Create a Well Designed Pareto Chart in Tableau

In this video I will show you how to visualize Vilfredo Pareto’s namesake chart in Tableau. The Pareto Principle defines the 80/20 rule in that roughly 80% of the effects come from 20% of the causes.

I will use sample Tableau Superstore data to determine which states are responsible for 80% of sales. I’ll start with a basic Pareto chart and then move on to a visualization with a little more flair. This video should serve you well in your future data analyses.

 

Strategic Analysis of ADP

To my surprise, one of the more popular blog posts on this site has been my excerpt from an MBA group paper drafted for a strategic management class (MGT 6125) taken back in the Spring of 2007 at the Georgia Institute of Technology.

The class was taught by the esteemed professor of strategy, Dr. Frank Rothaermel who literally wrote the book on strategic management. As part of the class our project group interviewed an executive from ADP (Mr. Greg Secord who went on to become President of ADP Canada), wrote a strategic analysis of the company and then presented our findings to the company (complete with Q&A).

Due to the aforementioned popularity of the excerpt that I authored, I have decided to post the paper in its entirety as written by me and other project members. Please keep in mind that this work was originally submitted on April 23, 2007 so please peruse the information with the proper context in mind. I must give credit where credit is due as this paper was put together by Brent Dutton, John Frazer, Jay Hornback, Kyungrok Jung, Chris Nygren, Anthony Smoak, Tom Whittingham, et.al.

Company Background

Automated Data Processing, Inc. is a company that many people have heard of but may not be fully aware of its value proposition. ADP processes payroll for 1 in 6 Americans [1]. While payroll processing is its core competency, it is not the organization’s only line of business worth highlighting. Tax filing, benefits administration and labor management are just a few of the company’s other services. The purpose of this analysis is to offer a better understanding of ADP as a company. We will offer insight into the functions that the organization performs, how they have maintained success and where they are headed as an organization.

ADP’s corporate culture and structure bolster its internal strengths and contribute to the company’s competitive advantage. In addition, expansion and integration have contributed to ADP’s unmatched growth in the industry. ADP’s business level strategies and unique competencies have also been a contributing factor in its growth. This strategic analysis offers a detailed inspection of each of these growth factors and as well as recommendations that should help foster future growth and success.

Before diving into the current state of the business and its strategy, it is important to understand the company’s past. In 1949, Henry Taub became the sole owner of what would become ADP at the age of 21 [2]. This humble beginning, managing one client’s payroll, would slowly snowball through the 1950s as more companies saw the value from payroll outsourcing. ADP expanded by absorbing “Mom and Pop” payroll processors in major U.S. cities and expanding their local clientele.

In the 1960s, ADP became a publicly traded company and continued its expansion strategy. It developed a Brokerage Services division which provided services for stock brokerages on Wall Street. The 1970s saw further domestic expansion as well as ADP’s first international office in The Netherlands. A new Dealer Services division was created to cater to the inventory and accounting needs of automobile dealers. The decade wrapped up with the creation of Claims Services, another valuable division positioned to automate insurance estimates for insurers.

The growing PC industry of the 1980s posed a serious threat to ADP as many companies could more feasibly perform ADP’s services in-house. However, ADP proved up to the challenge by turning that threat into a strength as they absorbed this new technology into their operations. The company crossed the $1 billion revenue mark in the mid-80s and found themselves in the perfect strategic position as outsourcing became trendy in the 1990s. Into the 2000s, ADP boasts 570,000+ clients, 42,000+ employees and $7 billion+ revenue as they continue to be a leader in the HR outsourcing industry.[3]

Industry Analysis

In order to analyze the industry in which ADP competes, Porter’s Five-Forces Model was applied. In the context of this model the competitive makeup of the employee services industry becomes clear.

Threat of Potential Entrants

The threat of potential entrants is relatively low as the result of significant barriers to entry. These include high switching costs for customers and large upfront capital investment for potential competitors. There is little upside to performing payroll processing correctly and significant consequences for performing it incorrectly. As a result, companies are leery of switching payroll providers, giving new entrants little chance of stealing customers from existing payroll firms and thereby limiting the size of the market for new entrants. A large initial capital investment is also needed to establish the hardware and software infrastructure needed to process high volumes of transactions efficiently and effectively. In addition, an extensive sales force needs to be in place to combat the industries largest substitute.

Substitutes

The threat of substitutes is high, and primarily revolves around the mindset of businesses wanting to process payroll themselves [4]. Some plausible reasons include not wanting to lose control of the financial books or being unaware of the cost savings associated with outsourcing functions like payroll [5]. Other substitutes include ERP software like Oracle and SAP.

On the larger scale there are two Macro-environmental forces that have an affect on the industry as a whole; the Technological and Macroeconomic environments. Technology has not only helped the industry to increase the speed in which it can process transactions, but it has also increased the reach of individual companies. For example, ADP began operations using paper and pen to process payrolls. Later they moved onto calculators, punch cards, and mainframes. The processing power of mainframes increased the number of daily transactions they could process and in turn helped to grow the business.[6]

Lastly, the Macroeconomic Environment can affect the potential of companies to attract new clients and maintain current revenue streams. During an economic downturn companies are less likely to spend capital on nonessential projects resulting in fewer new clients. Also, a reduction in a client’s workforce has a direct relationship to the amount of steady revenue received[7] because a smaller workforce equals fewer payroll transactions processed.

Strength of Buyers

The strength of the buyers in the payroll industry is proportionate to the size of the buyer, or more specifically, the number of employees the buyer has.  Recently, many of ADP’s clients in the fragmented financial services industry have begun to merge and consolidate. In fact, there are 770 fewer such institutions in 2007 than there were in 2000[8]. While this consolidation has not happened yet on a large enough scale to severely impact ADP’s margins, it may do so in the near future if the trend continues.

Intensity of Rivalry

For the first forty years that ADP was in business it enjoyed very little competition in its industry. This was due mainly to the fact that ADP had developed a series of in-house competencies using complex technology such as punch card computers and later mainframes to process their customers’ transactions.  Not many other companies had the expertise to handle this difficult technology efficiently and effectively.  However, the advent of the personal computer and user friendly software such as PeopleSoft greatly lowered technical barriers to entry into the industry. This resulted in the advent of numerous new competitors such as Paychex, Ceridian, and Administaff. Although the payroll industry is still dominated by a few players (ADP and Paychex primarily), the PEO and BPO industries that ADP operates in feature many competitors and intense competition. This has already led to price competition and if it continues will hurt ADP’s profit margins.

