TOC, it's enterprise wide!
Q1: Why do most Continuous Improvement success stories tend to be
limited in scope rather than spreading throughout an organization?
Q2: Even for the rare organization that does successfully integrate the
necessary concepts throughout its organization, why is it so
difficult to spread these concepts onward through the supply chain?
Dr. Eli Goldratt, author of the best selling book The Goal and
originator of the concepts that make up what we usually refer to as TOC, offers
his answer to these very important questions. His major premise is that most
managers have a limited view and, therefore, a limited understanding of the
organization. They understand the things that effect success and failure in
their domain, but not in the global view. Usually different departments don’t
even "speak the same language."
These sessions are designed so that if your core management team will attend
all 8 sessions, they will learn how TOC enables everyone in the company to speak
a common language and to grasp the global perspective. This will make it
possible for everyone to make better decisions! That is, to decide what to do at
the local level based on the impact on the organization as a whole!
Week 1: Operations
|Dr. Goldratt emphasized the importance of taking a
"systems" or "holistic" approach to solving problems in operations. He took as
an example, four problems that seem to plague all manufacturers in the steel
industry world wide. Most companies tend to attack these issues in isolation.
Goldratt showed a "Current Reality Tree" that used solid cause-and-effect logic
to show that there is a core problem that underlies all 4 issues. That problem
was the use of an efficiency based measurement for the industry standard of
To have correctly identified the core problem is necessary, but not
sufficient to solve it. Goldratt went on to show how the TOC Thinking Process
tools, the "Evaporating Cloud" in this case, can be used to show why this
problematic measurement continues to be used by everyone in the industry, and
has for decades, in spite of the fact they
||know it causes problems. The Evaporating Cloud showed
clearly the core conflict, and allowed Goldratt to identify the key assumption
that perpetuates this conflict. It is ability to invalidate this
assumption that has the power to evaporate the cloud...that can take away the
"fog" that is preventing companies from seeing their way out of this conflict.
To invalidate the assumption, Goldratt showed several examples of how pursuit of
efficiency can lead an operation the wrong direction, i.e. away from its goal.
Once Goldratt had established what needs to be changed, he discussed what to
change to. He explained the concepts of a Bottleneck, of Drum-Buffer-Rope and
Buffer Management, and the Roadrunner work ethic. He also discussed key
operational and tactical issues when implementing Drum-Buffer-Rope.
Week 2: Finance & Measurements
|Dr. Goldratt explained that Finance is the
scorekeeper for the organization. They issue numbers that are judgements of the
decisions made in 5 key areas:
- the system as a whole
- investment in
- make-buy alternatives
- profit centers
Goldratt took the position that if you ask managers is there is a problem
with the measurements they get from the accounting department, they will say,
"Yes. The problem is it takes too long to get the reports." Controllers may even
say that there is a problem with the accuracy of the data they were given as
input. But there is no perceived problem with the validity/accuracy of the
Goldratt attacked this notion by giving examples of how the
||typical company routinely gets numbers from their
financial reporting system that lead them in the wrong directionthat is,
these numbers support decisions that actually decrease profitability, not
Goldratt gave examples of faulty decisions in all 5 areas; and, in all five
areas he identified the same assumption that causes the problem. Goldratt then
went back to all 5 areas and showed how TOC will change the outcome on these
important decisions. He even touched on "transfer pricing" and said he will
discuss this in more detail in session 4 on distribution.
Goldratt concluded by urging participants to beware of judging actions based
on local impact. Use throughput, inventory and operating expenses as the guide
instead. He urged people to reassess all requests for expenditures currently
pending in their systems, and to reevaluate the contribution of your various
products and/or services.
Week 3: Project Management/Engineering
|Dr. Goldratt began by saying that project management
is a topic with very broad application: installing a new piece of equipment is a
project; switching software systems is a project; adding onto the facility is a
project; introducing a new product or service is a project. Probably all of us
are involved in projects in one way or another. But the projects are so
different! Is there enough commonality that will allow there to be a universal
solution to the problems faced in various projects?
To answer this Goldratt shared a list of complaints he got from a friend of
his who manages projects. He then made the observation that each of us could
probably have composed the exact same list, even though we work on totally
different kinds of projects. These complaints are called "Undesirable Effects"
or UDEs in TOC terminology. An UDE, said Goldratt, is really a title for a
conflict we find ourselves stuck in. So he chose 3 of the UDEs and created the
Evaporating Cloud for each so that the inherent conflict would be evident. Next
Goldratt used the 3 clouds to create a "generic cloud," that is, a description
of the core conflict that underlies all the problems in project management.
