figure 9.2-9.6 exercise: computer service provider exploring how intangible factors – reputation...

Figure 9.2-9.6 Exercise: Computer Service Provider

Exploring how intangible factors – reputation and staff morale – can be damaged, and their impact on performance.

This exercise supports Figures 9.2 to 9.6 in chapter 9 of the textbook ‘Strategic Management Dynamics’ by Kim Warren, from J Wiley & Sons, 2008. www.wiley.com/go/smd. See www.strategydynamics.com/smdresources for the related course.

STRATEGIC MANAGEMENT DYNAMICS

Kim Warren

http://www.wiley.com/go/smd

http://www.strategydynamics.com/smdresources

© Copyright Kim Warren, 2008. All rights reserved.

The model to which these instructions refer - ‘Figure 9.2 to 9.6 computer support firm.msf’ – can be found at www.strategydynamics.com/smdresources/chapter9.asp.

The model requires the mystrategy™ software – a Reader version can be downloaded from www.strategydynamics.com/msi

The model can be run with the Reader version, but results cannot be saved

Instructions on fully licensing the software can be found in its Help menu

Getting started:

Install mystrategy

Open the model

Read the following pages before working with the model

™ ‘mystrategy’ is a registered trade mark of Global Strategy Dynamics Ltd.

The model …The model …


This model reflects the experience of a real firm, serving small to medium-sized businesses, over 24 months of history – hence the timescale running from month -24 to month 0.

How this firm operated. The business recommends choices of hardware and software, installs these for clients, and provides continuing maintenance, support, upgrades and training. Two years previously [month -24], the company served some 90 clients who required about 75 hours per month of service. Its founder and CEO was signing up just under two new clients per month, and none were leaving. Each new client also needed about 200 hours of initial work to get them set up on a sound basis. The company was delivering good service to its clients, and had a solid reputation that helped the CEO sign up more new clients.

The situation ... [See the figure on the next page, which combines Figures 9.2 to 9.6 from chapter 9.]

Two years ago, the company employed 70 technical staff, of whom 15 were new. It was taking on two or three new people per month, and losing only about one person per month. Experienced staff had 120 hours per month to serve clients, after allowing for other time demands. New staff took three times as long as experienced people to do typical tasks, and needed 10 hours per month of supervision from an experienced employee. It took three months for new staff to become fully productive. Staff morale had been high, reflecting the company’s stable situation and the interesting work. Staff had been busy, but not overloaded.

About 18 months ago, the CEO brought in a business development executive to seek new clients. With the company’s strong reputation, this effort was successful, increasing the win-rate from two to five clients per month. Work and sales streamed in, and all seemed well until about nine months later. Staff were increasingly busy, putting in 15 % more time than normal. There had also been an increase in complaints from clients about service quality.

After a further three months, [month -6], things really started to fall apart. Pressure on the 87 staff got still worse, and complaints from the 143 clients escalated sharply. For the first time, clients actually left the business to find service support from other providers, and the business development executive was having less success in bringing in new clients to replace them. Still worse, staff were leaving more quickly than ever before, apparently due to the pressure they were under. Over the latest few months, clients and staff both left in increasing numbers, and the new client win rate more than halved.

This scenario is shown on the following page, which combines Figures 9.2 to 9.6 from chapter 9.

How intangible factors – reputation and staff morale – can be damaged, and their impact on performance.

How intangible factors – reputation and staff morale – can be damaged, and their impact on performance.


The effect of trying to grow ahead of staff capacity … The effect of trying to grow ahead of staff capacity …

1. We win more clients …1. We win more clients …

3. … so pressure on staff hits service quality

3. … so pressure on staff hits service quality

4. … so clients get annoyed …

4. … so clients get annoyed …

See pages 584-591 of Strategic Management Dynamics for a detailed explanation.

See pages 584-591 of Strategic Management Dynamics for a detailed explanation.

