All About Decision Tree Analysis

Decision Tree Analysis is used to evaluate the best option from a number of mutually exclusive options when an organization is faced with an investment decision. The finance team can use this tool while evaluating a number of potential options, such as which product or plant to invest in, or whether or not to invest in a new initiative.

The Decision Tree schematic is tree-shaped diagram which is used to understand a statistical probability or a course of action. Each branch of the decision tree signifies a possibility or occurrence. The structure of the tree depicts how one choice leads to another.

Advantages of Decision Tree Analysis

• This tool allows the team to clearly lay out and consider all available options, including a “Do Nothing” option, which is often ignored although it may sometimes be the best option.
• It is relatively easy to visualize the costs, benefits, and probabilities linked to all options to help facilitate focused decision making.
• Additional options can be added without impacting the evaluation of the other branches throughout the tree.

Disadvantages of Decision Tree Analysis

• In situations where there are many options to consider and each option has multiple possible outcomes, creating decision trees becomes a complex process and may require the use of software, rendering it a less-than-useful tool for strategic discussions.
• In some trees, even a small variation in an expected outcome or probability can completely change the results of the analysis. Therefore, obtaining accurate information is critical to the usefulness of this tool.
• This tool sometimes requires complex preparation, as well as extra time and effort to determine the various possible outcomes for each option, and to explicitly delineate each decision node and possible outcomes and options from those nodes.

Jet Streamlining: Southwest Style

Early in the life of Southwest Airlines key success factors were identified that propelled the startup airline to become the number one domestic carrier in the United States.

For Southwest, key success factors were a commitment to efficiency in all aspects of the company and the fastest turnaround time of any airline. This allowed Southwest to log more flight time which meant more profit compared to other airlines that maintained longer ground time.

Over time Southwest has managed to keep to these simple key success factors and has seen sustained growth over its 45-year history. A true success story considering the airline industry is notoriously dicey and many run afoul and end up taking major losses or worse, bankruptcy.

Discussed in Marketing Strategy, the first book of the six-book SMstudy Guide, key success factors are one of the six components to be considered when conducting a market analysis.

The book states: Identifying key success factors helps an organization focus on existing strengths that have contributed to success and seize opportunities that can give it a competitive advantage. Such factors might include accessibility to essential resources, distribution channels, patents, operational efficiencies, technological superiority, and so on.

The other five components include: assessing distribution channels; cost structure analysis; understanding future growth rate; market trends and knowing the market size.

A thorough analysis of the airline industry allowed Southwest Airlines founder Herb Kelleher and team to clearly identify what they were up against in regards to the industry's pros and cons and where efficiencies could be incorporated to the benefit of both the company and its customers.

What Do You Do When Your Boss Says Prove It

If you’ve ever found yourself having to defend the merits of social media marketing, you’re officially not alone. A recent report on social media marketing in 2015 reveals the struggle that still exists in pinpointing the almighty ROI of social marketing to that skeptic saying “yes, I see what it does…but how does it help?” Usually that skeptic is the boss (in some way or another) and the answer is not so easy to nail down. Social media is proving to be a little slippery.

The newly released The State of Social Marketing 2015 report by Simply Measured cites three major challenges that were impacting social media marketing in 2015. 

They are:
1.    demonstrating the value of social programs within the company; 
2.    overall business integration; and
3.    not having the right tools to measure social media activities. 

Demonstrating the value of the social programs within the company (#1) was, in fact, the top challenge noted (60%) by survey participants consisting of 600 media marketing professionals.

The reports states, “Companies of all sizes and maturity levels are struggling to prove the value of their social programs. Social media activities can be difficult to quantify, and marketers are trapped between readily available “vanity metrics,” such as Likes and followers, and difficult-to-measure objectives such as brand awareness.”

It goes on, “When it comes to understanding, proving, and quantifying value, social marketers are still trying to find the sweet spot.”

It’s logical to consider (as the report does) that the “sweet spot” could be found by addressing the challenge of #3. or “Not having the right tools to measure social media activities,” which according to the same 600 marketers, is a major frustration for those attempting to work with current analytics options. In addition, they noted the dissatisfaction with their current set of tools and the difficulty of interpreting the data they do have. And here’s the really frustrating bit, it’s hard to drum up enthusiasm and encourage further investment when the current tools or methods don’t allow marketers to provide highly accurate data which would, in turn, drum up enthusiasm and encourage further investment. And the wheel goes round and round. 