As always, the next step is to surface the assumptions behind the connecting
arrows. He reminded us that during Session 2, he showed that the key assumption
that gets us in trouble on measurements is the fact that we typically believe
the best way to judge the impact of any action on the global system is to
measure the local impact of that action. Said another way, we typically
||believe that the global impact is the sum of all the
local impacts. Turns out that the erroneous assumption behind the core conflict
for managing projects is a variation on this assumption.
After identifying the faulty assumption, Goldratt set out to prove it wrong.
To do so, he discussed the concepts of "safety" in time estimates, the student
syndrome, and Parkinson's law. He also showed the difference between a linear
series of dependent events where statistical fluctuations do average out, and
typical project networks that involve independent events (such as integration
and resource dependencies) where statistical fluctuations do not average out. A
computer simulator was used to show just how bad the situation is, and how our
traditional efforts seem to create a downward spiral that makes things worse.
And, in so-called "multi-project" environments, the situation is much worse
because of "bad multi-tasking."
In order to get out of a downward spiral, or a self-reinforcing negative
feedback loop, it is necessary to do something that is counter-intuitive,
Goldratt said. You must do something that seems backwards. It was in this light
that he introduced the concept of Critical Chain. He explained the necessary
changes in human behavior, the buffering required, and the necessary
measurements. He then used the computer simulator to show how adding each of
these factors to the solution produced significant improvements in due date
Week 4: Distribution and Supply Chain
|The constraint of a supply chain, of course, is
usually the clients who come to buy the products/services. In order to Exploit
that constraint, it is necessary to have the right product in the right place at
the right time.
Dr. Goldratt developed the generic conflict for supply chains, which revolves
around holding the right amount of inventory... in the right places... at the
right time. Conventional solutions have not been able to resolve this
successfully in most cases.
The TOC Distribution solution is based on moving the supply chain from a push
system to a pull system and an understanding of variation in demand at the
different points of the supply chain.
||Dr. Goldratt discussed operational measurements like
"throughput dollar days" and "inventory dollar days." He also discussed the
impact of the Distribution solution on the manufacturing activities of
production scheduling, expediting, seasonality, efforts to improve lead time,
quality improvements, etc.
Finally, Dr. Goldratt tackled a very difficult question: how do you price
things at different levels in the supply chain? He answered the question for two
circumstances. The first is for instances where each link in the chain is an
independent company; the second instance is for "internal" supply chains where
several of the links are part of the same company. His solution to this
"transfer price" dilemma is very provocative.
Week 5: Marketing
|Defining Marketing was Dr. Goldratt's first task
because, he said, it is so often confused with Sales. He uses an analogy that
spreading corn on the ground to attract ducks is Marketing, while sales is the
equivalent of shooting a sitting duck.
What then is the core problem of marketing? What needs to be changed? He
brought the issue back to the assumption that the 'ensuring local optimum is the
best way to ensure global optimum.' Dr. Goldratt explained the marketing
equivalent of this assumption and diagrammed the Evaporating Cloud. He then
attacked the entity in the Cloud that contained the words "product margin." But
even after replacing the wording, the basic conflict still exists. Which means
there is no easy way out of this conflict, it must be dealt with. Goldratt's
breakthrough idea (called an "injection" in TOC terminology) is to choose the
"customer's perception of value" side of the cloud.
In other problems like production or project management there was an
assumption that could be invalidated and the Cloud was then evaporated. This
meant that we didn't have to deal with the conflict; rather, a "generic"
solution is available that includes certain policies, measurements and behaviors
that will resolve the core problems. (There will, of course, be obstacles and
negative branches that need to be dealt with individually; but the basic
changes are the same for everyone.)
||This is not the case in Marketing. A company must
create a customized solution to each marketing case. Not only is it the case
that what works for company ABC will not work for company XYZ; what works for
company ABC in one market will not work for company ABC in another market.
That's the "bad news." The good news is that TOC does provide a well defined
process for developing a customized market solution
a so-called "unrefusable offer." Dr. Goldratt went through that process in
detail and illustrated it with an actual example from a very significant,
unnamed client. But, we were warned, when the unrefusable offer is completed,
the process is NOT complete.
Dr. Goldratt then discussed the concept of "segmentation." He distinguished
it from a "niche." He illustrated the difference using a couple examples from
the airlines, his own satellite program, and the computer industry.
Dr. Goldratt closed by giving a little look forward to the last session on
strategy and sowing the seeds of how the key concepts of getting a competitive
advantage in a particular market tie directly into the concepts necessary for a
long-term corporate strategy.