2. … so demand exceeds capacity …

2. … so demand exceeds capacity …

5. … so some clients leave us …

5. … so some clients leave us …

7. Pressure also hits staff morale …

7. Pressure also hits staff morale …

8. … so staff leave, increasing pressure still more, until client losses cut the workload to below staff capacity.

8. … so staff leave, increasing pressure still more, until client losses cut the workload to below staff capacity.

6. … and damage to our reputation means we can’t win new clients so fast …

6. … and damage to our reputation means we can’t win new clients so fast …


Running the model …Running the model …

Click ‘’ to run all 24 months at onceor ‘| ’ to step through 6 months on each click

Click ‘’ to run all 24 months at onceor ‘| ’ to step through 6 months on each click

The decisions you enter for target new clients and staff hiring [see next page]

The decisions you enter for target new clients and staff hiring [see next page]

You must stop the model ‘’ before you can make any changes

You must stop the model ‘’ before you can make any changes

NOTE: these base-case results differ slightly from the values in chapter 9, due to the constant values over 6-month periods used here.

NOTE: these base-case results differ slightly from the values in chapter 9, due to the constant values over 6-month periods used here.


Changing the target client win-rate and hiring decisions …Changing the target client win-rate and hiring decisions …

3. Enter values in the cells for the monthly rate of new clients you want to target [or staff to hire] for each 6 month period – the red chart line will change to reflect these values

3. Enter values in the cells for the monthly rate of new clients you want to target [or staff to hire] for each 6 month period – the red chart line will change to reflect these values

1. Double-click on either:- Target clients to win per month - Staff hired per month

... this ‘Element Set-Up’ window will appear.

1. Double-click on either:- Target clients to win per month - Staff hired per month

... this ‘Element Set-Up’ window will appear.

2. Select the Graph tab [do not enter any values in the Equations tab, or the graph’s values will be ignored]

2. Select the Graph tab [do not enter any values in the Equations tab, or the graph’s values will be ignored]

5. Click ‘OK’ to confirm your changes

5. Click ‘OK’ to confirm your changes

4. … alternatively, drag the mouse across the chart area – the values in the cells at left will change to reflect this red line

4. … alternatively, drag the mouse across the chart area – the values in the cells at left will change to reflect this red line

Do not alter the vertical scale – the model is configured to work in this range.

Do not alter the vertical scale – the model is configured to work in this range.

OPTIONALLY – the model is set to run with the same decisions during each 6-month period. You can vary prices more often, say every 3 months, by clicking here to change this time interval.

OPTIONALLY – the model is set to run with the same decisions during each 6-month period. You can vary prices more often, say every 3 months, by clicking here to change this time interval.

NOTE: you may not win the number of clients per month you target, if your reputation is poor.

NOTE: you may not win the number of clients per month you target, if your reputation is poor.


Your challenge … Your challenge …

You should try estimating the answers to these questions before running the simulation to confirm your estimate. [It is not possible to calculate answers accurately].

For the first 6 months [months -24 to -18], you win 2 clients per month, then increase the target to 5 clients per month [as for the base case].

1. Starting with hiring 2.5 staff per month in the first 6 months, • What is the minimum hiring you need for each period after month -18 to keep service

quality at 0.9? • How many staff and clients do you end up with?

2. With the same target client rate each period, what happens if you do not realise the risk of service quality problems until month -12, and continue hiring 2.5 per month, then …

• What is the minimum hiring you need for each period after month -12 to get service quality back to 0.9 by month 18?

• How many staff and clients do you end up with?

3. With the same target client rate each period, what happens if you anticipate the risk of service quality problems and change the hiring rate from the start …

• What is the minimum hiring you need for each period to keep service quality at 0.9? • How many staff and clients do you end up with?

[Many further challenges are possible – see later page for suggestions].

[You can optionally alter the time interval in order to make more frequent changes, e.g. 3-monthly – see ‘Changing the decisions’ page above.]


