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2014

Your Company's Efforts to Achieve Its Goals

You might compare your firm's efforts to reach its goal (or goals) to a long and potentially perilous journey to a far-off and, perhaps, unseen destination. In fact, given the uncertainties the world's economies are throwing at you day after day, you would not be far afield if you were to compare your journey to that of a 15th century voyage to the New World.

What you want, we believe, is to create harmonious and sustainable growth for your enterprise.

 

We would like to help you get there.

 

Stop What You Are Doing

When most business executives and managers think about creating and sustaining business growth, they almost invariably begin by asking, "What should we do in order to improve and grow?"

 

More often than not, that is actually the wrong question to be asking—at least if taken in the sense in which it usually is framed.

 

However, we have discovered a secret—a secret that has helped many companies, like Toyota Motor Corporation (the most successful automobile manufacturer in the world and a model that many seek to emulate). That secret is simply this:

 

The simplest, lowest-cost and most effective starting point in a quest for improvement and growth is not moving forward with things you think you ought to do; rather, it is simply to identify those things you are presently doing that you should not be doing at all.

 

Chances are your executives and managers are already consumed with many initiatives that—sadly—may not be leading to a sustainable competitive advantage. Some of the initiatives may even end up contributing to added complexity, while adding little or nothing to your competitive advantage.

 

So, launching some new and even more grandiose initiative is probably a very bad idea, right now.

 

We believe that the very most important first step in an ongoing process of creating and sustaining harmonious growth is to begin by examining your current reality—how your company is working and failing to work on a day-to-day basis.

 

If you are up to the task, this will mean examining company rituals, behaviors and activities with nothing being out-of-bounds for consideration. We will help you discover the "tribal knowledge" resident in your organization so that those things that have done nothing to bring you closer to your goals and, yet, have exhausted your time and sapped your energies for months, or even years, can be finally exposed and rooted out.

 

You will need to examine policies and processes that have led you, as executives and managers, to become frustrated time and time again.

 

Deal with Uncertainty

Reality is full of uncertainty.

 

Nevertheless, you and your management team would like to have relatively predictable results. So, to increase your chances of success, it becomes necessary to somehow estimate the level uncertainty in your business processes for planning purposes—and then incorporate that uncertainty into your measurements, as well.

 

Sadly, many of the traditional tools and approaches to management budgeting, forecasting and planning do precisely the opposite of this. Instead of measuring and planning for uncertainty, the tools tend to give your management team the illusion of certainty and accuracy by providing what appear to be precise numbers. These are, however, "precisely wrong."

 

The illusion of certainty projected by this precise numbers mask the underlying uncertainty, instead of highlighting it for management purposes.

 

Accuracy (in terms of decimal-precision) gives management a false sense of security. If your management team has a number in their hands that is more precise than the noise level, no beneficial data are added to the situation.However, it does mislead management by providing a false sense of certainty about the circumstances.

 

It is impossible effectively to protect your organization against the effects of uncertainty using forecasts and the false security of "firm commitments."

 

When companies plan in detail, they attempt then to manage in detail. Management is forced to look at hundreds—perhaps, thousands—of details. This is the precise opposite of focus. You and your team will need to discover ways to effectively deal with uncertainty while bringing focus to your management efforts.

 

But, uncertainty can also lead to conflict.

 

Deal with Conflict

When management faces conflict, the reflexive action is to search for compromise. Unfortunately, compromise merely masks the situation by taking the best of the worst and the worst of best and calling it a "solution."

 

In managing supply chains, for instance, there is a common conflict about how much inventory should be held at any given stocking location. We define the common conflict using a diagram like the accompanying illustration.

 

Everyone agrees on the ultimate goal (A). The whole management team wants to make more money for the company. The sales folks, however, who are rewarded based on sales, want more inventory to help assure that what gets ordered gets shipped.

 

On the other hand, the CFO, who pays the bills every month for new (and increasing) inventory; the expenses of heating and cooling the warehouses; the expenses of buying and maintaining the warehouse computers, racking and equipment; the interest on the borrowed money; the growing payroll for inventory-related personnel and much more wants to see inventory levels reduced.

 

The core conflict is between (D) increase inventory levels and (D') reduce inventory levels. The arrows between the entities represent logical assumptions made by the various persons involved in the management conflict.

 

For example, certain assumptions are made when we say that, "We must improve customer service in order to make more money." The assumptions may more may not be correct. However, they should be openly examined, at least. After all, perhaps just raising prices would help the firm make more money—then again, perhaps not.

