Why the Need for Change?

Most service organizations lag behind the progress that industrial organizations have made in implementing new managerial management methods, such as TOC, Lean/Six Sigma, or Total Quality Management (TQM).

Most service organizations have not yet assimilated the understanding that they can leverage excellence in operations to increase shareholders' value. Similarly, the notion of service quality is sometimes misinterpreted. In many cases, service organizations put some effort on Lean/Six Sigma implementations mainly in the operations. Usually, this effort does not improve the organization's value in any significant way.

Proper management of the system's bottlenecks, a change in local performance measures, lead time reduction, decision making, and pricing or costing procedures are major opportunities for the improvement of service organizations.

This chapter aims at presenting the state-of-the-art management concepts and tools, demonstrating their potential for value enhancement for service organizations. This chapter will also suggest proven routes for value driver identification and successful implementation in a variety of service environments.

Second, this chapter surveys the literature on TOC in service organizations. Third, a brief assessment of service management is presented. Fourth, concepts and tools of TOC and Focused Management for service organizations are described. Fifth, an implementation plan for service organizations is presented. Sixth, the remaining chapters of the services section are listed.

Survey of Service Organizations TOC Literature

Literature Mapping and Observations

Relative to the spread of TOC literature in manufacturing, logistics, and project management, little research has been conducted on TOC in services. In addition, there exist only a few papers describing TOC and Focused Management implementations in services.

Unlike manufacturing, project management, or distribution, the service environment has much higher variation. A bank is different from a production organization in its processes, information flow, and core problems. In general, we can classify manufacturing plants into V-, A-, or T-plants. In service organizations, the variation is much higher.

Some observations have been made from surveying the literature and are detailed in the following section.

From All Service Industries, TOC Is Relatively Most Popular in Healthcare Organizations

Of all service industries, TOC is relatively most popular in health care organizations. The reason might be the fact that hospitals, clinics, and other healthcare organizations are "production lines" dealing with billions of people per year. Some departments are, in fact, job shops. Others are V-, A-, or T-plants, and many can be considered as project-like sites. They have bottlenecks, and their work-in-process (WIP) can be easily seen. Measures of performance are operations-like. All the issues in which TOC has proved its ability to improve are in the nature of healthcare organizations. Thus, there exist "full-scale" implementations and methodologies in health care organizations. Ronen et al. (2006) prescribed an end-to-end methodology based on TOC and Focused Management methods that has significantly increased Throughput, reduced lead time, and improved quality in health service organizations with existing resources. Motwani et al. (1996) illustrate how TOC can be applied to service and not-for-profit organizations. Umble and Umble (2006) describe a successful implementation of buffer management in the UK national healthcare system. This research illustrates recent applications in the Accident and Emergency departments and the hospital admission process of three facilities.

Wright and King (2006) describe the problems and the environment of a health service organization in a novel (a The Goal- like book) We All Fall Down: Goldratt's Theory of Constraints for Healthcare Systems. The issue of implementing TOC in a hospital has inspired the leading healthcare community, and the book, although not a scientific one, was presented in the prestigious New England Journal of Medicine (Pauker, 2006).

Young et al. (2004) describe three established industrial approaches-Lean thinking, TOC, and Six Sigma, and explore how the concepts underlying each of them might relate to health care. Leshno and Ronen (2001) described the complete kit concept as a part of a full Focused Management implementation (constraint management, WIP reduction, performance measures alignment, and strategy) in a private hospital. Ritson and Waterfield (2005) present a case where TOC was implemented in a mental health service.

"One TOC Tool" Implementations and Research

Except for the healthcare industry, where several TOC tools were implemented, in all other service industries we observe "one TOC tool" implementations.

For example, papers were focused on the application of Throughput Accounting (TA) or the elimination of prevailing costing practices in the service organization. Roybal et al. (1999) focused on using activity-based costing and the theory of constraints to guide continuous improvement in managed care. Gupta et al. (1997) integrated TOC and Activity-Based Management (ABM) in a health care company.

Patwardhan et al. (2006) used the TOC tool of the thinking processes (TP) in Evidence-Based Practice Centers.

A Large Part of the Literature Is Examining the Feasibility of TOC Applications in the Service Industry

Goodrich (2008) has explored the potential of using TOC in change management for professional service organizations. Taylor and Churchwell (2003) have investigated the feasibility of the TP and their potential in a state hospital. Schoemaker and Reid (2005) explored the use of TOC TP and applied it the government sector, at the Albuquerque Public Works Department. Reid and Cormier (2003) applied the TOC TP in the services. Moss (2002) has explored the feasibility of using main TOC tools in service firms.

Limitations of Current Research

TOC research lags behind the research done on other managerial methods. A quick and non-scientific literature survey using Google Scholar (2009) reveals that the citations of TOC-related topics are by far fewer than those on TQM and Lean/JIT. For example, the term "Theory of Constraints" is cited 6680 times, as opposed to 23,700 for "Lean Production" citations, and 281,000 for "Just in Time." "Drum Buffer Rope" is cited 906 times, while "Kanban" is cited 18,900 times. Goldratt is cited 6300 times while Deming got 142,000 citations.