SWOT Analysis: Strengths

ADP recorded a robust financial performance for the time period 2004 – 2006. Revenue has increased over the past year at the rate of 10%, operating profits 10%, net profit 29%, and cash flow 14% respectively [9]. This financial strength is the foundation for ADP’s future growth. For this industry with small margins and a high cost of acquiring new business, client retention rate is very important. ADP’s average client tenure is estimated at ten plus years, which exceeds the industry’s average [10]. This has allowed ADP to enjoy very predictable recurring revenue streams. ADP’s broad range of offerings is also a strength. These include computerized payroll, transaction processing, data communications, and IT-based business solutions [11]. ADP can offer substantial scale advantage across all its product offerings, which enables it to cater to a larger customer base. As a main player in the industry, ADP consistently processes difficult, mundane, and high-volume transactions very efficiently at a comparatively low cost. Additionally, ADP has established effective and robust business channels through a highly trained and competent sales force of more than 4000 associates; something that is very difficult for competitors to imitate. On top of that, top management succession has been extremely smooth and has caused very little disruption since the 1950s [12]. Lastly, decentralized organization makes for smoother transitions during M&A periods.

SWOT Analysis: Weaknesses

Increasing consolidation in the financial services industry has resulted in the creation of larger entities with more bargaining power. These larger players have adversely affected the margins of the company. First, for the period of 2004 – 2006, ADP’s return on average assets, investments and average equity were 4.6%, 5.1% and 18.8%respectively. This is significantly lower than corresponding industry averages of 8.4%, 10.2% and 21.6% over the same period. Weak returns indicate the inability of the management to deploy assets profitably and can adversely affect investor confidence[13].

Another weakness is their very high dependence on the U.S. market. ADP earned nearly 83.7% of its revenues from the U.S. market in 2006 [14]. The company has a presence in Europe and Canada, but the comparative revenue is smaller. A domestic concentration of revenues makes ADP vulnerable to adverse market conditions in the U.S. Further, ADP doesn’t have a scale advantage in its international market. Having a relatively small presence in international market makes ADP vulnerable to certain foreign risks – dealing with legal systems, establishing distribution channels, finding trained people for the right position, etc. Lastly, ADP has lost much of its tradition of innovation. ADP had been successful in adopting new technology and in turning technological threats into opportunities. ADP was the first to introduce early computer machines into payroll systems. With the threat of mini-computers and PCs in the 1980s, ADP saw this new technology’s potential for company growth and integrated it successfully [15].  But, as the company grew, it became understandably more conservative in its pursuit of new technologies. As a result, ADP will now typically wait for a new technology to be commercially proven before it will consider adoption. Because the most likely disruptive force in ADP’s industry will come in the form of a new technology, ADP’s lack of product innovation and conservative approach to new technology could prove to be a weakness.

SWOT Analysis: Opportunities

ADP still has room for growth in the Domestic Markets. Current estimates place the small business sector at 10 million companies and of that, ADP only does business with 9% of this set [16].  Similar opportunities exist in the large business sector where ADP services 26% of employees [17]. ADP should also look to up-sale current customers who do not outsource their entire HR department. Finally, ADP needs to continue to evaluate foreign markets like India. As India’s citizens grow their annual salaries, so do the opportunities for ADP to offer their outsourcing products.

SWOT Analysis: Threats

The two primary threats that ADP faces are disruptive technology and both potential and current competitors. Up to this point, ADP has been able to adapt to changes in the technological environment. This includes adapting to the introduction of PCs by offering software solutions that resided at clients’ sites [18]. Potential competitors include companies like IBM, who have large amounts of capital and come from industries with lower expected ROI. Within ADP’s own industry, competitors like Paychex are growing rapidly. Today, Paychex focuses mainly on small size businesses [19].  However, as they continue to grow so does the potential that they will bleed into ADP’s market and become more direct competitors.

Competitive Position

Throughout its corporate history ADP has managed to positively differentiate itself relative to its competitors and achieve and maintain superior profitability compared to the industry average [20]. This is indicative of a sustained competitive advantage. In order to understand how ADP has differentiated itself through its competitive advantage, it is necessary to examine the sources of their advantage and understand how they continually reinforce each other. Though there are certainly numerous factors that have contributed to ADP’s success, probably the three key attributes that fuel its competitive advantage are the firm’s brand equity and reputation, its powerful sales force, and its ability to retain clients.

ADP was founded over fifty years ago and is the longest running payroll/HR company in its industry. This is actually quite a feat considering their industry and the types of services that they provide to their clients. By managing such highly visible, though mundane functions such as payroll, benefits and retirement services, ADP is put in an uncompromising position. If the company performs its job well, no one notices. But if it errs in its performance, many will notice and will likely exhibit a highly (negative) emotional response toward ADP. Therefore, in order to prosper in this “no fail” environment, ADP must continually prove to its clients and potential customers that it is extremely reliable and consistently good. Based on the fact that they have been steadily growing over the past fifty years, clearly ADP has managed to remain reliable. In doing so, ADP has built up major brand equity and is highly regarded in the industry. This solid reputation for consistent performance is the first source of their competitive advantage. The result of ADP’s strong brand and reputation come is its high revenues and solid profits. This puts ADP in a healthy financial position, and ultimately allows them to support a large sales force of over 4000 sales associates [21]. ADP’s large sales force is their second source of competitive advantage.

It is their sales force that allows ADP to have a personal presence in every single deal that they pursue [22] (uncommon in today’s world of web and phone based sales). This results in new business growth beyond that of their competitors and a greater brand equity, reinforcing their first source of competitive advantage. Further, in order to effectively compete with ADP, competitors must be able to finance a large sales force of their own. Not many firms have the capital to do this, which provides a high barrier to entry in ADP’s industry. Additionally, ADP uses its sales force to continually serve the clients that it already has. This ensures that there is always someone to personally handle any issues or meet any requirements that a client may have. Due to this highly responsive and effective service provided to its clients, ADP has enjoyed an average client tenure of over ten years [23]. It is this high client retention level that is their third source of competitive advantage.

Keeping the clients that it earns for ten years or more provides a number of benefits to ADP beyond simple client familiarity. First, it prevents market share erosion – once a client goes with ADP, they are very unlikely to leave for a competing firm. Second, it provides an industry barrier to entry because with fewer potential companies to target (since ADP has walled off a large number of clients already), competitors are less likely to enter the industry. Third, and probably most important, ADP’s lengthy client tenure translates into over 90% of its revenues being recurring. This puts ADP in an extremely healthy position financially because not only does it have guaranteed revenue streams, but it also allows the company to plan financial moves years in advance with an extremely high degree of accuracy. ADP can then use its revenue streams to fund its sales force, which in turn strengthens its brand equity, which in turn helps gain and retain clients.

ADP’s reinforcing sources of competitive advantage are very powerful and continue to build upon themselves. These competitive advantages are very difficult to imitate.  This has ultimately allowed ADP to differentiate itself in the industry (See Appendix A). As a result of this differentiation, ADP can charge a premium on its services. This premium is very important in terms of profitability since ADP operates in a relatively low margin industry.

Market Segmentation

ADP has divided their offerings into two main divisions. The primary division is their Employer Services Division that covers all HR offerings as well as the corporate tax services. Employer Services is broken down by company size into three segments for sales purposes. The smallest segment (Small Business Servies) includes all companies with 50 employees or less and represents $0.9 billion in annual revenue [24]. The middle segment (Major Account Services) includes companies that range from 50 employees to less than 1000 employees and represents $1.7 billion in annual revenue [25].

