The Other Four Generic VV S&T Trees

Next, we will briefly discuss some key points regarding each of the other four generic VV S&T trees without presenting the steps of the S&T trees, given the limitations on how much content this chapter can address.

Consumer Goods (CG) S&T Tree

The CG S&T tree applies to manufacturers that sell to retailers.8 Two versions of the CG S&T tree exist: one for make-to-order (MTO) environments, while the other is for make-to-stock (MTS) environments. We will first explain the MTO S&T tree and then briefly explain how the MTS S&T tree differs. Step 2.1 of the CG S&T tree is focused on achieving an inventory turns competitive edge, while Step 2.2 is focused on achieving a TPS competitive edge. The NA of Step 2.1 is, "When most cash is tied up in inventory and availability is still an issue, improving inventory turns is a client's significant need." The resulting strategy is, "A decisive competitive edge is gained by providing a 'partnership' that delivers superior inventory turns (better availability coupled with substantially reduced inventories), when all other parameters remain the same."

The titles of the four steps in Level 3 under Step 2.1 are: Produce to Availability, Inventory Turns Selling, Expand Client Base, and Capacity Elevation. The first step is achieved by implementing Drum-Buffer-Rope (DBR) and BM to improve performance in the plant. Thus, this step is focused on building the DCE. The second step of Inventory Turns Selling explains how to make an unrefusable offer (URO; the marketing solution of TOC) to prospective retailers. This step is focused on aligning the marketing and sales approaches of the supplier to capitalize on the inventory turns offer to the retailers. The third step of Expand the Client Base is about implementing the "mechanisms to generate leads, monitor, support, and effectively control their sales funnel (new clients)." Thus, these last two steps are about capitalizing on the DCE. The final step of Capacity Elevation is about ensuring that performance in the plant does not deteriorate when sales increase. Thus, this step is about sustaining the DCE.

The NA of Step 2.2 is, "When display is limited and has a major impact on sales, TPS is important to the extent that ensuring an acceptable TPS and increasing TPS are both clients' significant needs. To rapidly achieve the VV it behooves the Company to capitalize on that fact." The word "behoove" means that it is worthwhile to take this action although the action is not required. The resulting strategy is, "A decisive competitive edge is gained by providing a partnership that secures the clients an increase in TPS and provides a realistic chance of sharing in a much higher increase." This means that the supplier would also benefit financially from the increase in TPS.

The version of the CG S&T tree for MTS explains how to shift from MTS to make-to-availability (MTA). In this S&T tree, there are three steps in Level 3 under Step 2.1: Aligning the Supply Chain, Inventory Turns Selling, and Capacity Control. The essence of the differences between this S&T tree and the one explained previously is that the changes needed in implementation differ because of how production is currently managed (MTS versus MTO).

Reliable Rapid Response S&T Tree

The RRR S&T tree is for manufacturers that sell to other manufacturers. Step 2.1 of the RRR S&T tree is focused on achieving a reliability competitive edge, while Step 2.2 is focused on achieving a rapid response competitive edge. The NA of Step 2.1 is, "When the due dates of the suppliers are notoriously bad and late delivery has major consequences for the client, reliability is a client's significant need." The resulting strategy is, "A decisive competitive edge is gained by the market knowing that the company's due-date promises are remarkably reliable, when all other parameters remain the same."

The titles of the five steps in Level 3 under Step 2.1 are: 99% Due Date Performance (DDP), Reliability Selling, Expand Client Base, Load Control, and Capacity Elevation. The first step is achieved by implementing DBR and BM to improve DDP in the plant. Thus, this step is focused on building the DCE. The second step of Reliability Selling explains how to make a URO to prospective customers (manufacturers). This step is focused on aligning the marketing and sales approaches of the supplier to capitalize on the reliability offer to their customers. The third step of Expand the Client Base is about implementing the "mechanism to generate leads, monitor, and effectively control their sales pipeline (new business opportunities)." Thus, these last two steps are about capitalizing on the DCE. The fourth step of Load Control is focused on ensuring that due dates given to clients are based on actual load in the plant. Thus, the ability to continue to meet due dates does not deteriorate as sales increase. The final step of Capacity Elevation is about ensuring that the delivery lead times are not too long as sales increase. This ensures that business is not lost due to long lead times.