Week 6: Sales
|Dr. Goldratt began considering which type of sales is
more difficult: internal selling of ideas and decisions; or external selling of
products and services. He explained the one you choose depends on your
perspective. Both are difficult. He covered internal sales first because almost
every participant is involved in selling ideas or decisions, and because it
turns out that the solution to this problem is actually the "generic" solution
to selling (which means that the external selling is actually a derivative of
this generic solution).
The first premise that Dr. Goldratt proposed in this session is that the
strongest force for improvement is the resistance to change. This centered the
discussion around the 6 layers of resistance. It was shown how the process of
selling your ideas is actually a very ordered sequence of overcoming the 6
layers of resistance. To skip any layer usually means you will not get buy-in to
your ideas. This is especially true of the first two layers...which are often
skipped because it is believed that it is quite obvious what the problem is and
what the direction of the solution is.
The external selling process is, as stated earlier, an adaptation of the
process of selling internally. Thus it also is a process of taking
||the prospect through the 6 layers of resistance (also
called the 6 stages of buy-in). Dr. Goldratt quoted research done by Dr. Neil
Rackham published in the book Spin Selling (McGraw-Hill, 1988). This
study showed the core conflict of the seller revolves around when and how to
"show" the product/solution to the prospect.
To illustrate how the prospect's resistance to buying (i.e. the buyer's
resistance to change), Dr. Goldratt used an example of a "mafia" offer. In this
case, the seller expects to be readily accepted; however, the chances of
resistance are even higher in such a case. The answer was again to take the
prospect through the 6 layers of resistance. First a seller needs to: build
rapport to overcome layer 1; "set the stage" properly will overcome layer 2;
bring the buyer to want the product/service by overcoming layers 3 and 4; and
overcome layer 5 by closing properly. (If a seller encounters layer 6 from an
external prospect, Dr. Goldratt did not offer much hope of completing the sale.
However, he did say that when this happens, he believes it is usually caused by
a failure to get full buy-in at an earlier layer usually layers 1 or
Week 7: Managing People - Respect
|This may have been the most powerful session. Dr.
Goldratt began by saying that managing people boils down to one word: respect!
He then focused on two examples where employees do not feel respected: when
their ideas are ignored; and, when they lack true empowerment.
In addressing the issues underlying why managers often times "ignore"
someone's good ideas, Goldratt showed the conflict they face: on the one hand
the manager wants to avoid pointing out any unintended negative consequences of
the idea to avoid offending the inventor; on the other hand, the manager feels
obligated to point out the negatives to insure positive results. To avoid
confrontation, the manager often says, "Let me think about it."
Usually they do not think much more about it, and the person who proposed the
idea feels ignored...disrespected. Goldratt showed a methodology of how to avoid
offending the presenter AND pointing out the potential unintended negative
||Regarding lack of empowerment, Goldratt focused on
situations where a person comes to their boss with an urgent "fire" that must be
put out. In most of these cases, it is an indication that there is a
misalignment between the responsibility and the authority. That is, the person
feels they are responsible for a certain outcome, but they don't feel they have
sufficient authority over some key aspect of making that outcome become reality.
In this case, the evaporating cloud is used...twice. It is used the first
time to understand the situation. There is a specific sequence used to fill in
the boxes (called "entities") so that the conflict becomes clear. There is a
specific arrow that is the likely location of the assumption that must be dealt
with. Once the solution is discovered, the cloud is used a second time with the
effected employee. The entities are revealed in a different sequence that is
designed to induce the un-empowered person to create their own solution. Do so
successfully will eliminate the misalignment and produce true empowerment!
Week 8: Strategy
|What is strategy? According to Dr. Goldratt, it is
the direction you chose to the organization now and in the future.
And what makes for a good strategy? There are 3 necessary conditions:
provides a way to make money (or the appropriate goal unit) now as well as in
2. It provides a secure and satisfying environment for employees
now as well as in the future.
3. It provides satisfaction to the market now
as well as in the future.
To many it seems that these necessary conditions are in conflict with each
other. For example, in order to make money now and in the future it will
sometimes be necessary (when markets drop drastically) to lay off employees. But
doing so violates the 2nd necessary condition.
||Dr. Goldratt examined in detail this conflict, which
he calls the POOGI Cloud. He exposed the assumption that must be invalidated. He
then went through the transition tree that must be followed to invalidate the
assumption and to develop a "good" strategy that meets all 3 necessary
He illustrated many things, including his "green curve vs. red curve"
comparison. He listed the primary barriers that must be overcome to make the
sustained growth represented by the red curve a reality. Goldratt urged the
audience to move on making this happen. In fact, he made a plea to all to help
continue the development of knowledge in the TOC management arena. He asked all
of us to help do three things:
1. Polish emerging solutions
construct new solutions
3. Suggest issues that need a solution.