Comparing your results …Comparing your results …

Note the numerical values also displayed for each month as the model runs.

Note the numerical values also displayed for each month as the model runs.

The results for your scenario are in green. [This case shows the result of a lower hiring rate than the base case, so quality problems happen earlier.]

The results for your scenario are in green. [This case shows the result of a lower hiring rate than the base case, so quality problems happen earlier.]

The black line shows results of the original scenario.

The black line shows results of the original scenario.

Double-click the large charts and click the ‘Y axis’ button to change the vertical scale [the model need not be stopped]

Double-click the large charts and click the ‘Y axis’ button to change the vertical scale [the model need not be stopped]

To save the model with your decisions, click File, Save As … [full version of mystrategy only]

To save the model with your decisions, click File, Save As … [full version of mystrategy only]


You should try estimating the answers to these questions before running the simulation to confirm your estimate. [It is not possible to calculate answers accurately].

1. What is the fastest growth in clients you can achieve from the start, while keeping service quality at 0.9 if you can hire [a] 3 staff per month or [b] 4 staff per month?

2. From the start, you hire only 1 new staff person per month, but still target 5 clients per month, so immediately hit service quality problems.

• How many staff do you need to hire during the 2nd 6-month period to get service quality back up to 0.9 by month -12?

• How many clients per month can you then target for the last 12 months, hiring only 1 person per month, keeping quality at 0.9?

3. You find it difficult to hire more than 2 staff per month. What is the highest rate of clients you can win …

• … and still keep service quality at 0.9• … and keep service quality from dropping below 0.8

What happens to client annoyance, reputation, staff morale, and staff losses in each case?

[see planning sheet on the following page]

Further suggested challenges …Further suggested challenges …


Planning sheet for your decisions Planning sheet for your decisions

Months:Target new clients

per monthStaff hired per

month

-24 to -18

-18 to -12

-12 to -6

-6 to 0

xxx xxx

Final clients

Final staff

Final service quality

Sketch your estimated outcome on the chart on the following page.


Sketch your estimates of how your strategy will work on this diagram of base-case results …

Sketch your estimates of how your strategy will work on this diagram of base-case results …


Further information …Further information …

There are two copies of the model:- the first model, directly below this display runs with your

decisions and generates the green time-chart lines- the second model, below and to the right, runs the base-case

decisions [black time-chart lines].

There are two copies of the model:- the first model, directly below this display runs with your

decisions and generates the green time-chart lines- the second model, below and to the right, runs the base-case

decisions [black time-chart lines].

The model itself is below this display area, scroll down to view the model.

The model itself is below this display area, scroll down to view the model.

Zoom to change the size of the model in your window.

Zoom to change the size of the model in your window.

Scroll to move around the model. Hit ‘Home’ key to return to top-left.

Scroll to move around the model. Hit ‘Home’ key to return to top-left.

Various parameters in the model can be changed, e.g. how much service quality problems annoy your clients, how quickly they forgive those problems, how fast staff leave etc.

Beware of changing these values – badly chosen values may lead to incorrect or meaningless behaviour of the model.

Various parameters in the model can be changed, e.g. how much service quality problems annoy your clients, how quickly they forgive those problems, how fast staff leave etc.

Beware of changing these values – badly chosen values may lead to incorrect or meaningless behaviour of the model.

OPTIONALLY – if you changed the frequency of decisions in the price charts to, say, every 3 months [earlier slide], you can have the model run the same number of months on each click of ‘| ’ . Double-click the clock icon to open the Time Settings, and change Run Step Interval to match the decision periods.

OPTIONALLY – if you changed the frequency of decisions in the price charts to, say, every 3 months [earlier slide], you can have the model run the same number of months on each click of ‘| ’ . Double-click the clock icon to open the Time Settings, and change Run Step Interval to match the decision periods.

figure 9.2-9.6 exercise: computer service provider exploring how intangible factors – reputation...

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