The final segment (National Account Services) is the large employer segment, made up of companies with more than 1000 employees. The National Account Services segment represents $1.6 billion in annual revenue. ADP has strong market penetration in the Major and National Account segments but is currently dealing with slowed growth within these segments. ADP must look to expand into the Small Business segment to grow their market share. This may prove difficult because smaller companies are very price conscious and ADP charges a premium rate for their services. To expand into this price competitive market ADP will have to demonstrate to these companies that it is less costly to outsource payroll and other functions to ADP than it is to do those functions in-house.

Additional revenues in the Employer Services division are gained through ADP’s total source PEO service and product oriented business units. The product oriented business units are comprised of tax, retirement, and pre-employment services. While the PEO service represents only $0.7 billion in annual revenue we feel that this is another growth segment that ADP can focus on. The entire employer services division provided ADP with $5.7 billion in annual revenue in FY 2006.

ADP’s second division is the Dealer Services division which provides multi-purpose software packages for auto dealers. The Dealer Services market is also split into three market segments. The largest segment of the dealer services market is the Domestic Auto Dealers. The second segment represents International Auto Dealers. Finally, ADP’s third segment is the Recreational Vehicle and Commercial Truck Segment. Altogether, Dealer services has 25,500 customers representing $1.6 billion in annual revenues.

Business Level Strategy

ADP has three main business level strategies. The most important strategy focuses on using “solid time tested operating principles”[26]. By utilizing proven operational methods and products for all services ADP is able to provide solid, consistent performance in all market segments. This reliable consistency is especially critical given the nature of ADP’s services. Mistakes in processes such as payroll are highly visible to employees and employers. If ADP were not able to deliver this consistent service their clients would leave in droves. Thanks to ADP’s reliable operations and core knowledge of the transaction services business they can boast over a 90% client retention rate.

The second main business strategy stems from ADP’s decentralized corporate structure. By making decisions at the lower levels of management, ADP is able to deliver superior service to their clients. The flat corporate structure allows for flexibility and incremental improvements in services that are unhindered by bureaucratic obstacles. Because of this, ADP is able to quickly respond to and fill customer needs faster than their competitors. This strategy will become more important as ADP begins to expand into the Small Business segment where customers will have more specialized demands.

The final business level strategy is the direct sales force employed at ADP. By maintaining a sales force of over 4,000 dedicated field representatives ADP is able to include a personal touch on almost every business transaction. As mentioned earlier in the paper ADP’s sales force is seen as a competitive advantage by itself. By saturating the marketplace with well trained, capable sales personnel ADP is able to nurture and capitalize on personal relationships. While this is a competitive advantage it is also extremely costly. The high costs associated with the sales force could be ADP’s greatest weakness in targeting the lower margin Small Business market. Because of this higher cost, ADP has begun to experiment with telephone and web-based sales pitches to target the Small Business market. Using these less expensive marketing channels will allow ADP to quickly and inexpensively contact a greater number of small businesses and hopefully increase their client base within this market.

Mergers and Acquisitions

ADP has become highly successful in its strategy of pursuing growth via horizontal integration. Although current CEO Gary Butler has maintained that ADP has no interest in “large, dilutive, multiyear acquisitions” [27], the company actively acquires smaller industry competitors. Acquisitions give ADP the opportunity to grow inorganically, increase its product offerings, acquire technology and reduce the level of rivalry in its industry.

A perfect execution of this strategy can be seen in its January 2003 acquisition of Probusiness. Probusiness was a much smaller California based provider of payroll and human resources services. Before the acquisition, Probusiness cited eight large competitors who had an interest in acquiring them. An acquisition of Probusiness would give a larger company an opportunity to expand its share of the payroll business [28]. Amongst those eight competitors were notable companies such as International Business Machines Inc. (IBM), Microsoft Corp. and Electronic Data Systems Corp. (EDS) [13]. True to form, ADP decided to react and proceeded to acquire Probusiness. The acquisition effectively prevented large competitors from acquiring approximately 600 new payroll clients in the larger employer space and reduced future competition.

The Probusiness acquisition was also a boon to the company in the fact that it offered ADP advanced payroll processing technology. Probusiness utilized PC based payroll processing as opposed to ADP’s more mainframe based technology [13].

A key acquisition for ADP in terms of increasing its global footprint was the December 2005 acquisition of U.K. based Kerridge Computer. This particular acquisition was significant in the fact that it increased ADP’s Dealer Management Services (DMS) presence from fourteen countries to over forty one [29].

ADP along with its main DMS competitors in the European market, Reynolds & Reynolds and SAP, began to realize the significant growth opportunities for the region. The European market for DMS, unlike the United States market, is much more fragmented which means there are more opportunities for a larger player to standardize product offerings [30]. In 2003 the European Union lifted rules that had previously banned franchised car dealers from selling rival brands [15]. Demand for pan-European systems to help multi-brand dealers manage their stores, sometimes in multiple countries and in various languages increased dramatically [15]. ADP shrewdly realized that many smaller DMS providers would not be able to meet this demand and acquired Kerridge to bolster its position.

Strategically, the Kerridge acquisition has allowed ADP to have first mover advantage over its main competitors with respect to China. New vehicle sales growth in Asia is expected to be at 25.3% by the year 2011 [31]. By becoming a first mover in the region, ADP will have the opportunity to lock customers into its technology since it currently has a 96% client retention rate16. ADP will also have the opportunity to create high switching costs for its customers and make it difficult for rivals to take its customers.

Other recent acquisitions by ADP include Taxware, which brings tax-content and compliance solutions to the table; VirtualEdge, which offers tools for recruiting; Employease, which develops Web-based HR and benefits applications; and Mintax, which provides tools for corporate tax incentives [32].” All of these acquisitions represent small fast growing companies with complimentary products and services. These products and services can be incorporated in ADP’s vast distribution network and provide potential bundling, cross-selling, or up-selling  opportunities with ADP’s current offerings.

Culture, Structure, and Control Systems

Top management at ADP plays an important role in maintaining and advancing the culture created by its founders. The promotion of the core values by top managers sets the tone for the entire organization. ADP stresses the following three core values: 1.) treat everyone with honesty, fairness, and respect; 2.) conduct business with the highest level of integrity; 3.) open, informal communications, hard work, and prudent financial management [33]. Adhering to these values has created a culture of prudent risk taking, continuous improvement, and promotion from within based on ability. As a company that built its core business around delivering first class applications to its client base, maintaining an environment where employees advance their careers based on their ability to improve services is essential because better services lead to higher client satisfaction.  Client satisfaction is the most important metric for client retention, and retention is imperative for a mature company with 46,000 employees and 570,000 clients [34].