 

Similarly, there are assumptions made when we say, "In order to reduce the cost of carrying inventory, we must reduce inventory levels." The underlying assumptions should be examined carefully. What if an option no one has considered—say, the use of a third-party logistics firms—would actually reduce the cost of carrying inventory?

 

The most powerful solution comes, however, if the management team is able to break the assumptions underlying the core conflict—the assumptions underlying the arrow between D and D'.

 

What if the management team were to discover that there is another alternative altogether? What if the managers and executives were no longer forced to choose between increasing inventory levels or decreasing inventory levels?

 

Toyota Motor and hundreds of other firms have found a supply chain solution that breaks this core conflict. It goes by many names: Lean, Just-in-time (JIT), RFS (repetitive, flexible supply), and more.

 

The key is to increase replenishment frequency: this allows firms in the supply chain to hold lower inventories while, at the same time, also improving customer service levels.

 

Making the Conflict Logic Visible

Many time executives and managers fail to deal with conflicts in their organizations effectively in part, at least, because the conflicts are never articulated—except perhaps in outbursts of anger or frustration.

 

The Evaporating Cloud, as the diagram above is called in Theory of Constraints parlance, is a great way to put management conflicts down on paper. The arrows connecting the entities then become the point factors for discussion. Each of the parties to the discussion can state explicitly the logical assumptions underlying the various arrows in the diagram. These assumptions can then be carefully examined in the absence of "corporate politics" and in the realm of reality and rationality.

 

Once the assumptions are on the table, the team can begin to work toward innovation in breaking the core underlying conflict—the conflict between D and D'.

 

Many times, breakthroughs to increased profits and a more harmonious environment may be achieved at zero cost to the organization. This is true because, quite often, the core conflict is rooted in invalid assumptions or just plain bad policy (whether written or unwritten). Such conflicts can be rooted-out and improvements can be made very rapidly.

 

Stop Blaming—Start Improving

Cross-functional conflicts can raise emotions to a high level. Reducing the conflicts to logic and openly discussing the logic and assumptions underlying longstanding conflicts helps stop "the blame game" and defuses many of the emotions that might otherwise be involved.

 

Emotional turmoil and blaming are simply roadblocks to finding real breakthrough solutions to ongoing improvement. Nevertheless, having the right attitude about resolving an issue is of little use if you do not also have the tools to articulate the conflict in a rational, emotion-dropping way.

 

The Evaporating Cloud provides just such an effective tool. Whether your job is managing internally, or managing your supply chain across dozens of outside vendors, effective tools to deal with uncertainty and conflict are must-haves. Either find them and learn to use them effectively, or seek help from someone who can help you get off to a running start. Time may be short!

 

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If you would like to comment on this topic, feel free to comment below or contact us directly, according to your preference.

 

You will find more on this topic if you read TOC Thinking by Yishai Ashlag.

The Most Powerful Computer

The most powerful computer you have working for you in your organization is the human mind. Human beings are able to intuit things that they cannot explain, define or even fully comprehend, and yet act accurately and effectively in response to this intuition.

 

Consider, for example, a young baseball player. He (or she) can hear the crack of the bat, and with the smallest of visual clues from the angle at which the ball leaves the bat, immediately begin moving toward the proper location to insect with the arc of the ball through the sky. Then, having arrived at the right speed to the right spot, place the glove in the path of the ball and intercept its fall to the ground.

 

Now, most of those baseball players could not tell you the mathematical formula that would predict the location at which the ball would fall, with all its vectors and forces. Nevertheless, their minds are able to intuitively know and understand how, when and at what speed they need to react to achieve the goal of the team.

 

The same is true of the minds at work in your enterprise. Given the opportunity, when your employees see that their input is valued in a process of ongoing improvement (POOGI), their minds become powerful forces for innovation, improvement and growth.

 

Complexity Slows Us Down

By contrast, to intuition, complexity slows us down. Complexity has this effect because it limits our ability to use the power of our intuition.

 

Unfortunately, sometimes our attempts to "simplify" our business and our organizations actually add to the complexity and slow the flow of the work.

 

In our misguided attempts to "simplify" and better "understand" our organizations and processes, we frequently try to break them down in smaller units of work and function. We create departments and functions in the hope that we can better grasp the requirements and capabilities of each individual department or function.

 

Sadly, this actually results in added work and added complexity as, having broken the process flow down into smaller units, we must now create some method to keep these smaller functional units synchronized.

