The Core Conflict for Complex Organizations

The underlying conflict with complex organizations is the need for both growth and stability. Figure 33-1 illustrates the goals of growth and stability drawn by Eliyahu M. Goldratt on many occasions and in many venues (Goldratt 1988b). These apparently conflicting needs lead to actions that force the organization in opposite directions.

Growth versus stability curves can be better communicated in an Evaporating Cloud (EC). Figure 33-2 shows the objective, needs (necessary conditions), and wants to meet the objective and highlights a few sample assumptions that block complex organizations from achieving both growth and stability.

In order to have [A] a successful company, the company needs to have [B] continuous growth. In order to have [B] continuous growth, the company must [D] continually acquire additional capability. On the other hand, in order to have [A] a successful company, the company needs to have [C] stable operations. In order to have [C] stable operations, the company must [D] avoid disruptions to the current capability. On one hand, the company must [D] continually acquire additional capability, while on the other hand, the company must [D] avoid disruptions to the current capability. The company cannot do both simultaneously.

FIGURE 33-1 Growth versus Stability Curves. (Previously referred to as Red Curve-Green Curve and carried a different meaning. E. M. Goldratt (1999) used by permission, all rights reserved.) FIGURE 33-2 Core conflict.

The Direction of the Solution

The solution to a core conflict comes from examining and invalidating the assumptions behind the necessary logic.

What the Market Expects (AB)

A [A] successful company must have [B] continuous growth because the market expects it. Complex organizations have external and internal customers. Few people are interested in a company that has declining growth or unstable performance. Publicly traded companies must maintain continuous growth in value and profits to retain (avoid declining) stock prices. In addition, because the internal elements of the organization depend so much upon each other, the organization's success in one department depends upon improvements in other departments. For both of these reasons, the direction of the solution must support the ability to [B] continuously grow.

Adding Capabilities (BD)

Attaining [B] continuous growth over time necessitates [D] continually acquiring additional capabilities or resources because the existing resources cannot be expected to perform above maximum capacity for any length of time. Internally, continuous growth causes continuous problems. While some parts of the organization can grow rather quickly, other parts of the organization cannot. Improvements in one area may be cheap and easy (and seem obvious); others may be expensive and time consuming (and not so obvious). Trying to keep the organization in balance (with ample protective but not excess capacity) demands the ability to grow everything at a rate that synchronizes the required contribution of each organizational element. The direction of the solution must address where and when to add additional resources to support effective [D] continually acquiring additional capability.

Predictable Response to Customers (AC)

A [A] successful company must have [C] stable operations because customers require predictable responses. Unpredictable delivery reduces the value of the product offering and lowers market share. If we do not provide the delivery performance expected by our customers, they tend to find someone else who can. However, what about internal customers? In complex organizations, other departments, offices, or functions also require predictability from each other. Failing to meet internal promises is probably more destabilizing for complex organizations than missing commitments to outside customers, even though the outside customer is not aware of it. Therefore, the direction of the solution must provide [C] stable operations.

Avoiding Disruptions (CD')

Maintaining [C] stable operations by definition means [D] avoiding disruptions to current capability because in complex organizations there are continuous problems aligning the capabilities of the many interactive elements of the organization. Complex organizations have many changing product mixes and varying workloads, which draw upon many interactive constraints. Even in the best of conditions, it is a terrible challenge for each part to live up to its commitments to other parts. Through no fault of its own, the overlapping demands from several critical and simultaneous endeavors can easily result in a department changing from having very little work to being heavily overloaded in just a few weeks. If there is no work, the expensive resources of the group seem excessive and costly. When there is too much work, there are often delays or quality problems. To many parts of the organization, it seems that just as one part gets in control, there is a disruption somewhere else that sends waves of work through the organization causing huge problems. For these reasons, it is critical that the direction of the solution must include a method to keep all parts of the organization aligned (in balance) to [D] avoid disruptions to current capability.

Doing Both (DD')

We really have a dilemma when we must [D] continually acquire additional capacity yet at the same time we must [D] avoid disruptions to current capability. This occurs because it seems every added resource or new capacity disrupts, delays, and increases the risk of maintaining stable operations or supporting continuous growth. A large part of complex organizations are individual business units that operate in their own best interest. They continually adjust their capacity through hiring and laying-off, building or shutting down, expanding or relocating. Acquiring highly technical professionals is a long lead-time problem, as is cutting back on expensive human resources. While these changes are somewhat disruptive to the individual business units, if there is an organization-wide requirement for continually adding capacity, the disruptions are magnified. Individual business units can actually compete against each other for a scarce resource pool. Units that try to reduce their local costs often cannot deliver to the changing demands from both inside and outside the organization, leading to delays and other problems. The direction of the solution must resolve this conflict in such a way that [D] continually acquiring additional capacity and [D] avoiding disruptions to current capacity are not in conflict. Any added capacity must actually promote both stable operations and continuous growth.