Creating incentives for employees to adopt and adapt new technologies will be paramount as ADP begins to embrace the software-as-a-service platform. Collaboration and incremental innovation occur naturally at ADP as a byproduct of its relatively flat, multidivisional organizational structure. As a result managing change during a paradigm shift should be relatively painless for the company. ADP’s flat corporate structure meshes well with its core values and business objectives. ADP avoids excess management layers in favor of decentralized authority and empowered product teams. These empowered associates respond well to this structure as it gives them a better sense of their mission, their accomplishments, and their accountability. Ultimately this leads to happier employees and better service levels [35]. Better service levels lead to longer relationships with ADP, expanded service offerings and more references to other companies who use ADP’s products and services [36].

As mentioned above, ADP advocates incremental innovation and relies heavily on outsiders to produce new products or platforms. Once the benefits of the technology are well known, ADP leverages the new technology to enhance its product offerings. This strategy has fewer risks and lower costs as opposed to investing directly in R&D and innovating internally. Streamlined implementations with aggressive timelines – most are completed in less than one year [37] – allow ADP to catch up quickly and capitalize on the advances along with the first movers. Dedicated cross-functional product teams “live with” the product implementation from its initial project management stages to the final testing and quality assurance phase. These experienced and focused teams deliver new products in half the time of most competitors. ADP also has strategic control systems in place to ensure products continue to meet their high quality standards. The Product Marketing Council and Product Steering Committee meet regularly to evaluate the quality of their products and services in terms of how effectively they meet the client’s business needs and how reliably the applications actually perform. Managers at these meetings also examine industry trends and external product innovations and assess the need to change platforms or introduce new products to ADP.

Recommendations

Over the past fifty years, ADP has a history of planned long-term growth. In the past twelve months, ADP divested their Claims and Brokerage Service businesses. ADP has made a clear strategic focus on the Employer and Dealer Service businesses, part of the new “Fit and Focused” ADP brand. Below are two strategic recommendations for ADP that mesh well with its strengths and the opportunities present in the industry.

Inorganic Growth in Employer Services

ADP has been very successful in matching organic growth with inorganic growth through mergers and acquisitions. Currently, the Professional Employer Organization, or PEO segment of the Employer Services business, is highly fragmented with solid expected growth. In some domestic PEO markets, ADP will be able to grow their presence with their existing ADP Total Source package. New regulations make California a prime market to expand with PEO services [38].

However, the PEO market as a whole is highly fragmented. Currently, over 700 firms provide PEO services to small businesses throughout the US. The overall market penetration of PEO services is about 2.5% with annual growth of about 20%. ADP is in a unique position to grow in this segment because ADP has the largest capital structure (see Appendix B) [39]. ADP could greatly accelerate their growth in this promising market through continued mergers and acquisitions.

Dealer Services in the Booming Chinese Auto Market

As mentioned in latter portion of the Mergers and Acquisitions section, ADP acquired Kerridge Computer which expanded the Dealer Services business internationally. The Dealer Management Service, or DMS, industry will continue to have steady growth in North America and Western Europe. The largest, long-term growth potential, however, is in the Chinese automotive market. The growing economy and shift from institutional vehicle purchases to individual purchases are the primary reasons for a need to increase ADP’s DMS presence in China.

“China’s auto demand is expected to rise to 10 million in 2010, second only to North America,” says Zhang Xiaoqiang, Vice Minister of the State Development and Reform Commission [40].

Currently, the automotive market in China is around 2 million vehicles per year. Thus the projections of the Chinese government equate to 20-30% growth over the next several years [41].

The automotive growth in China also lends to growth in the DMS industry because the Chinese auto market is switching from an institutional sellers market to an individual consumer buyers market [42]. The switch in customer base will put an increased need for dealerships to provide more personalized and generally better customer service. DMS systems can help dealerships manage their business more effectively while focusing more time on building their customer base and nurturing customer relationships. ADP clearly has a focus on the growing Chinese automotive market with its recent announcement with BMW of China [43]. Building on that, ADP needs to continue to focus resources and energy on the great opportunity China’s automotive market provides.

Endnotes

[1] http://www.adp.com/employer_services_overview.asp?iid=EFI0483

[2] Kanarkowski, Edward J., ADP 50th Anniversary Book, Automatic Data Processing, Inc., 1999.

[3] http://www.adp.com/employer_services_overview.asp?iid=EFI0483

[4] Secord, Greg, VP of Marketing, ADP NAS, 30 March 2007 (verbal conversation)

[5] Secord, Greg, VP of Marketing, ADP NAS, 30 March 2007 (verbal conversation)

[6] ADP, 50th Anniversary : 1949 – 1999, p.5. p. 14

[7] Secord, Greg, VP of Marketing, ADP NAS, 30 March 2007 (verbal conversation)

[8] Automatic Data Processing, Inc. Company Profile, DataMonitor, p. 8.

[9] Automatic Data Processing, Inc. Company Profile, DataMonitor, p. 5.

[10] Secord, Greg, VP of Marketing, ADP NAS, 30 March 2007 (verbal conversation)

[11] ADP, Focus on growth : 2006 summary annual report, 2006. http://www.investquest.com/iq/a/adp/fin/annual/index.htm

[12] ADP, 50th Anniversary : 1949 – 1999, http://www.investquest.com/iq/a/adp/main/archives/anniversary.htm

[13] Automatic Data Processing, Inc. Company Profile, DataMonitor, p. 6.

[14] Automatic Data Processing, Inc. Company Profile, DataMonitor, p. 6

[15] ADP, 50th Anniversary : 1949 – 1999, p.5. p. 30., http://www.investquest.com/iq/a/adp/main/archives/anniversary.htm

[16] Rubel, Brian, Sales Executive, ADP NAS, 25 February 2007 (verbal conversation)

[17] Secord, Greg, VP of Marketing, ADP NAS, 30 March 2007 (verbal conversation)

[18] ADP, 50th Anniversary : 1949 – 1999, p.5. p. 30

[19] Paychex 2006 10k report……………………………..

[20]ADP, 50th Anniversary : 1949 – 1999, p.43 http://www.investquest.com/iq/a/adp/main/archives/anniversary.htm

[21] Rubel, Brian, Sales Executive, ADP NAS, 25 February 2007 (verbal conversation)

[22] Secord, Greg, VP of Marketing, ADP NAS, 30 March 2007 (verbal conversation)

[23] Automatic Data Processing, Inc. Company Profile, DataMonitor, p. 6

[24] http://www.investquest.com/iq/a/adp/main/archives/adp031406analyst.pdf

[25] http://www.investquest.com/iq/a/adp/main/archives/adp031406analyst.pdf

[26] http://www.adp.com/about_philosophy.asp#strengths

[27] Simon, Ellen “ADP chief looks at expansion, not acquisition” ASSOCIATED PRESS (7 March 2007)

[28] Gelfand, Andrew “ADP Seen Holding Off Competition With ProBusiness Buy” Dow Jones News Service (6  January 2003) :Factiva

[29] Kisiel, Ralph “Reynolds, ADP aim for European growth” Automotive News Europe Volume 11; Nbr 3 (6 February 2006) :Factiva

[30] Jackson, Kathy “Dealer software market is booming; Multibranding boosts demand for dealership management programs” Automotive News Europe, Volume 11; Number 21 (16 October 2006) :Factiva

[31] ADP Annual Financial Analyst Conference Call Presentation. March 22, 2007

[32] Taulli ,Tom “ADP Tries Getting Even Better” Motley Fool  (November 2, 2006) Accessed 4/14/07 <http://www.fool.com/investing/general/2006/11/02/adp-tries-getting-even-better.aspx.