Thus, the last two steps are about sustaining the DCE.

The NAs of Step 2.2 (Goldratt, 2008c) are: To rapidly achieve the VV, it behooves the company to have the ability to command high premiums, even on a portion of sales.

In a non-negligible percentage of cases, the client gains heftily from rapid response.

The client cannot get cheaper RRR (or even an acceptable alternative) from anybody except the company.

Clients are not dumb.

The resulting strategy is, "On a considerable portion of the sales, high premiums are gained by the market knowing that the company can deliver in surprisingly short lead time." The right side of the S&T tree explains how to implement Rapid Response. Two speeds of rapid delivery with set lead times for each are typical, with each speed of delivery having a predetermined price that is some set percentage above standard pricing.

Projects S&T Tree

The Projects S&T tree applies to companies that make a unique product.9 Step 2.1 of the Projects S&T tree is focused on achieving a reliability competitive edge, while Step 2.2 is focused on achieving an early delivery competitive edge. The NA of Step 2.1 is, "When the due dates of the suppliers are notoriously bad and late delivery has major consequences for the client, reliability is a client's significant need." The resulting strategy is, "A decisive competitive edge is gained by the market knowing that the company's promises are remarkably reliable, when all other parameters remain the same. In the multi-projects arena, remarkably reliable (very high DDP without compromising on the content) is defined as delivering well over 95 percent on (or before) the promised due date, while in cases of late delivery the delay is much smaller than the prevailing delays in the industry."

The titles of the five steps in Level 3 under Step 2.1 are: Meeting Project Promises, Reliability Selling, Expand Client Base, Load Control, and Capacity Elevation. The first step of 3.1.1 is achieved by implementing the Critical Chain Project Management (CCPM) solution (the TOC solution for managing projects). Thus, this step is focused on building the DCE. The second step of Reliability Selling explains how to make a URO to prospective clients. This step is focused on aligning the marketing and sales approaches of the supplier to capitalize on the inventory turns offer to the retailers. The third step of Expand the Client Base is about implementing the "mechanisms to generate leads, monitor, and effectively control their sales funnel (new business opportunities)." Thus, these two steps are about capitalizing on the DCE. The fourth step of Load Control is about ensuring that the staggering mechanism of CCPM is followed even if the lead times are too long to close future deals. Following the staggering mechanism ensures that the DDP of projects continues to be over 95 percent as more project work is taken on. The final step of Capacity Elevation is focused on ensuring that the project lead times are not too long as sales increase. This ensures that business opportunities are not lost due to long lead times. Thus, the last two steps are about sustaining the DCE.

The NAs of Step 2.2 (Goldratt, 2008b) are: To rapidly achieve the VV it behooves the company to have the ability to win significant bonuses on many projects.

For many projects (and more so for sub-projects) there is almost no gain in early delivery. Still, for almost every environment there are large categories of projects (less so for sub-projects) in which early delivery brings substantial gains (sometimes the gains of early delivery dwarf the price of the project).

An example of a project that would result in substantial gains for early delivery is the opening of a retail store. The earlier it opens, the sooner revenues start coming in. The resulting strategy is, "On a considerable portion of the projects bonuses are gained."

Comparison of RRR and Project S&T Trees

Note how similar the RRR and Project S&T trees are. The NA and strategy of Step 2.1 in each are essentially the same. The only difference is in the definition of reliability. The steps under 2.1 in Level 3 are essentially the same as well. The main difference is which logistical solution is implemented as described in the first step of Level 3. Step 2.2 is similar in that it focuses on achieving more income for faster delivery. In the RRR S&T tree, higher prices are charged based on whether the delivery is rapid or super rapid. In the Projects S&T tree, bonuses are paid based on how much earlier the project is completed.

Pay per Click S&T Tree

The Pay per Click (PPC) S&T tree is for companies that make products that clients use. Step 2.1 of the PPC S&T tree is focused on eliminating the risk to the client, while Step 2.2 is focused on eliminating the risk to the company that makes the products. The NA of Step 2.1 is, "When a good investment is regarded as too risky, eliminating the risk is a client's significant need." The resulting strategy is, "The company gains a decisive competitive edge in large markets by providing its equipment in a way that does not involve (almost) any risk for the client." The titles of the four steps in Level 3 under Step 2.1 are: Market Segmentation, Market Offers Design, Pay-per-Click Selling, and Sales Funnel Management. The first two steps are focused on building the DCE, while the last two are focused on capitalizing on it.