Additional Understanding of Complex Organizations

Complex organizations continue to exist in part because they have good overall strategies. Without a reasonable strategy, the many challenges they face would quickly destroy the organization (or convert them to something less than complex). Strategies at the top of the organization are in many cases sufficient; however, as you go lower and lower in the organization the interactions of the various organizational elements become much more complicated. Organizational elements, each trying to do their best, too often are at odds with one another. Conflicting goals between organizational elements at the lower levels not only block the lower elements from performing at their best, but also jeopardize the effective operation of elements above.

FIGURE 33-3 Generic strategy.

As an example, let's examine Fig. 33-3, which is a very good generic strategic plan taken from Chapters 30 and 31 of It's Not Luck, by Eliyahu M. Goldratt (1994).

The generic strategy addresses the necessary conditions of the owners, the employees, and the customers. This is achieved by focusing on the customers' needs in such a way that competitors cannot quite duplicate, by choosing to service markets that do not all vary in the same direction at the same time, by using employee resources in a flexible way, and by shifting between the lucrative markets of the time. Yet, even the best of strategies may not be implemented completely if lower down in the organization there are unresolved conflicts. This is shown in Fig. 33-4, where lower down in the organizational structure there are conflicts that arise from different and competing measurement systems applied to different departments, organizational silos, independent business units, and employee reward systems.3 As we drop down through the layers of the organization to the tactics (objectives) of improving sales, accelerating projects, and improving distribution (a very small subset of the tactics involved in executing strategy in a complex organization), we see there are significant unresolved conflicts. The solutions to these specific individual conflicts4 have been addressed in previous chapters of this handbook. However, the problem is not quite so simple. What we see is that persistent unresolved conflicts at the bottom of the organization5 reflect back upward to higher levels of the organization to the point that there is conflict at all levels. Figure 33-5 illustrates the resulting generic conflict that propagates upward to all levels (even to the CEO): In order to succeed, we must do those things that will allow us to succeed. However, in order for them (the other side) to succeed, we must not do the things we deem important for our success. These conflicts happen at every level. Unresolved conflicts from below propagate themselves upward to jeopardize or restrict the success of the company. For example, when plants or departments focus only on efficiency, they often restrict their focus to very few like products so they can gain the highest level of productivity. The department (or plant) then becomes very sensitive to any market downturn for their few products. A second example occurs when normal project fluctuations result in unavoidable layoffs of people. However, when periodic layoffs are inevitable, we are not providing a secure and satisfying environment for the employees. Moreover, without dedicated employees, we seriously jeopardize the success of the company.

FIGURE 33-4 Conflicting tactics.

FIGURE 33-5 Conflicts everywhere.

These widespread conflicts block the true performance potential of the complex organization. The direction of the solution must do away with these conflicting issues and replace them with an outstanding level of cooperation.

Finding an Injection

The breakthrough injection comes from invalidating at least one assumption from the core conflict. Examining the assumptions relative to other TOC solutions often helps. A solution to the systemic core conflict will go a long way toward removing the reflected conflicts that spread through the system. However, we must remember that the more complicated the situation seems to be, the simpler the solution must be (Goldratt, 2008). The assumptions in Fig. 33-2 are provided in Table 33-1. Some potential individual injections are provided in Table 33-2.

Looking at these assumptions and potential individual injections, it appears the complex organization is a complex supply chain (or maybe a supply mesh) with internal and external links. The problems of the complex organization mimic the supply chain and lead to the typical distrust between links and the over/under capacity problems experienced by the supply chain. However, these relationship problems are compounded by many more interlinkages than exist in a typical supply chain and the fact that transactions and requests between organizational units are not as clearly defined as market transactions and are difficult to prioritize with each unit's market transactions. While each element of the organization is trying to do its best, the problems continue. One cause for this is that many parts of the complex organization seem to have their own independent performance measurement systems. An example of this is sales measurements (such as keeping the sales funnel full) triggering over-commitment of development resources. Another cause is that different feedback or lag times and adjustment periods exist across the parts of the organization.