[33] http://www.adp.com/about_philosophy.asp, “OUR BUSINESS CULTURE”

[34] Automatic Data Processing, Inc. Company Profile, DataMonitor, p. 6

[35] http://www.adp.com/about_philosophy.asp, “ORGANIZATIONAL STRUCTURE”

[36] Automatic Data Processing, Inc. Annual Financial Analyst Conference, “Strategic Growth Program”, Slide 16, March 22, 2007

[37] Notes from meeting with ADP executive on 3/30/07

[38] ADP. (2007). 2006 Annual Report. Retrieved March 24th, 2007 from http://www.investquest.com/iq/a/adp/fin/annual/index.htm

[39] Gordon, Benjamin and Gordon, Matt, “The PEO Industry in Transition,” HRO Today, June 2006.

[40] Gluckman, Ron, “Shifting into High Gear,” The Silk Road, April 2004

[41] Lienert, Dan. “The Rising Chinese Auto Market,’Forbes.com, December 2003.

[42] Hemerling, Jim, Jin, David, and Chen, Forrest, “Winning in Today’s Chinese Automotive Market,” The Boston Consulting Group, June 2005

[43] ADP. (2007). ADP Press Release. “ADP Announces Major Contract With BMW China Automotive,” February 2007.

B.I. Basics Part 4: Learn the QlikView ApplyMap Function

There will come a time in your QlikView load scripting endeavors where you will need to map a single key value to a lookup table and return the lookup value. If you’ve ever wanted a Qlikview function that is somewhat analogous to a CASE statement for simple lookups/transformations, then look no further than the ApplyMap function.

My video breaks down the hard to interpret user manual definition and provides a simple example that will have you performing QlikView lookups in no time.

Michael Porter’s Generic Cost Leadership Strategy Explained

Preface:

Back when I was a heads down developer analyst working at General Motors, my mindset was completely focused on being a data expert and techie. At the time I did not have a broader understanding of business concepts and business strategies. Thus, I considered myself a “one dimensional” resource (a very competent one dimensional resource but one dimensional nonetheless). I set out to remedy my blind spots by acquiring business knowledge so I would have an understanding of broader concepts, become less myopic, and position myself favorably in the marketplace against other one dimensional techies (like myself at that time).

Subsequently, it was in business school where I first learned of American academic Dr. Michael E. Porter of Harvard Business School fame. Mr. Porter is regarded as the preeminent thought leader in the area of business strategy and competitiveness.

Generic Competitive Strategies:

I found value in studying and discussing Porter’s framework that defined generic competitive strategies. A generic competitive strategy is a business level strategy that companies adopt in order to obtain a competitive advantage. The strategies are termed generic because they can be pursued by any and every company across a range of industries. The three primary strategies employed in the framework are:

Cost Leadership (low cost structure, e.g. Wal-Mart, Dell, Southwest Airlines)
Differentiation (offering unique product and services for a premium, e.g. Apple, BMW, Starbucks)
Focus (limiting scope to narrow market segments, e.g. local restaurant or local service provider)

michael_porters_three_generic_strategies-svg

These three strategies help contextualize how businesses aim to obtain profits in their respective marketplaces; they also help businesses understand how they can seek new opportunities for advantage. Porter originally emphasized that a company should target only one of the strategies in the framework or risk paying a “straddling penalty” (a la the doomed airline offshoot Continental Lite). Porter later softened his stance in this regard recognizing the benefits of a hybrid approach in some cases.

Cost Leadership Strategy:

This post focuses on cost leadership because it’s the strategy that relates tangentially to IT and the concept of globalization. As IT workers are aware, the forces of globalization have no mercy in their enablement of companies to offshore work in an attempt to lower costs. This outsourcing of IT work to offshore firms is happening at organizations such as Disney, the University of California and [Insert Any Bank Name Here]. Obviously not all technology related offshoring is done in order to focus on a cost leadership strategy but the activity’s initial intent is to lower a firm’s IT cost structure (refer to my post on how IT has to do a better job communicating its value).

Returning to the main point, the cost leadership strategy is employed when a company aims to be the lowest cost producer in the market. Strategic managers in the organization make a concerted effort to lower business costs in order to achieve a competitive advantage. A lower cost structure enables a business to reap higher than average profitability.

Businesses attempting to implement this strategy may aim to increase inventory turnover, lower their wage expenses and/or manufacturing costs, gain bargaining power over suppliers, develop distinctive competencies in logistics, develop low cost distribution channels or any combination thereof. As an aside, I could prattle on ad-nauseam about Wal-Mart and how its technological capabilities provided the organization significant advantages (and I have here: Part 1, Part 2 and Part 3).

Advantages:

When the cost leader and another company decide to compete in the same price range for the same customers, the cost leader will have the inherent advantage because it will reap higher profits due to its lower cost structure. The cost leader will be able to weather the “price war” due to its lower cost structure advantage.

“The cost leader chooses a low to moderate level of product differentiation relative to its competitors. Differentiation is expensive; the more a company expends resources to make its products distinct, the more its costs rise. The cost leader aims for a level of differentiation obtainable at a low cost. Wal-Mart, for example does not spend hundreds of millions of dollars on store design to create an attractive shopping experience as chains like Macy’s, Dillard’s, or Saks Fifth Avenue have done.” [1]

The cost leader also positions its products to appeal to the “average customer”. The aim is to provide the least number of products desired by the highest number of customers. Although customers may not find exactly what they are seeking, they are attracted to the lower prices [1].

Disadvantages:

Since the strategy involves providing the lowest costs, companies must strive for a large market share when employing this strategy. The cost leadership strategy has been linked to lower customer brand loyalty which in turn means that customers can be swayed by lower priced substitutes from other competitors.

Additionally, as technological change enters the marketplace, new competitors can attack cost leaders through innovation thus nullifying the cost leader’s accumulated advantages. For example, Amazon has accumulated substantial knowledge and proficiencies in the online e-tail space and has placed Wal-Mart on the defensive in this arena as Wal-Mart’s expertise is tailored to its brick and mortar assets.

Or as foretold in Porter-speak back in his 1996 HBR article “What is Strategy”,

“A company may have to change its strategy if there are major structural changes in its industry. In fact, new strategic positions often arise because of industry changes and new entrants unencumbered by history often can exploit them more easily.” [2]

References:

[1] Hill, Charles. W. L., & Jones, Gareth. R. (2007). Strategic Management Theory. Houghton Mifflin Company

[2] Porter, M. E. “What Is Strategy?” Harvard Business Review 74, no. 6 (November–December 1996): 61–78.