The NA of Step 2.2 is, "Long-term profitability is not the only consideration. Additional investments and additional risks may bring a company to its knees in the short- and medium-term." The resulting strategy is, "The additional investments needed for the PPC business are well within the capabilities of the company and the associated risks are small and manageable." All of the steps under Step 2.2 in Level 3 are focused on sustaining the DCE. The first Level 3 step on the right side of the S&T tree is focused on implementing DBR/BM and CCPM to improve performance in the plant.

It is interesting to note that this S&T tree is the only generic VV S&T tree that does not include implementing a logistical solution of TOC on the left side of the S&T tree as the first step. Instead, it is the first step on the right side of the S&T tree.

Comparison of S&T Tree to Key Literature on Strategy10

Now that we understand more about S&T trees, we will compare this approach to the strategic planning approach that is described in the best-selling book, Blue Ocean Strategy (Kim and Mauborgne, 2005). The authors point out that most companies are like fish that live in red oceans. It is red from the blood of competitors eating each other. They point out that there is a way to be in a blue ocean, where competitors are not a factor. The problem is that all of their examples are based on inventions-on a customer need that was not recognized before. This is not an effective strategy because the risk is too high. The need may not be a real need. In addition, the process for turning a need into a recognized need is not easy to do. Many companies have gone bankrupt trying to do so. We want to be in the blue ocean without the high risks. The S&T tree provides a way to achieve this. The S&T trees are focused on needs that are both real and recognized. In addition, the entire plan is focused on how to achieve the goal without taking real risks.

Porter (2008) explains how five competitive forces need to be considered when determining the strategy: established rivals, customers, suppliers, entrants, and substitute offerings. Both forces of customers and suppliers are about the power they have to pressure the company into getting what they want. Both are not relevant with respect to the S&T tree because the S&T trees provide a way to have a decisive competitive edge that no significant competitor can duplicate in the short term. The S&T trees typically entail synchronizing several functional implementations of TOC. Each implementation consists of making paradigm shifts from the traditional ways of managing. Making just one paradigm shift is not easy to do. Therefore, making more than one would be difficult for a competitor to do. Eventually, a competitor will probably be able to do so. However, the company will be prepared because another S&T tree will be ready to implement before the four years are complete. As described earlier, the S&T tree provides the win-win solution between the different links in the supply chain-between the company and its suppliers and between the company and its customers. It is important to note that the market in which we decide to have the DCE is one in which there is significant room for growth, but also one in which the company will not have more than 40 percent of the market share. This is important because the company then has room to continue to grow even if the market is going through a down cycle. The force of substitute offerings is addressed as well with this win-win solution. Porter suggests that the way to limit the threat of substitutes is by offering better value, which is what the S&T tree does.

Porter points out that the force of established rivals can lead to price wars. The S&T trees provide a DCE that is not based on prices. In fact, in many cases the S&T trees enable charging higher prices or earning more money through bonuses based on the DCE achieved. The final force of new entrants is not really a concern either because our solution is win-win for all stakeholders. The S&T trees enable the ability to satisfy the market successfully now and in the future. Therefore, the risk of losing clients is quite low.

Porter recommends using one of three strategies: cost leadership, differentiation, or focus. Cost leadership is about being the leader in the industry based on a given level of quality. The company can choose to sell at average or below-average prices. The cost advantages are achieved through process improvements and locking in large sources of desirable materials, to name a few. The S&T tree enables the ability to achieve this type of strategy. However, it is one that others may be able to duplicate easily in a short period of time. The differentiation strategy is about developing unique attributes for the product or service that results in the company's customers valuing what they sell. This strategy is achieved by meeting significant needs of the customers. The VV S&T trees are in line with this strategy. Finally, the focus strategy is about using one of the other two strategies to capture a (narrow scope) segment of the market. This strategy is in line with the S&T trees as long as not more than 40 percent of the market share is captured.