TABLE 33-1 Assumptions of the Growth versus Stability Cloud TABLE 33-2 Potential Injections of the Growth versus Stability Cloud

Breakthrough Injection

The breakthrough injection is selected by finding a single strategic injection that will satisfy all the individual injections and lead to all the needed desirable effects described to this point. A breakthrough injection is defined as everyone in the organization who has a significant impact on Throughput is measured by the same simple measure (that aligns all the actions of the organization with the goals of the organization).

Concepts in Organization Complexity

In order to understand this breakthrough injection and further define it, let's first review some important concepts associated with organizations as a whole and particularly associated with complex organizations. The four Supply Chain Flow Concepts developed by Henry Ford and Taiichi Ohno and interpreted by Eliyahu M. Goldratt (2009)6 are: 1. Improving flow (or equivalently lead time) is a primary objective of operations.

2. This primary objective should be translated into a practical mechanism that guides the operation when not to produce (prevents overproduction). Ford used space; Ohno used inventory.

3. Local efficiencies must be abolished.

4. A focusing process to balance flow must be in place. Ford used direct observation. Ohno used the gradual reduction in the number of containers and then gradual reduction of parts per container.

In complex organizations, the difficulty of achieving even the first Supply Chain Flow Concept is compounded by the existence of many interdependent specialists, departments, plants, offices, and resource pools. Keeping them synchronized is very difficult. Any optimization effort is short-lived. Before we talk about how the four concepts can be implemented, we need to be clear about two things-the types of activities performed within organizational units and the types of flows across unit boundaries.

Categories of Activities

Each resource or person will perform one or more of the following five types of activities: Day-to-day production-generally to meet current demand (Current T) Project activities-work on approved and scheduled projects (generally Future T) Idea development-work on developing ideas for future projects (Potential Future T) Support activities-to support the functioning of the unit or organization (very indirect relationship to T) Idle time-protective capacity (protects Current and Future T) The mix of activities varies from unit to unit and, within units, from resource to resource. Most employees and machines in a manufacturing plant would have day-to-day activities related to current Throughput but might be called upon occasionally to contribute to projects. A quality control specialist in a manufacturing plant may spend 40 percent of her time on quality monitoring for current production and 40 percent on new product development projects to which her department has committed. Most of the resources of a development department might work entirely on either project activities related to approved projects or developing ideas for future projects, but would not have any day-to-day processing responsibilities related to current Throughput. See Fig. 33-6 for some examples of time allocations for different resources.

In some units or departments, many resources will have a very direct impact on Throughput, while in other departments resources may have a very indirect effect on Throughput at best. We will use this relationship to Throughput later in this chapter to determine how departments should be measured, but for now Table 33-3 shows how departments or units would be categorized by how directly they affect Throughput for the organization. We will see shortly how the categories shown in Table 33-3 are useful in determining appropriate measures for each department or unit.

Flows in Complex Organizations

Now let us consider a simple organizational structure and the flows that cross the boundaries of different organizational units or departments. The most common type of flow is that related to day-to-day processing or production to meet commitments for current Throughput to customers; for example, the flow of finished goods from Production to Distribution. However, there are many more interactions and complex flows related to projects. Figure 33-7 illustrates that many people from all parts of the company contribute ideas to the development of a new product. For many such projects, there is a significant amount of interdepartmental discussion and flow of ideas before the project is formally approved. Once the project is approved, there is more interdepartmental flow associated with the activities that are part of the approved project. In Fig. 33-7, a block labeled "Ideas" can refer to either an exchange between departments in the pre-approval stage or a department's agreed upon obligation to do something to help deliver the final product of "Ideas." For example, the Design department might have a preliminary design and has solicited "Ideas" on manufacturability from the Production department, essentially asking, "Can you manufacture this with existing resources?" Production, in turn, confirms that it can or provides necessary information to Design to allow the preliminary new product design to be modified. The two-headed arrow between Design and Production represents this interaction. The Sales department contributes comments from their marketing studies. The Service department contributes improvements learned from past products. Distribution suggests ideas for better packing and delivery. Design wants to incorporate the newest and best into the new product. Development includes its own ideas on how to deliver the best ideas they can to benefit the whole organization.

FIGURE 33-6 Resource activity profiles.

TABLE 33-3 Levels of impact on Throughput.

FIGURE 33-7 Flow of ideas.

Figure 33-7 illustrates just a few of the flows across departmental boundaries necessary to develop an idea that may end up as a new product. When we add the flows for all other projects, both in the developmental stage and scheduled, and day-to-day production flows, the result definitely looks chaotic, as shown in Fig. 33-8.

Looking at the complex flows in an organization in this way makes it clear why the management of such organizations is so difficult.