Header Image Copyright: olivier26 / 123RF Stock Photo</a>

Diagram Image By Denis Fadeev – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=32434551

More Than You Want to Know About State Street Bank’s Technology Strategy Part 1

Introduction:

In November of 2010, Investment Management firm State Street Bank publicly announced an overall transformation of its technology infrastructure. State Street is a massively sized transaction services provider to both mutual and pension fund managers. The custodian bank holds $23 trillion in investor accounts in 29 countries around the world. In an organization with a massive store of data (most of it subjected to regulatory oversight), enterprise wide data conformity and accessibility is a challenge.

In a case of business strategy/need influencing information technology strategy, State Street’s COO in 2009 (Jay Hooley) wanted to help an institutional client calculate its exposure to a particular market. The information request was highly urgent given the financial consequences of late reactions during the great recession. “Getting the numbers turned into a painful exercise as State Street’s middle- and front-office staffers reconciled disparate data sets housed in different client systems and in nine of State Street’s 29 global locations” (Fest 2013). This failure to deliver for the client in an instantaneous manner spurred Hooley to call upon his information technology leadership to present a strategy to address this business need. The result of the IT leadership planning effort was the idea to move the bank’s diverse legacy infrastructure to a more standardized and nimble cloud computing architecture.

State Street: Strategy for Technology Infrastructure:

Former State Street CIO Chris Perretta, who as of 2016 holds a similar position at MUFG America’s Holdings Corporation, spent a considerable amount of time evangelizing the benefits of cloud computing to both the business and the bank’s board members. In its early stages, the technology vision resulting from the COO’s planning request was to position an updated infrastructure as a competitive advantage for the business in terms of cost savings, automation, and future development efficiency. Furthermore, the updated infrastructure could be an enabler of new product revenue streams. It should be noted that a shift to the cloud for a financial organization the size of State Street was unusual. “Too Big to Fail” sized banks are not typically known for their innovative technology development. Derisively, the bank has been known as “Staid Street” for its conservative manner. Within financial services, innovation is usually the domain of smaller, nimbler “fintech” startups looking for scalability and speed to market.

From an infrastructure perspective, State Street embarked upon migrating from disparate legacy data centers running proprietary Unix servers to a standardized cloud architecture based upon commoditized x86 servers running Linux. The initial cloud service was built from a Massachusetts based disaster recovery center and the bank currently has six major data centers in the U.S., Europe and Asia along with three backup facilities (Brodkin, 2011). In addition to the rollout of virtualization capabilities and distributed database functionality, Perretta states, “New tools for provisioning, change control, load balancing, a common security framework and various types of instrumentation to enable multi-tenant infrastructures are all part of the mix” (Brodkin, 2011).

Traditionally State Street has relied upon the “build rather than buy” approach as it builds customized software (development traditionally accounting for ~20%-25% of annual IT budget) to meet its needs (CMP TechWeb, 2012). The standardized cloud platform now enables developers to reuse code for future development which can shorten project timeframes.

State Street: Strategy for IT Capability & Staffing:

State Street’s IT organizational structure can be characterized as federalism. With the federalist approach, the organization gains the benefit of having centralized leadership and vision at the “top of the house”, yet allows decentralized co-located IT groups to remain responsive to their respective divisions. As described by former CIO Perretta, “We line up delivery capacity with each unit, and each CIO is responsible for delivering business services to that unit” (MacSweeney, 2009). For example, The CIO has a direct report on the ground in China where the company operates a subsidiary (State Street Technology Zhejiang Co). Furthermore, the bank is tolerant of “skunk works” style projects that organically develop in different IT divisions throughout the enterprise (MacSweeny, 2009).

On the centralized side of the federalist equation, the bank operates a shared services group that is responsible for technical necessities distributed throughout the enterprise (i.e. security, information and communications). This federalized approach makes sense for a sprawling organization that is comprised of disparate business operations across its custodian bank, investment management, investment research and global divisions.

With the introduction of the cloud infrastructure at State Street, the technology staffing vision is to acquire individuals with architectural knowledge who can think “big picture” yet are able to wallow in the details as necessary. The bank employs a chief architect whose aim is to drive technology innovation that leads to strategies that will impact the business in an advantageous manner. Perretta states, “We don’t use him to manage projects; we use him to come up with the ideas that make sense for our business community. Now he does those pilots, and then we industrialize them for the rest of the organization” (Tucci, 2011).

To be continued in Part 2 and Part 3 where I address additional areas such as:

  • Strategy for Information Risk & Security
  • Strategy for Stakeholder Requirements, Testing & Training/Support
  • Project ROI and Key Success Measures
  • Strategy for Data Acquisition and Impact on Business Processes
  • Strategy for Social Media/Web Presence
  • Strategy for Organizational Change Management, Project Strategy and Complexity

References:

Brodken, J. (April, 14, 2011). State Street modernizing with cloud, Linux technologies; Virtualization, open source drive cloud project at State Street. Network World Fusion. Retrieved from Factiva 6/19/2016

CMP TechWeb. (June, 25, 2012). State Street Private Cloud: $600 Million Savings Goal. Retrieved from Factiva 6/19/2016

Fest, G. (January 1, 2013). State Street’s Dig (Data); Championed by CEO Jay Hooley, boston-based state street is remapping a huge technology infrastructure to reap the benefits of the cloud and big data. American Banker Magazine. Vol.123, No.1. Retrieved from Factiva

MacSweeney, G. (August, 1, 2009). Serious Innovation; CIO Christopher Perretta supports all of State Street’s IT needs by mixing new technologies and rapid development and even encouraging ‘skunk works’ experimentation when appropriate. Wall Street & Technology. Retrieved from Factiva

Tucci. L. (July, 2011). In search of speed, State Street’s CIO builds a private cloud. Retrieved from http://searchcio.techtarget.com/podcast/In-search-of-speed-State-Streets-CIO-builds-a-private-cloud

Photo courtesy of DAVID L. RYAN/GLOBE STAFF

A Review of Syracuse University’s Executive Master of Science in Information Management Program (MSIM)

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Syracuse University iSchool Commencement May 14, 2016

I wanted to share an assessment of the Syracuse University Executive Master of Science in Information Management (MSIM) program as I recently graduated from the program in the summer of 2016. I will say that if you are considering a distance program, you must be self-disciplined and a self-starter. Typically there are no set class times, there are only set assignment due dates.

Just to give you a bit of background on my experiences, back in 2012 I was toiling full-time in the back-office of an Atlanta based bank in a data warehousing/requirements gathering capacity when I acquired (or I should say re-acquired) the Masters bug. I already held an MBA with a focus in IT management but I wanted additional exposure to areas that focused on current “sexier” technology based topics such as data science, R programming, visualization and information security.

In contrast, the IT management focus of my MBA studies focused on strategic planning, project management, justifying IT investments, business process analysis and on-site company practicums. Basically IT Management is the academic “CIO starter pack” for the so-inclined executive. I wanted to supplement the more strategic MBA IT focus I had already gained with a granular data focused learning opportunity. I was thinking ahead and trying to position myself to tackle more interesting information related work in visualization and data analysis.