Another contribution of Porter is the concept of value chain. Porter suggests that the company identify the key, interrelated (generic) activities of the chain and ensure each is focused on creating value. The generic core activities are inbound logistics, operations, outbound logistics, marketing and sales, and service. The S&T trees specifically address the ability of these functional areas to enable building, capitalizing on, and sustaining the DCE. Porter argues that since a company's value chain is linked to the value chains of other companies upstream and downstream from the company in the supply chain, then the company's competitive advantage needs to depend not only on its value chain, but also on the aligned efforts of this value system. The key is to ensure a win for each link in the chain. This is consistent with the approach of the S&T trees.

The VV S&T trees ensure that the constraint, which is the rate at which the company can grow, is controlled by management. The S&T trees also ensure that the constraint does not become internal (such as within a function) or the market. In other words, the S&T tree ensures that the limit to achieving more of the goal is not the capacity of a department or the amount of demand in the market. Management has the ability to take actions to ensure that a department or the market does not become a constraint. The VV S&T trees include steps for ensuring that the constraint does not become a department or the market. These S&T trees were created with the understanding that the real constraint is management time. Having too many initiatives in the organization that management has to oversee is the opposite of exploiting the constraint. The usage of VV S&T trees in organizations ensures that the only initiatives are ones that will result in a significant impact on achieving the goal.

Since the S&T tree does or can address the links in the supply chain (customers or suppliers), the strategy can ensure that the constraint is not within one of these links. The winwin between the various links ensures that all the links are achieving more. However, it is possible that the constraint of the supply chain can be within one of these links. In that case, the S&T tree needs to address how to ensure that the only constraint within the supply chain becomes the ability of the entire supply chain to grow. The focus is not just on win-win for all, but also on the understanding that unless the end customer has bought the product, no company in the supply chain has really made a sale.11 Hamel and Prahalad (1994) point out that companies need to identify and focus on their area of core competence-that which proves the company's competitive strength. The criteria for the core competence are that it provides the company access to a wide variety of markets, it is difficult to imitate, and it contributes significantly to the end-product benefits. The S&T trees clearly meet the last two criteria. The usage of the S&T trees also enables meeting the first criteria as well. We have come across companies in which more than one of the generic S&T trees applies. In these cases, we can combine the S&T trees into one that is customized for them to enable achieving a DCE in more than one market and not enabling the company to have more than 40 percent market share in any one market. In any case, we usually do want to ensure that the company is not just in one market long term because the company is subjected to the ups and downs of one market. In some cases, an organization can be ever flourishing without diversification. In most cases, we would recommend that an organization plan to go into more than one market in which its core competence applies in order to reduce the risks to the organization.

Hamel and Prahalad argue that the primary killer of existing core competencies is cost cutting and silos. Neither is a concern when effectively using the S&T trees. The S&T tree does not focus on cost cutting, but rather on increasing T faster than OE increases. The S&T tree also ensures that silos are no longer an issue because the actions of the functions are coordinated or aligned to achieve the goal.

Kaplan and Norton's (1996) Balanced Scorecard (BSC) is a tool they developed that is utilized to translate strategy into action. It was initially developed as a way to incorporate non-financial measures with financial measures. The BSC consists of a variety of performance measures that are divided into four categories: financial, customer, internal business processes, and innovation and learning. The process for designing the BSC for a company begins by writing the mission statement and then linking it to strategic business objectives. Next, performance measures are determined, which will be utilized to track progress on the strategic objectives. Johanson et al., (2006) point out that Kaplan and Norton think that "an effective strategic learning process requires a shared strategic framework that communicates the strategy and enables all participants to see how their individual activities contribute to overall strategy fulfillment." This is what the S&T trees enable us to do.

The BSC has a large number of performance measures. We are aware that measures drive behaviors of people. The problem is that when there are a number of measures, it is likely that these measures are in conflict. In other words, an action taken that improves one measure hurts the performance on another. It is true that we need non-financial measures. That is why we have the three operational measures of T, I, and OE in TOC. We also know clearly what the priorities are for improving these measures when they are in conflict. In the S&T trees, there are few measures of performance. We have found from experience that when people understand what to do and how it is aligned with the goal, the right behaviors will result-assuming of course that we do not continue to use the wrong measures of performance, such as local efficiencies.12 In addition, we argue that it is important to set up a bonus structure that rewards all employees when key performance measures of the company are improved, such as NP.