 

At our clients, we usually see this effect at work in several ways. A good example at one client was the fact that, they had separated the "prepayment" process from the "order entry" process. As a result, they found it necessary then to create a special report and complex email messages to re-synchronize the payments with the resulting invoices.

 

When we artificially break the flow of the whole system into functions and segments, then management tends to try to "fix problems" in isolation.

 

Going back to our example, rather than looking at the whole system flow—from order-to-cash—once the system was segmented, the report was "the fix" developed to reconnect the data from one isolated process to a subsequent isolated process.

 

The Fear

Sometimes "problems" are dealt with in isolation out of an underlying fear that, if we get the whole organization together so that we can drive to the root of this problem, it may lead to conflict and finger pointing. Besides, if we resolve the issue locally—within a single department or function—it becomes easier for us demand accountability.

 

Symptoms and Undesirable Effects

Sadly, when we deal with what we believe are "problems" and we deal with them in isolation—within a functional silo and without consideration of the entire system flow—we are most often dealing with symptoms and not the core problem.

 

Consider the simple cause-and-effect in the accompanying illustration.

 

Wrong assumptions made in one function actually was the cause of the issue arising in the next function in the chain of events.

 

In our example above, accounts receivable was not really experiencing "a problem"—although that is likely how management viewed it. The accounts receivable function was experiencing "an undesirable effect" or "UDE," as we call them, stemming from something else being done (or, rather, not done) in another part of the system.

 

We call such results "UDEs" (rhymes with "cooties") to avoid calling them "problems."

 

If it is "a problem" we want to fix the problem.

 

If it is a UDE, we want to find the root cause of the problem.

 

And, once we have uncovered the root cause of the UDE, we want to apply INHERENT SIMPLICITY to uncover the simplest possible solution that will permanently resolve the root cause.

 

We want to deal with "the disease" and not the symptoms of the disease.

 

Two Fundamental Principles

This concept of understanding "root causes" and looking at your system holistically—from product design all the way through to booking the profits—is a principle joining two distinct elements: system thinking and inherent simplicity.

 

System thinking means never trying to solve "problems" in isolation—without understanding the root causes

 

Inherent simplicity means that, the more complex the problem appears to be, the simpler the effective solution must be

 

When we work with clients on business process and supply chain issues, we are constantly helping them drive back to these two elements of sound management.

 

Sophistication Leads to Management Errors

Management generally tries to…

  1. Force certainty on uncertainty
  2. Force compromise on conflict
  3. Force simplicity on complexity

 

We have already discussed number three: Management tries to force simplicity on complexity by attempting to break down complexity into manageable chunks, and then managing each chunk separately. In doing so, they lose sight of the system as a whole. They can no longer see the (whole) forest because the (individual) trees are too prominent in their thinking. "Specialization" of functions obscures the real complexity that managers must address to achieve breakthrough results in their business and in their industry.

 

Here is another example where specialization keeps management from seeing their system holistically: sales management teams (in their specialization) sometime spend months or years honing a "just right" end-of-season discount policy to deal with overstocks. Because of their specialization, however, they never seem to consider trying to find a way to prevent overstocking in the first place.

 

Management frequently assumes that we need ever-greater sophistication and complexity to achieve its goals. We find, repeatedly, however, that the most effective breakthroughs stem from the firm's ability to challenge successfully the fundamental underlying assumptions in their organizations, in their supply chains, and in their industries as a whole.

 

Sophistication carries with it the promise of certainty, but in never delivers on that promise.

 

Management Attention is Your Most Precious Resource

Not money, machines, or technology limit most organizations. Even their market is not the critical limiting factor. The limiting factor is management's ability to direct actions that will effectively achieve more of their goals.

 

We believe that the most effective approach to dealing with the threefold business challenges of uncertainty, complexity, and conflict is to recognize them and include them in your firm's overall business strategy.

 

Splitting management's attention between our goals and separate efforts to deal with uncertainty, complexity, and conflict will lead to mediocre results. We believe the most successful organizations employ tools and develop processes that help them achieve their goals while creating an evolving reality in which these three challenges are either removed or reduced to a manageable level through sound strategies and tactics.

 

Focusing on Exceptional Customer Value

Companies like Toyota, Apple, and many others have shown that developing a business strategy focused on delivering exceptional value to customers is key. When a holistic view is taken of the organization and its supply chain with the singular focus being "exceptional customer value," something exciting begins to happen that can take an average company and turn it into a market-dominating leader.

 

This is our hope for you.

