Balanced scorecard development for Microsoft

Below are some of the pieces I contributed to the development of the BSC that could be suggested to Microsoft - as a part of our Management Planning and Control course.

The research included answering the following questions:

1. Where is Microsoft now?
2. Where is Microsoft going?
3. What are Microsoft's strategic priorities in 3-5-year period?
4. What would be a BSC relevant to Microsoft's strategic priorities?

Figure 1. Microsoft products by operating segment

Figure 2. Microsoft offering to individuals

Figure 3. Microsoft offering to organizations

Figure 4. Traditional and web 2.0 business models

Figure 5. Microsoft's strategic focus in cloud computing

The strategy map suggested in the paper combines defending the current products and services positions and developing new products (including transformation of the current products into new forms) that would allow the company to extend its leadership in the changing and new markets.

© Andrey Maslov

AX firm in 2008 Canadian Technology Fast 50 ranking

Calgary-headquartered company WellPoint Systems (TSX:WPS) that specializes in AX implementations for the energy industry, primarily oil&gas, appeared in Deloitte's ranking of 50 fast growing companies in Canada in 2008, with 695% of revenue growth over 5 years. This news is a good contribution to AX popularization in Canada.
With the oil price dropped significantly since July 2008 and oil&gas companies being seriously challenged, the sustainability of WPS' further growth is jeopardised for the nearest future. Even though a bounce back in the price of oil is expected by many experts - as soon as the economy recovers, there is no certainty about when it would happen. The share price of WellPoint Systems has dropped by ~ 55-60% since the middle of the last year, based on TSX data.
This could be a good time for strategic M&A and partnerships in the AX segment as well as for other strategic moves to make a difference in the stagnating economy.

© Andrey Maslov

IT Strategy to facilitate Business Integration

The organization's IT services can be viewed as a composition of the following key elements:

To integrate the business in a most effective way an organization needs to develop an IT strategy that would navigate all three elements transformation:

An IT strategy, in its turn, is one of the key functional strategies of an organization:

To sum up, the post-merger business integration should be grounded with well elaborated strategy that, among other components, includes the IT strategy which translates the business requirements into the development plans for IT organization, business apps, and IT infrastructure of the entire organization.

Microsoft Dynamics AX can be used as a flexible integration platform and core ERP component of the Business Applications layer in the organization's IT services:

© Andrey Maslov

A2A and B2B integration with Microsoft Dynamics AX

Below, I've tried to summarize both technical and functional key options available in Microsoft Dynamics AX for A2A (Application-to-Application) and B2B (Business-to-Business) integration:

Primary framework for integration with Microsoft Dynamics AX

Microsoft developed Application Integration Framework (AIF) as a primary platform for A2A and B2B integration with Dynamics AX. It's actually more secure replacement for the Microsoft Axapta Commerce Gateway used in previous versions of AX.

AIF represents an XML-based technology stack that provides document-oriented interface to support multiple asynchronous transports, as well as synchronous transport to reliably exchange documents in XML format with trading partners or other systems. The framework includes adapters and Web services that enable document exchange.

The asynchronous information exchange in AIF is provided by transport adapters of the following types (by transport mechanism): MSMQ adapter (Microsoft Message Queue), File System adapter (documents exchanged to and from folders on a computer), BizTalk adapter (uses the .NET Business Connector in Microsoft Dynamics AX to send messages to and receive messages from BizTalk Server), and Outbound Web Services. The adapter converts the document into the proper format for exchange by means of a particular transport mechanism.
Adapter-based exchanges are asynchronous - the document is moved into a queue where it waits for processing by a Microsoft Dynamics AX batch job. Customized transport adapters can be added to address specific needs.

The AIF also provides a Web services interface for exchanging documents synchronously using Inbound Web services (require IIS). This interface provides a seamless integration experience for Microsoft .NET and other Web clients. The Web services are generated automatically from the Microsoft Dynamics AX business logic, so that developers with limited Web experience can easily create their own Web services.

AIF includes out-of-the-box support for sending and receiving commonly used documents such as free text invoices, inventory transactions, etc.

EDI with Microsoft Dynamics AX

EDI standard, being quite old but mature and still in wide use, is conceptually supported in AX - with the use of BizTalk server. You can either: implement EDI for AX by customizing schemas in BizTalk (it's packaged with thousands of EDI schemas that can be used as starting point); or implement specialized partner solutions for AX (e.g. this one to mention) or for BizTalk (e.g. another one). EDI solution for AX can be based on AIF or can use its own (alternative) code base.