Finding the right tool for the right job seems to be an essential part of the plan. In the area of data analytics tools, the report suggests either an inability to hone in on what is truly needed or simply an area that hasn’t been fully addressed in regards to tool development. According to the report, most surveyed are using multiple tools for tracking the various social media channels and as many as 65% said they were using the platform’s native analytics tool.

 

All that being said, the future looks very sunny for social marketing. Tools will emerge that address the needs of social media marketers. Social media marketers will become more adept at interpretation. Chances are both will occur (are occurring). 

And whether the frustrations continue on or are assuaged in the coming year, it might not matter. As squishy as the analytics may appear to the bosses, they’ve seen enough “proof” to increase social marketing budgets, on average, by 12.5% over the next five years from 2015’s 9.9% to 22.4 in 2021. 

For more on sales and marketing, visit www.smstudy.com/articles. 

Sources: 

The State of Social Marketing- 2015, Simply Measured, http://simplymeasured.com/#sm.0001gymsunkgqdcepli19xtqnlo4p

Corporate Strategy and its Relationship to Sales and Marketing

A company that hopes for a prosperous future must have a sound plan. In the world of Sales and Marketing this is called Corporate Strategy.

Corporate Strategy is the overall direction of the company, defined by senior management, that takes into consideration an assessment of the existing capabilities of the company and external opportunities and threats. It usually coincides with the immediate future fiscal period or it could be developed with a longer-term view, such as a three-year plan.

It is important to understand the overall Corporate Strategy and its relationship to sales and marketing. The Marketing Strategy works within the direction provided by the overall Corporate Strategy of the company and also interacts with other elements of the Corporate Strategy.

Corporate Strategy is a combination of the following:

• Senior Management Direction and Insights: This is provided by senior management based on their experiences and insights related to the business.
• Corporate Product Strategy: This defines the products or services the company offers and the research and development efforts required to create them.
• Corporate Marketing Strategy: This defines how the company will target, position, market and sell the planned products and defines metrics, targets and budgets for all marketing activities.
• Corporate Operations Strategy: This defines how the company will manage operational activities, manufacture its products and provide the corresponding customer support and warranty.
• Corporate Finance Strategy: This defines how the company will manage its finances, attain funding and financially sustain its operations. The Finance Strategy should include forecasts and projections and summarize costs, income and investments.
• Corporate Human Resource Strategy: This maps the human resource capabilities within the company and considers talent management and acquisition needs to sustain growth.

Here are the components of Corporate Strategy:

Typically, companies have existing documentation regarding their component strategies. These must be considered in an integrated manner to define a coherent Corporate Strategy. The level and complexity of documentation for these strategies may vary depending on the size of the company and the breadth of its product portfolio and geographic reach. If formal documentation of these strategies is not available—for instance, as with a start-up company—the teams involved in strategic planning should consider the various strategies and decide on an overall Corporate Strategy, which can then become a benchmark to execute future plans. The SMstudy® Guide framework is a great help in this endeavor.

Finalizing the company’s Corporate Strategy can be a time-consuming and rigorous exercise that requires inputs from multiple stakeholders, particularly senior management. It is advisable to execute strategic planning exercises at appropriate and specific time intervals, such as once or twice a year, and then finalize a Corporate Strategy on which senior management and the heads of strategy teams agree. Following this process will help to ensure that the leadership team has coherently defined goals and strategies that align with the overall strategic goals of the organization.

The Corporate Strategy can be divided into lower level strategies depending on the complexity of the organization. For example, the Corporate Strategy for an entire company can be divided into strategies for each business unit or geographic region such as country, state, or city, and then subdivided further into a Product or Brand Strategy for each product or brand in a business unit or geographic region. The Product or Brand Strategy is the lowest level in this hierarchy.

This illustrates the relationship between Corporate Strategy, Business Unit/Geographic Strategy and Product/Brand Strategy:

Corporate strategy is an umbrella under which many components of a company plan for future profitability. When that umbrella operates at full force, the forecast calls for raining money.