 

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We would like to hear from you on this topic. Please leave your comments below, or feel free to contact us directly, if you prefer.

Yishai Ashlag is probably an author of whom you have not (yet) heard. He is the son-in-law of the late Eliyahu Goldratt, originator of the Theory of Constraints approach to management. If you are interested in creating sustainable growth for your business enterprise—no matter what size it is today—then I hope you will not forget this name. His recent book, T.O.C. Thinking, is full of sage advice. Allow me to give you just a taste:

 

When we think about business growth we tend to focus our attention on a new big idea, a new vision as a path to success. Then, full of enthusiasm, we charge forward to pursue this vision. But most often this is not the way to start. The starting point of this quest is not moving forward with things we should do, but rather stop doing the things we should not do.

 

Our organization is already preoccupied with many initiatives that are not necessarily promoting us in our quest for successful growth. Some of these initiatives may even be holding us back. So starting by launching more grand initiatives is probably not the best idea. The first step in the process of creating harmonious growth is to examine our rituals, behaviors and activities in order to identify the ones that exhaust our time and energy without getting us closer to our goal. We need to look for the policies and processes that make us, as managers, very frustrated. [Emphasis added.]

 

Ashlag, Yishai. T.O.C. Thinking - Removing Constraints for Business Growth. Great Barrington, MA: North River Press, 2014.

 

The first step

 

Yes, indeed! The first step should be to examine where we are and what we do today.

 

You would be surprised—or, perhaps not—how many small to midsized businesses with which we come in contact on a day to day basis that have never really stopped their headlong rush into day to day activities long enough to consider how what they are doing got them to where they are today.

 

Oh, sure. Their ownership and management team have open eyes and are more than willing to tell you about how this success and that success have led them to their present level of achievement.

 

Nevertheless, they are much less open-eyed—or, at least, far less candid—about how they have been unable to overcome hurdles to growth, or how some aspects of their production just never seem to smooth themselves out, no matter what they try.

 

For some reason, most executives and managers tend to think that they must somehow "build on what we have today," without ever really taking time to consider just how good the foundation of what they have today really is. They seem to believe that incremental change from what exists today is the only way forward.

 

Rituals

"Ritual" seems like, perhaps, too strong a word for Ashlag to use in this case. But, I don't believe it is.

 

The word "ritual" comes from "rite" which is defined as "a formal or ceremonial act or procedure prescribed or customary in religious or other solemn use."

 

Yes. I have seen such procedures prescribed for solemn use at work in companies—and to the companies' detriment.

 

I have been told, for example, that supply chain folks in a particular firm were to always buy from the lowest cost supplier.

 

When I ask, "Why? What about the effects of longer lead-times, or poor quality, on the firm's ability to produce throughput or sustain growth?"

 

I was told, "That's the way the owner said it's to be done. He always did it that way when he was overseeing the buying, and it was successful for him." (Never mind that the last time the owner was issuing purchase orders was 15 years ago.)

 

Tribal Knowledge

 

The term "rituals" goes right along with a term we have been using right here: "tribal knowledge." If you have read many of our articles, you will recognize the term.

 

We use it to describe all of the knowledge that is resident in the organization's people, but is nowhere captured or codified in systems or documents (like training manuals or written procedures).

 

Following the example above: I am pretty much certain that there was no written guideline anywhere in the organization I am thinking of that said, "You shall only purchase raw materials from the lowest-cost source."

 

However, if anyone was ever called on the carpet and reprimanded for buying products from other than "the lowest-cost source," you can be pretty sure that word got around. It became circulate "tribal knowledge." Nobody ever needed to put it an written manual anywhere. It became "a ritual" to always buy from the lowest-cost source.

 

Exhausting time and energy (and money)

 

Supply chain and other corporate managers and executives really need to take a look at "the rituals, behaviors and activities" that are wearing them out while producing virtually no positive effect—and, perhaps, significant negative effects—on the firm's ability to produce profitable growth.

 

If the firm is stagnating in growth and profits, all the more reason to take a long, hard look into these matters.

 

But few firms are well-equipped to make such an examination. The firm's managers and executives are, as the old saw goes, "can't see the forest for the trees." These folks tend to examine situations "tree by tree" without ever getting back far enough to look at the entire eco-system in which the firm functions.

 

Sometimes it just takes outside eyes and a systematic approach for unlocking "tribal knowledge" to get them headed in the right direction again.

 

What is your opinion in this matter? We would be delighted to hear your comments either by leaving it here or by contacting us directly—whichever you prefer.