Execution of the S&T Tree

The S&T tree is a powerful tool for communication and synchronization of the efforts within the organization to achieve the goal. It is easy to learn how to read an S&T tree. The S&T tree is presented to everyone in the company to some degree. Top management must validate the S&T tree to Level 3. The validation process consists of reviewing the S&T tree to verify that each assumption is a fact of life and to deal with all reservations of management. Those who will lead the implementation of the S&T tree validate the S&T tree to Level 4. Between the presentation of Level 3 and Level 4 is knowledge transfer of the key concepts of TOC aligned with the S&T tree to be able to validate fully the logic in the S&T tree. Everyone in the company will be exposed to at least the part of the S&T tree that directly relates to them. They will also understand how their actions support achieving the goal because the S&T tree must always be presented from Level 1 down. However, it is not necessary to present all of the content of the S&T tree to do this.

The usage of the CRT and ECs in companies led to the understanding of the impact of silo thinking (each function being managed in isolation without a clear understanding of its impact on other functions or the whole system) and the many conflicts that exist within an organization. We also understood how a conflict is addressed in one silo can have negative effects on other silos. The S&T tree successfully breaks all these conflicts and ensures that all of the actions are aligned with achieving the goal.

The benefits of using the S&T tree are: The plan is effectively communicated to all stakeholders.

The full logic of the strategic plan is presented and validated by the stakeholders.

The probability of getting buy-in and collaboration of all the stakeholders increases significantly.

Each stakeholder understands how his or her actions are directly linked to achieving the goal.

Authority and responsibility are aligned.

Fast results are achieved given the way in which the S&T tree is designed.

A TOC expert shared a story about a TOC implementation with the author. He stated that the implementation was done without using an S&T tree. Afterward, the S&T tree was written. He realized that a number of mistakes that were made in implementation would have been prevented had the S&T tree been written before implementation.

Summary and Discussion

This chapter provided a detailed explanation of the structure of S&T trees, with a focus on the VV S&T trees that have been released into the public domain. The discussion also covered some key concepts with respect to writing S&T trees in general. This chapter provides some guidance on how to write S&T trees. I suggest reading the article written by Goldratt, Goldratt and Abramov (2002) about S&T trees as a supplement to this chapter. Fully understanding how to write an S&T tree can be achieved through attending a workshop or reading a book written on the subject, which does not yet exist. It would have been useful to include part of the S&T tree for hospitals to show a different Level 1 and below. However, it was not possible to achieve that within this chapter. This S&T tree will be presented in some detail in materials I develop in the future More development and usage of S&T trees has occurred within the past year. Currently, there are two types of S&T trees being used in combination in companies. At the TOCICO International Conference in Tokyo in November 2009, Dr. Eli Goldratt spent a significant portion of the first full day of his upgrade workshop discussing the S&T trees and ways to use them.13 The type presented in this chapter is now referred to as the Transformation S&T tree because it is effective for managing the transition of an organization from the current reality to the future reality. The second type of S&T tree, which is referred to as an Organization S&T tree, is focused on eliminating the engines of disharmony in organizations. The five engines of disharmony are: 1. Many people do not really know (cannot clearly verbalize) how what they are doing is essential to the organization. Would you be motivated if you were in that position?

2. Most people do not really understand how the work of some of their colleagues is essential to, or, at a minimum, contributes to the organization. Would you be collaborative if you were in that position?

3. People are operating under conflicts.

4. Many people are required to do tasks for which the reason no longer exists. People's intuition is always strong enough to feel it, but not always strong enough to explain it convincingly to their superiors.

5. There are gaps between responsibility and authority. You, like any other manager, know firsthand how frustrating it is to have something for which you are responsible to accomplish, but you do not have the authority for some of the actions that must be taken.

The Organization S&T tree follows similar rules to writing the Transformation S&T tree. One exception is that each step corresponds to a person. Level 1 is the President. Level 2 includes all the people who report directly to the President, and so on. Both types of S&T trees are needed for a company to successfully become and remain ever flourishing.

References

Collins, J. C. and Porras, J. I. 1994. Built to Last: Successful Habits of Visionary Companies. New York: Harper Business.

Goldratt, E. M. 1999. Goldratt Satellite Program Session 8: Strategy & Tactics. (Video series: 8 DVDs) Broadcast from Brummen, The Netherlands: Goldratt Satellite Program.

Goldratt, E. M. 2008a. The Choice. Great Barrington, MA: North River Press.