:
Introduction - low revenue due to little market awareness; business is developing their value proposition and creating an identity with customers
Growth - revenue increases; focus is increasing efficiency without stifling creativity
Maturity - high demand but revenue slows due to saturated market; only growth is through new products/customer groups, or acquisitions; efficiency is very important
At this point, organization will either decline, go through a period of now growth, or find a way to renew itself
PESTLE Analysis
Environmental scan, including 6 factors:
- Political
- Economic
- Social
- Technological
- Legal
- Environmental
Strategic plan (definition)
Plan that defines an organization’s purpose and direction
Typically includes
- Vision and mission statements
- Core values
- Goals and objectives (short and long-term)
- SWOT analysis
- Action plans
Financial projections (definition)
Estimate of an organization’s future financial performance; serve as a valuable tool for translating goals into targets and for spotting deviation from the plan
Usually address specific 12-month period and are broken up by month and by function
Revenue (definition)
Money generated through sale of goods and services; gross income
Net income (definition)
Revenue minus costs
Enterprise resource planning (ERP) system
Integrated software solution for storing data from various parts of a business
- Human resource management (HRM/HRIS)
- Customer relationship management (CRM)
- Manufacturing resource planning (MRP)
- Finance resource management (FRM)
- Supply chain management (SCM)
Balanced scorecard
Tool for tracking performance of a business’s strategic goals/activities
Budgeting methods - incremental
Traditional line-item budgeting; last year’s budget serves as the basis for the next budget
Efficient, but doesn’t account for changes in business circumstances or practices that could affect spending
Budgeting methods - zero-based
Each unit or goal is ranked in order, and available funds are distributed in that order; every expenditure must be justified for each new budget period (everyone’s budget starts at $0)
Time-intensive (esp. at first), but can eliminate wasteful spending that sneaks through with other budgeting methods
Budgeting methods - activity based
Focuses on how much it costs to perform different strategic activities; funding is allocated based on strategic significance of activities
Ex: Organization asks each function what it will need in order to produce certain outputs; if needed, resources are transferred from lower-priority activities
Budgeting methods - formula based
Different units or operations receive varying percentages of the budget
Ex: A government agency has a 2% budget decrease, and spreads the effect among each department
Business case (definition)
Presentation to management that a problem exists and that the proposed solution is the best one
Business case - tips for success
- Align your proposal with organizational strategy
- Get early buy-in from key decision makers
- Focus on facts, not emotion
- Include specific metrics to evaluate the solution
Balance Sheet
Snapshot of a company’s finances; shows assets, liabilities, and equity
(Whatever value is left from “Assets - Liabilities” is usually considered to be shareholder equity)
Assets (definition)
What an organization owns - cash, property, finished product, and intangibles such as copyrights or proprietary knowledge
Human capital is an important asset but isn’t counted by finance
Accounts receivable
Money owed to an organization by its customers or other stakeholders
Liabilities
What an organization owes - rent, loans, wages/benefits earned but not yet paid, accounts payable
Accounts payable
Money an organization owes to its vendors/suppliers
Income statement
Compares revenue, expenses, and profits over a specified period of time (usually a year or a quarter)
The “bottom line”:
Net income = Revenue - Expenses
EBIT (in finance)
Earnings Before Interest and Taxes
EBITDA (in finance)
Earnings Before Interest, Taxes, Depreciation, and Amortization
Cash flow statement
Shows how money is flowing into and out of an organization over a defined period of time
Data comes from the income statement and balance sheet
Profit margin (formula)
Total sales - Total costs
_________________________
Total sales
Return on investment (formula)
Gain from investment - Cost of inv.