Intercompany transactions in AX

Intercompany transactions are basically trade operations between affiliated legal entities/business divisions of a holding-like organization (for example, between production plant and distribution organization of one same company).

In AX intercompany transactions can be set up for multiple companies residing in one common database. This means that all companies involved in intercompany operations should use centralized AX solution. For affiliated companies that's usually not a problem.

Intercompany transactions in AX represent next level of business integration support in business solutions - process integration when process in one company can electronically trigger processes in other companies, as opposed to traditional data integration.

The intercompany functionality in AX includes such operations as purchase and sale between companies, price check between companies, conversion of order charges, ledger dimensions, and warehouse transactions, and etc. The intercompany mechanism adds visibility into the intercompany supply chain so it becomes traceable and transparent accross companies involved, with interconnected sales and purchase orders referring each other.

AX also provides intercompany accounting functionality. It allows you, for example, to manage distributed operations in branches while having centralized accounting - when transactions from branches transfer to the head office for further processing. In general, a single transaction entry in one company can be posted to multiple companies by using intercompany accounting.

The intercompany mechanism in AX is technically based on AIF.

Sharing data in AX using Virtual Companies

Virtual companies ('technical' term) in AX help share data between (affiliated) companies residing in the same database. For example, all (or some of) the companies in the holding organization can share the same common chart of accounts, customers, and inventory items. So, once you update the inventory item, all updates become visible in all companies that share the same item master data.

This is one of the mechanisms available in AX that help maintain compliance practices and uniformity in the organization.

Financial Consolidation in AX

There is a special functionality in AX for consolidation of financial information (in the form of consolidation transactions) - from subsidiary companies into a parent company, to finally provide consolidated financial reports for the entire group. The companies involved in the consolidation can reside in the same or different databases.

Other integration options for AX

The list of options available for A2A and B2B integration with AX can be further extended with customized tools and partner solutions of various kinds. I'd welcome your comment on this post if you are aware of other compelling options for integration with Microsoft Dynamics AX.

© Andrey Maslov

Post-merger business integration and how business solutions can help

As many companies have become much cheaper in the current economic situation and their respective markets squeezed, the volume of M&A transactions is expected to grow accross various industries.

And as always in most of M&A transactions, the post-closing business integration is the key success factor that defines if the companies would succeed in realizing expected sinergies from the deal.
The business solutions play a critical role in post-merger business integration helping streamline and establish visibility into business processes, capitalize on shared information, and empower decision makers with the tools to cope with the new scale of business operations.

The business solutions in merging companies can be of different nature:

The question is how to integrate them in a most effective way. Of course, it heavily depends on the chosen business strategy: is it planned to completely reorganize and recombine business functions of merged companies to establish new headquarters, shared services centers, and geographical divisions? or to include acquired entities into the company's supply chain in case of vertical integration? There is a broad variety of cases with specific goals being pursued.

It is important to develop the relevant IT strategy and Enterprise Architecture that will provide the road map for solution integration and transformation in 'post-merger life'.

From technical perspective, there is a number of technologies commonly used for application integration:

• Database access technologies
• Message-oriented middleware
• Remote procedure calls
• Transaction processing monitors
• Object request brokers
• Application servers
• Web services
• Enterprise service buses
• Several hybrid and proprietary products

In the next post I'll focus on Microsoft Dynamics AX capabilities for integration.

© Andrey Maslov

Theory of Constraints (TOC) with Microsoft Dynamics AX

This post is in process ...

As it follows from the previous post, a constraint is a kind of 'philosophic' category in a sense of its proliferation, as it can be found anywhere throughout an organization, not only on the shopfloor. So that, the management framework should be comprehensive enough to cover the whole business with the tools for integrated problem solving. And it actually has its beginning in the business strategy.

Basically, the TOC can be supported by the business solutions at two levels:

1. Decision-making
2. Operations

For efficient decision-making in terms of figuring out constraints and the ways to deal with them there is a performance management system (PMS) that can help. Again, proper selection of PMS measurements is of great importance here. And The Goal showed quite well how the old system based on irrelevant measurements failed in helping identify problems and foster appropriate solutions.
The performance management system should cover all critical functional areas and be compehensive enough to involve the staff throughout the organization. The balanced scorecard (BSC) approach can be examined for to provide linkage with business strategy. Also, the continious improvement approach at operational level - when the processes are assigned with their specific measurements that are subject to constant imrovement.