Fortunately, my employer at that time offered a tuition reimbursement program that would help offset some of the costs of a new graduate degree. Thus, at the start of 2012 I decided to take the plunge and started looking at reputable graduate degree programs in IS/MIS/CIS or Information Management.

Just because I was looking at online degree programs didn’t mean I was willing to compromise on academic quality or university reputation, thus I started researching STEM programs at reputable schools: Carnegie Mellon, Northwestern, Brandeis, Boston University and Syracuse University.

Based upon my tenure, here are some pros and cons of the Syracuse Executive MSIM program as I will be as impartial as possible in my assessment. Please note that my experience does not include an assessment of the full time on campus program.

From the Syracuse iSchool website:

The 30-credit MS in Information Management for Executives requires students to have six or more years of full-time professional experience in the information management field with a record of continuingly increasing job responsibilities. This program track is also available, online, full time, or part time and can be completed in as little as 15 months.

Pros:

  • Syracuse University is a well-known respected institution with a solid name brand;
  • According to USNews the iSchool at Syracuse is rated as having the #1 ranked program in Information Systems within an iSchool
    • Syracuse edged out other respected schools such as Michigan, UNC, Washington, Maryland and UT-Austin
  • All of the Big-4 professional services firms recruit from the full time program;
    • I took this as an indication of program quality
  • The degree is offered by the same school that houses the on campus program and not offered from a Professional Studies school
    • This held sway with me as I was looking for schools that did not herd distance students into a program with separate faculty and lower admissions standards
  • Any student in the Executive MSIM program can at anytime enroll in an on-campus class
    • This was further proof of academic parity between all MSIM degree options as I enrolled in two on-campus classes during summer terms
    • The majority of the classes were taught by PhD level faculty
  • You can combine a graduate degree with a CAS (Certificate of Advanced Study) in multiple disciplines;
    • Data Science
    • e-Government
    • Information Security Management
    • Information Systems & Telecommunications Management
    • School Media
  • You can transfer in to the MSIM program up to 6 credit hours from another graduate level program;
  • There are Syracuse University alumni chapters in most major cities that present networking opportunities
  • If you’re a college basketball fan Syracuse gives you a new rooting interest in a quality program. College football fans however…
  • If you complete the program, you WILL learn new concepts that can be put to work immediately in your current position and make you more confident in your abilities

Cons:

  • Expensive!!!
    • The program was much cheaper than Carnegie Mellon and slightly cheaper than Northwestern’s Continuing Studies offering but it was pricey nonetheless. Back in 2012 the classes were roughly $3800 for 1 class. By the time I finished in 2016 I was paying $4400 per class (a whopping 16% increase)
    • The majority of classes I took were of high quality and I gained additional knowledge to fill in some gaps but there were some classes were I felt the material was on par with a MOOC (which is not necessarily bad) but at $4000 a class, students will have much higher standards
    • The high cost of the program forced me to drag out the program over 3 and a half years
  • Would have liked to see greater connectivity solely between Executive MSIM students. I listed parity and sameness of academic quality as a plus but I would have liked to know (for networking purposes) who else was in the executive program even if they weren’t in my particular class. Classes were comprised of executive online students, non-executive online students and full-time on-campus students who wanted to take an online option. This cross-blend of students enriched the overall class experience but I still wanted a means of connection with all students in the executive MSIM program
  • Your student advisor can be unresponsive
    • There were times when I received an email response from my advisor up to a week later. There were times when my emails and phones calls to my advisor were completely ignored. Slow and especially non-responses should not be a possibility when customers are paying the university roughly $4,000 a class
  • Work. School. Social Life. Pick 2. This problem is not unique to Syracuse graduate programs
    • In my first class I had to write a 25-page paper which meant taking a week of “vacation” to finish!

All in all, I was pleased with the program. I was able to combine the M.S. in Information Management degree with a Certificate in Data Science which included exposure to tools like R, Tableau and Qlikview.

I was able to travel to Syracuse during the summer on two different occasions and complete two classes which were both of high quality. If you enroll in the program you should absolutely attend a summer Maymester class to acquaint yourself with the city and the campus. On my first visit I stayed in Haven Hall and lived like a student. On my subsequent visit it was a week in the Marriott since I had hotel points to use from my consulting job.

I specifically enjoyed the capstone class I took on campus, IST-755 Strategic Management of Information Resources. The class involved lectures combined with readings, a mid-term test and an in-class group strategic presentation based on an assigned case problem. After the week of class, students needed to compose an individual strategic paper.

From a cost perspective, there are innovative graduate programs leveraging MOOC (i.e. Massive Open Online Course) components which are currently offered at prestigious public universities. The MOOC underpinnings of these offerings allow the degrees to be offered at a mere fraction of Syracuse’s cost.

Both Georgia Tech (full disclosure, my MBA was earned here) and the University of Illinois are offering M.S. programs in computer science and data science for roughly $7,000 and $19,000 respectively. I would love to see more reputable universities with quality STEM programs follow suit in this regard (looking at you NYU, Cal-Berkeley, Carnegie Mellon and Syracuse).

However, if you can take advantage of your employer’s tuition reimbursement plan to subsidize the cost, I recommend the Syracuse Executive Master’s of Science in Information Management program for the quality academics taught by PhDs and the flexible curriculum. The program will be especially useful for talented individuals mired in back-office banking looking to transition to consulting!!

Photo Copyright : maglara

B.I. Basics Part 3: Create a Gantt Chart in Excel

If you’ve ever had to put together a quick timeline to share with someone without the need to resort to full blown Microsoft Project then you will find this video helpful. I will show you how to create a very simple but effective Gantt chart that will satisfy your inner project manager. Definitely keep this tip in your Excel toolkit.

B.I. Basics Part 2: Sorting “Correctly” in Tableau

For those of you that are familiar with Tableau, you know that sorting can be an exercise in frustration and futility. Fortunately when you understand how Tableau intends its sort functionality to work, you’ll discover that there is a method to the madness. My video presents a simple solution that will alleviate your sorting frustration and should find a place in your Tableau toolbox.

Enterprise Risk Management at Microsoft

This is a brief writeup from an Enterprise Risk Management class that I took back in 2013. The case describes Microsoft from the mid to late 90’s and its efforts to implement an Enterprise Risk Management group. The case mentions former head of treasury Brent Callinicos, who went on to become a regional CFO at Microsoft and the CFO for Uber.

For those who are interested in the case details, check out “Making Enterprise Risk Management Pay Off: How Leading Companies Implement Risk Management” by Thomas L. Barton, William G. Shenkir & Paul L. Walker.

Introduction

Historically, the technology sector has always been subjected to swift, rapid changes. Microsoft has always tried to anticipate new threats and technology advances (i.e. dealing with both existing risks and unanticipated risks). Back in the late 1990’s, technological changes due to the rise of the internet provided Microsoft a different landscape from the historical era of the unconnected, standalone PC. In Microsoft’s 1999 annual report, the first item discussed under “issues and uncertainties” is “rapid technological change and competition”[1].