____________________________________
Cost of investment
Sales pipeline
A visual representation of an organization’s sales process - usually includes identifying leads, gathering information, creating proposal, negotiating, closing sale, monitoring
Decision-making tools - SWOT analysis
Brainstorm organization’s strengths and weaknesses, and external opportunities and threats; sometimes includes assigning a value or ranking for each
Decision-making tools - SOAR analysis
Similar to SWOT, but focuses on strengths, opportunities, aspirations, and results
Combines fact-finding with the organization’s goals
Decision-making tools - Multi-criteria decision analysis
Team selects important characteristics of a successful decision (such as ability to meet project requirements, likelihood of success, least chance of causing secondary risks), and uses a matrix to score and compare their options
Decision-making tools - Cost-benefit analysis
Exactly what it sounds like - usually uses group discussion to identify all possible costs and benefits of a decision
Decision-making tools - Force-field analysis
Tool designed to analyze the forces favoring and opposing a particular change; group members identify and weight factors that could influence outcome (+ or -), and compares scores for different opportunities
Helps teams identify opportunities that are favorable for change, and avoid initiatives that face very strong resistance
J Curve (how change affects productivity)
When implementing a change, expect to see productivity decline temporarily as employees adjust to the change, then gradually rise past the starting point
Handling groups who are
- resistant to a change
- neutral
- welcoming
Resistant - provide empathy, communication, and support; goal is to shift out of resistance
Neutral - sell the benefits, provide opportunities for involvement; goal is to shift out of neutral
Welcoming - provide recognition, delegate responsibility, provide support for their leadership role; goal is to maintain course
Change models - Lewin
- Unfreezing - get people to accept that a change will occur, and reduce factors that would work against the change
- Moving - move toward the new state, work toward general acceptance
- Refreezing - focus on making the new idea a regular part of the organization
Change models - Kotter
8 contributors to successful change implementation:
1. Create sense of urgency
2. Assemble a strong guiding team
3. Provide a clear vision
4. Over-communicate
5. Empower action
6. Ensure short-term successes
7. Sustain progress and build on achievements
8. Institutionalize
Change models - McKinsey 7-S Framework
7 elements that need to be aligned for an organization to perform well:
- Style (culture and informal rules)
- Skills (institutional and individual)
- Systems (processes, including HR systems)
- Structure (decision-making and relationships between authority levels)
- Staff
- Strategy (how the organization gains competitive advantage)
- Shared values (what the organization is trying to achieve)
3 approaches to change - cascade, progressive, organic
Cascade - relies on top-down sequence, where change at one level eventually transforms the level below it
Progressive - change originates at the top and is broadcast to the entire organization
Organic - points of origin can be at any level; change radiates out unevenly from origin, but accelerates with support from top leadership
Steps in Evidence-Based Decision Making (EBDM)
- Ask - start with a question that can be answered through information gathering
- Acquire - gather info from various sources
- Appraise - determine whether evidence gathered is relevant, valid, complete, unbiased
- Aggregate - combine and organize data to prepare for analysis
- Apply - look for logical connections within the data; use data to draw conclusions; develop possible solutions, gain support, and take action
- Assess - monitor the solution and measure impact on objectives
Focus group tools - mind mapping and affinity diagramming
Mind mapping - begins the discussion with core ideas; group members add related ideas and indicate logical connections
Affinity diagramming - a way of sorting a large amount of data/ideas that has already been collected; group sorts data into categories and subcategories until relationships are clearly drawn
Focus group tools - Nominal group technique (NGT)
Proceeds through rounds where participants suggest ideas; rounds continue until no further ideas are proposed
In next stage, the group eliminates redundant items or irrelevant ideas, and sorts the rest in order of importance
Focus group tools - Delphi technique
Starts with a pre-selected issue, and respondents are anonymous; first respondent proposes information, second respondent adds something different, and so on, until a list can be compiled
In next stage, the researcher circulates the list and asks each respondent to refine previous ideas, comment on strengths/weaknesses, and identify new ideas
*Aims to gather information from a group without the “group think” problem
Reliability vs. Validity
Reliability - a data-gathering tool’s ability to provide consistent results
Validity - a data-gathering tool’s ability to measure what it is intending to measure
Types of bias in statistical analysis
- sampling bias - sample might not represent the general population
- selection bias - when participants are not randomly assigned to control vs. experimental group
- response bias - researchers invite a representative sample to participate, but the group that responds is not representative
- performance bias - participants behave differently because they are being studied
- measurement bias - observers measure incorrectly due to their own bias or simple error
Mean, Median, Mode
Mean - average
Median - middle value
Mode - most frequently occurring value
Weighted mean
Calculates the average, but takes into account that some values have more weight than others
Commonly used for analyzing salary data, where some salaries are more common in the company than others; also useful in evaluating job candidates where certain qualifications are more important than others
Frequency Distribution
Shows how often each value is represented in a data set
Quartiles and Percentiles
Quartiles divide data set into quarters; percentiles divide data set into hundredths
Standard deviation
Way of interpreting data using a “normal” bell curve; 68% of data will lie within 1 SD of midpoint, 95% within 2 SDs, and 99% within 3 SDs
If SD is smaller than “normal”, bell curve is taller than normal distribution; larger SD results in more spread-out bell curve
Data analysis approaches:
- variance analysis
- ratio analysis
- trend analysis
- regression analysis
- root cause analysis
- scenario analysis
Variance - identifies degree of difference between planned and actual performance (usually uses schedule or budget as baseline)
Ratio - compares relative size of 2 variables; answer is a percentage (ex: net profit margin, turnover rate)
Trend - takes variance analysis a step further to see if it’s an isolated event or part of a longer trend; can be used to forecast future conditions
Regression - uses statistics to determine whether a relationship exists between 2 variables, and strength of relationship
Root-cause (or “5-why”) - starts with result and works backward to identify the cause; usually proceeds through several rounds
Scenario - used to test possible results of varying details of a situation; works best with software help, such as Monte Carlo analyses
Histogram
Chart that shows sorting of data into groups; usually looks like a bar chart
Pareto principle
80% of effects come from 20% of causes
Pareto chart
Applies Pareto principle (80%/20% idea) in the form of a histogram, to illustrate which causes need to be addressed to change 80% (or other designated percentage) of effects
