International Summer School on MCDM 2006

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Sapientia et doctrina
International Summer School on MCDM 2006 Kainan
University, Taiwan, July 3-15, 2006 THE KM-MCDM
INTERFACE TRADEOFFS-FREE INNOVATION AND
SOLUTION BY DISSOLUTION
Milan Zeleny Fordham University _at_ Lincoln
Center Management Systems, 626E GBA New York, NY
10023-7484 U.S.A. E-mail mzeleny_at_fordham.edu
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From decisions to action

• Management is decision making.
• (Herbert Simon)
• Traditional decision-making theory is based on
  establishing criteria and assessing options for
  action relative to those criteria.
• Action and implementation must follow decisions
  if they are to have value.
• Giving managers information in the form of
  symbolic descriptions is next to useless if not
  followed by action.
• Decision making is not just an informational
  input, but a purposeful coordination of action of
  the entire decision-making process.
• A decision, by itself, changes nothing.
• Decision making without the responsibility for
  subsequent action is just judgment.
• It is the responsibility and purpose of decision
  making to generate alternatives leading to
  action, not just assess and evaluate given
  alternatives that do not.
• Tradeoffs delay or prevent action, make decision
  makers immobile. Tradeoffs-free alternatives lead
  to action.

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Tradoffs on Productivity frontier
Cost
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Tradoffsfree solution
High
Value
Low
High
Low
Cost
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Tradeoffs eliminationSystem I
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Tradeoffs eliminationSystem II
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Mass Customization
Poor fit
Mass Production
Low cost
Mass Customization
Good fit
Custom Made
High cost
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Mass Customization

• Mass customization is a good example of
  delivering value for the customer as a guide to
  the innovation process.
• Mass Customization (MC) represents a new way of
  understanding (eliciting customer preferences),
  designing, implementing (producing and
  distributing) and operating (selling and using)
  processes, products and services fitted,
  individualized and customized for specific
  customers, yet provided at the cost of
  mass-produced, standardized, off-the-shelf items.
  
• MC emerges from a special fusion of two
  traditional approaches mass production and
  custom made modes. MC retains the best features
  of both low cost and good fit for use.
• MC creates innovative advantages for the business
  and customer
• First sell, then produce cash at the start of
  production
• No finished products inventory
• No retail outlets, no unsold or returned goods
• No anonymous customer
• No intermediaries

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Conflict dissolution
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Intensity of conflict
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What is Optimality?

• What is determined or given a priori cannot be
  subject to subsequent optimization and thus,
  clearly, does not need to be optimized it is
  already given.
• What is not given must be selected, chosen or
  identified and is therefore, by definition,
  subject to optimization.
• Consequently, different optimality concepts can
  be derived from different distinctions between
  what is given and what is yet to be determined in
  problem solving or decision-making formulations.

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Eight Concepts of Optimality
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Variance does not measure risk

• Some financial writers, unfortunately, have come
  to look upon the standard deviation of the
  distribution of returns as a measure not only of
  the variability (which it is) but of the risk
  inherent in a project (which it is not). In
  everyday usage, risk means the probability of a
  loss or the probability that a return will be
  lower than some target level.
  E. Lerner
• E. Lerner, Managerial Finance, Harcourt Brace
  Jovanovich, New York. 1971, p. 328.

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Portfolio management
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Taxonomy of Knowledge

• Knowledge is the purposeful coordination of
  action
• All doing is knowing, and all knowing is doing
• Bringing forth a world of coordinated action is
  human knowledge
• Data ? Information ? Knowledge ? Wisdom
• (? Enlightenment)

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Taxonomy of Knowledge (Zeleny, M. (1987)
Management Support Systems Towards Integrated
Knowledge Management, Human Systems Management,
Vol. 7, No. 1, pp. 59-70.)
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All About Adding Value

• Knowledge is real and tangible
• Knowledge, wisdom, and ethics are measurable
• Relationship between knowledge and value creation
  is tangible
• Knowledge, wisdom and ethics MUST ADD VALUE
• (Data and information are inputs into the
  value-adding processes)
• Process of creating new value
• Adding value to the business
• Adding value to the customer

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Stan Shihs Smiling Curve
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Adding Value for the Customer
Maximum price
Value for customer
Price paid
Value Created
Profit
Value for business
Wages and salaries
Cost
Direct and indirect materials and services
purchased
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Adding value

• First, the customer pays for the service or
  product the price paid.
• The producer subtracts the cost incurred.
• The difference is the added value for the
  business.
• This added value can also be interpreted as the
  value of knowledge.
• In order to pay wages and salaries, the
  production process and its coordination must
  generate this added value. Added value is the
  only source of corporate wages and salaries and
  profits. If the added value does not cover the
  wages and salaries, then these must be
  correspondingly lowered. If no value has been
  added, then the value of knowledge is zero and no
  payment can be due to it. The business must add
  enough value in order to cover at least its
  workers and managers, their salaries and wages.
  If even more value has been created, then profits
  can be realized, up to the price received.
• A business which does not generate sufficient
  added value cannot cover its wages and salaries,
  has no profits, and cannot function over an
  extended period of time. Added value is the key
  to assessing the quality of human knowledge in
  business.
• The customer, of course, must be willing and
  ready to pay more for the service/product than he
  actually paid. The maximum price the customer
  would be willing to pay must exceed the price the
  producer has asked for. The difference is the
  added value for the customer.

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Recent book
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Bye bye