At the same time, the overall performance management system shouldn't be overcomplicated - it rather should be simple and logical to be a driver to proper changes in the organization.

Draft notes:

• Business strategy management framework, functional strategies
• Key success factors: measurements, alerts, and correct data entry
• Performance management system
• Management accounting and corporate reporting framework
• Operational business intelligence
• Production functionality and Master Planning
• Lean horizontal solution for manufacturing, extending lean to cover other business areas (e.g. accounting)

© Andrey Maslov

Theory of Constraints (TOC) in brief

I've summarized the key outcomes of TOC here to further show how they relate to AX functionality. This post was again inspired by our Operations Management course, particularly, by refreshing through The Goal.

These are the key outcomes from The Goal:

• Main goal of any commercial organization (manufacturing plant in the book) is to make money.
• Goal of making money translates into three key financial measurements: net profit, ROI, and net cash. But these measurements, while being useful for high-level monitoring of organization's progress in achieving the goal, can not be directly applied to driving operational efficiency.
• So that, same goal of making money is also translated into three key operational measurements: throughput, inventory, and operational costs.

Throughput – the rate at which the system generates money through sales (not production).

Inventory – all the money that that the system has invested in purchasing things which it intends to sell.

Operational expense – all the money the system spends in order to turn inventory into throughput.

The mainstream quest in the book was about struggling with bottlenecks (or constraints in general) while pursuing the main goal expressed as increasing throughput while simultaneously reducing both inventory and operating expense (not just improving one measurement in isolation).

Bottleneck was defined as any resource whose capacity is equal to or less than the demand placed upon it (by maximum possible throughput).

Eventually, the universal thinking process framework was formulated in the book - as fundamental ability of manager to answer the questions:

1. What to change? (identify core problems that cause bottlenecks/constraints) It's important to have a "coordinate system" here as a tool - in case of operational analysis it was comprised of those three key measures - throughput, inventory and operational expenses, bundled with the goal to incease throughput while simulteneously reducing inventory and operational expenses.
2. What to change to? (construct and check solutions that solve negative effects without creating new ones)
3. How to cause the change? (smoothly, without creating resistance, but opposite, enthusiasm)

There were some practical options implemented through the whole story such as marking materials and parts and cutting size of a batch. Reducing batch size caused reducing the time it took to process a batch (lead time). In that way, they got increased throughput, reduced inventory, and smoother work flow through the plant.

Much effort was undertaken to increase the capacity of the plant by increasing the capacity of the bottlenecks, particularly by:

• Making sure bottleneck’s time is not wasted:

1. Increasing resource utilization (time it’s active). For example, they put dedicated operators in bottleneck's area to oversee the resource's continious operation and provide timely setup.
2. Putting quality inspection in front of bottleneck (for incoming parts).
3. Ensuring process controls on bottlenecks parts are very good, so these parts don’t become defective in later processing.
4. Making bottlenecks work only on what will contribute to throughput today (not .. months from now).
5. Optimize bottleneck’s loading (e.g. by incoming materials pre-packaging for bottleneck).

• Offloading – taking some load off the bottlenecks by using other resources (non-bottlenecks)

1. Ensuring all parts really need to be processed by bottleneck (any processing alternatives ahead of bottleneck?).
2. Using other machines to do the same process (e.g. old ones).
3. Outsourcing parts processing.

There also were described some negative effects caused by:

• Prioritizing parts to be processed (parts for bottlenecks were processed first - even for 'fictitious' orders after order backlog was cleared). That finally caused increased inventory at bottlenecks and lack of parts at final assembly. So, priority tags were removed eventually for the sake of principle: 'first come - first served' with material requirements planned backwards - from orders through bottlenecks.
• Reduced amount of spare capacity on the non-bottlenecks (after they broke their machines’ bottleneck constraints with faster material flow and took more orders) caused longer lead time for the products and orders, uneven material flow through the floor and the plant working overtime. This problem was fixed by no longer accepting orders with short lead time and increasing buffer inventory in front of the bottlenecks and assembly.

Overall, the ideas described in the book are fairly simple, but provide good foundation for problem solving skills development in operations management and beyond.

© Andrey Maslov