Additionally as the mid 90’s era Microsoft launched new products, it also ventured into new business models. The launch of Expedia in 1996 positioned Microsoft as a player in the travel agency business and its Home Advisor product made the company a licensed mortgage broker. These novel business models exposed the organization to a new set of risks, which in-turn exposed the risk management group to new challenges.

Moving to an Enterprise-wide Risk Management Approach

Microsoft has always competed in a very competitive landscape replete with technologically savvy competitors and condensing product life cycles. As a result, an enterprise wide commitment to risk management was a necessary and prudent choice to remain competitive in the company’s markets.

The momentum that triggered a more enterprise wide view of risks at the company was the establishment of the risk management group in 1997. Prior to 1997, there was no such group to start the process of implementing an ERM framework. Within the treasury group, the risk management group head Brent Callinicos (also notably the eventual CFO of Uber) set out to develop a consolidated risk identification, measurement and management approach.

The treasury group started with finance risk management changes by increasing the complexity and effectiveness of VAR analyses. Furthermore, treasury presented a paper to the finance committee of the board of directors that analyzed the derivative losses of several major companies. This report precipitated a more integrated approach to the various financial risks handled within treasury. The creation of Gibraltar (a treasury information system) allowed the company to view all of its risks “holistically rather than on a silo basis” [1].

From a business risk perspective, the risk management group worked closely with business unit managers in order to develop risk-financing plans and to aid business units with appropriate quantitative risk modeling. This evangelist approach was an effective method for gaining buy-in regarding the risk management group’s aims.

Microsoft’s Enterprise Risk Management Structure

Microsoft’s risk management group is nestled within the treasury function of the organization. The leader of the risk management group is the corporate treasurer who reports directly to the CFO. Treasury manages somewhere in the neighborhood of $80 billion for the software company [2]. Business risk is divided into worldwide products, worldwide sales & support and worldwide operations. The company does not have a CRO as it decided that a CRO would not be practical.

In my opinion, I believe that Microsoft housed their risk management under the treasury function because they viewed a standalone risk organization under a CRO as duplicative. Treasurers concentrate primarily on managing financial risks but by nature must also be generalists with respect to many types of risk. In a multinational technology company such as Microsoft, various market currency risks exist that require appropriate anticipation and response.

Microsoft is inherently technologically driven. The company has very smart, knowledgeable people naturally embedded into its lines of business. These smart people understand the risks of their technological products and desire to see these products succeed. To the benefit of the organization, the embedded personnel have an inherently risk minded mentality. Therefore the job of the risk management group is to partner with and support the lines of business and various operations groups by adding “incremental value”; i.e. information that the business units may not have considered.

“Microsoft is first run by the product group, then maybe by sales, and finance and risk management will come after that. The risk management group or treasury group will not run the company”[1].

Microsoft previously looked at risk in separate silos. In order to look at risk holistically, the risk management group had to step back and take a strategic assessment, which is a much more challenging endeavor. With this holistic approach, the grouping or correlation of risks are considered as opposed to dealing with one specific risk at a time. For example, Microsoft considered property insurance as the legacy best way to manage the risk of building damage in an earthquake. With a new scenario analysis approach employed by the risk management group, additional risks must be considered that are correlated to property damage. This new correlation mentality required partnering with multiple areas of the company to incorporate additional risks for an appropriate risk assessment.

Use of Scenario Analysis

Scenario analysis is used to understand the risks with respect to situations where it is very hard to quantify or measure the precise impact to the organization. Sequences of events regarding severe earthquake damage or severe shocks to the stock market are risks that are difficult to quantitatively measure and thus scenario-based tactics are applicable to try and gauge the fallout. Additionally, Microsoft uses scenario analysis to conduct stress testing which consider hard to measure impacts of political and geographic circumstances. An order of magnitude approach is used in scenario analysis as opposed to an exact measurement approach. Microsoft uses qualitative language such as, “..the quantification of business risks is not exact…”  and , “Does this feel about right for this risk” in their scenario analyses.

Once the risk management group has identified the risks associated with each scenario, it then partners with other business units to understand impacts. The risk group will also investigate other external organizations that have experienced similar events in order to learn how these organizations weathered their experiences.

The Main Benefits of Enterprise Risk Management

One substantial benefit for Microsoft in moving to an ERM approach is that the company can view and assess its risks holistically as opposed to assessing risks in an independent/uncorrelated fashion. This is evident in initiatives such as the company’s Gibraltar treasury system which provides an aggregated view of market risks.

Another benefit is that the risk management group works across the organizational footprint and can provide input to various groups so that each group can “stay current on what is happening in the business” [1]. The risk management group can diffuse information across the organization by working closely with business unit managers. Face time with product and operations managers allows the risk group to understand risks across the enterprise which contributes to a holistic understanding.

This approach is mutually beneficial for both groups as the risk group gains understanding of new risks (continuous cataloging of risks) and the business units gain insight into risks they may not have previously considered.

“By having the business units educate us on the intricate details of their business, the risk management group can be aware of perhaps 90 percent of the risks facing Microsoft”[1].

Closing Thoughts

At Microsoft, the risk management group doesn’t necessarily have to posses the all-encompassing best risk solution for every line of business. Risk management considers the product managers and the respective lines of business as the most knowledgeable sources of risk within their own domains. The risk group is on hand to provide additional insight for incremental improvement and to enhance or build upon the risk knowledge already contained within the lines of business.

This approach makes sense for a technology company that is teeming with very risk aware and knowledgeable personnel at the operational levels who are designing or working with complex products.

In my work experience at a traditional bank, the risk group was assumed to have the best procedures, templates and analyses with respect to handling credit, market and operating risks.  From Microsoft I have learned that highly efficient and capable risk management can also be a synthesis of understandings from risk management proper and the lines of business.

References:

[1] Barton,T., Shenkir,W., Walker, P. (2002). Making Enterprise Risk Management Pay Off.

[2] Groenfeldt, T.  (Nov, 2013). Microsoft Treasury Wins Best Risk Management Award. Forbes. http://www.forbes.com/sites/tomgroenfeldt/2013/11/19/microsoft-treasury-wins-best-risk-management-award/#4fcade2124ed

Copyright: mrincredible / 123RF Stock Photo

B.I. Basics: Create an SSIS Data Profiling Task In SQL Server

Data Profiling is necessary when trying to gain an understanding of a given data set. A data profiling assessment should begin before any reporting or application development work begins. My video will demonstrate how to create a basic SSIS Data Profiling Task using SQL Server Data Tools.

According to the DAMA Guide to the Data Management Body of Knowledge:

“Before making any improvements to data, one must be able to distinguish between good and bad data…. A data analyst may not necessarily be able to pinpoint all instances of flawed data. However, the ability to document situations where data values look like they do not belong provides a means to communicate these instances with subject matter experts, whose business knowledge can confirm the existences of data problems.”

Here is additional information direct from Bill Gates’s former startup outfit regarding the types of data profiling tasks available in SSIS: https://msdn.microsoft.com/en-us/library/bb895263.aspx