So, what are the core problems of TOC research?

TOC is a simple and practical tool for better management. Simplicity is seldom a main desire for current business academic research. TOC does not use any complex stochastic and deterministic models. Rather, it uses heuristics that work well in practice.

The academic TOC community is relatively small, as TOC is not yet the mainstream in management. The main performance measures of an academic person are the quality and the amount of his or her research. TOC research does not support the route to tenure track for a young researcher.

Last but not least, the TOC community is a closed community of people getting their knowledge from a limited amount of sources. In the last few years, TOC has concentrated mainly on the Viable Vision (VV) projects in production and logistic organizations, and putting efforts on Critical Chain Project Management (CCPM). Thus, the important issues of how to implement TOC in service and nonprofit organizations were lagging behind.

Brief Assessment of Service Management

What to Change?

The value drivers for service organizations that hold a great potential for value improvement are: Proper definition of the goal Measurement and control Constraints management, especially in the IT department Emphasis on shortening lead times and improvement in due-date performance (DDP) Proper decision making especially regarding pricing, costing, and transfer prices Proper management of the Sales and Marketing departments The service industries where the WIP is physical (like retail or health care, since WIP is comprised of customers or patients) were in fact the first to implement some of the concepts and tools discussed in this section. However, the need to change is especially prominent in organizations where the WIP of the service is non-physical (e.g., software code, requests for life insurance policies).

Why Is TOC Not Yet Popular Among Service Organizations' Managers?

TOC is less popular in service organizations than it is in production management. There are several reasons for this gap: The "production/manufacturing" language- To most service organizations' managers, some topics seem to be relevant only to the production world. "Batch size," "load," "setup," "Throughput," "cost per unit," "complete kit," "buffer," etc. seem to them as not applicable to the service environment. As matter of fact, all of these issues are also highly relevant to service organizations.

Lack of immediate quick wins in operations- TOC and Focused Management received their popularity in the manufacturing sector due to the fact that they were able to achieve substantial improvement in operations in a relatively short time. Many of the improvement areas that brought quick wins in terms of value enhancement have a lesser effect or are difficult to achieve in the service environment.

WIP-related problems are more difficult to resolve- In the implementation of TOC in production, WIP is substantially reduced, with profound effects on performance and value. Smart scheduling procedures and Drum-Buffer-Rope (DBR) implementations were delivering the "miracles." WIP in service is also a major problem, yet it is more difficult to resolve. This is especially true in service industries where WIP is non-physical.

No raw materials and finished goods success stories- As service organizations do not have raw material (RM) and finished goods (FG) in their core processes, the proven TOC methods for these areas do not apply in service organizations.

Bottlenecks are usually not easy to identify-In the service environment, bottlenecks are not visible. This is especially true for service industries where WIP is virtual.

Lack of abody of knowledge(BOK) and experience on how to deal with service organizations- Production companies are very similar to each other. Practices and procedures were developed along the years to deal with V-, A-, and T-plants. Since service organizations have high variation in processes, structure, and workflow, there are no generic practices for their improvement. Unfortunately, the TOC International Certification Organization (TOCICO) BOK in recent years mainly has focused on production issues, concepts, and tools.

VV projects are focused on production, logistics, and manufacturing.

Difficulties in defining the goals of nonprofit service organizations- The lack of a clear definition of the goal in nonprofit service organizations blocks the successful implementation of improvement projects.

For nonprofit organizations, there are difficulties in measuring performance and TOC is perceived as a business-oriented philosophy.

What Do TOC and Focused Management Have to Offer?

Our experience in implementing TOC and Focused Management concepts and techniques show that despite the difficulties listed previously, there exist tools, practices, and methodologies that bring about major improvements for service organizations.

Later in this chapter, we will present concepts and tools for successful implementation in service organizations.

TOC Concepts and Tools for Service Organizations

This section describes a coherent methodology for managing service organizations based on TOC literature and the experience of the authors in implementing TOC in dozens of service organizations of different kinds.

The Seven Focusing Steps of TOC

The seven focusing steps of TOC (Pass and Ronen, 2003) form a very effective framework for managing service organizations. The seven-step framework adds two preliminary steps to the common five-step framework introduced by Goldratt (Goldratt and Cox, 1992). The first step deals with the definition of the goal, while the second step deals with the definition of a corresponding set of performance measures. The addition of these first two steps is highly important for nonprofit service organizations. Thus, the Five Focusing Steps (5FS) framework comprises the following steps: 1. State the goal of the organization.

2. Define global performance measures.

3. Identify the system constraints.

4. Decide how to exploit the system constraints.

5. Subordinate everything else to the constraints, and to the above decisions.

6. Elevate the system's constraints.