Potential Negative Branches and How to Prevent Them

Fear That "Focusing" Will Jeopardize Continuous Improvement Culture

There is a fear that focusing all scarce resources on a few high-leverage improvement opportunities will jeopardize the establishment of a culture of CI and even result in inertia or complacency for those not directly involved with the few high-leverage changes.

Organizations such as Toyota and Walmart have shown that it is possible to encourage everyone to contribute continuously to improving the processes for which they are responsible unless the proposed change to improve a local process will adversely affect organizational performance (in which case it will not be approved) or where the proposed change will require scarce resource allocation (in which case the change initiative should be planned and then "pipelined" until the necessary execution resources are available).

We should continuously improve all areas where local improvement will enable an improvement of the organization as a whole. For example, Toyota is continuously encouraging all employees at all levels to find ways to reduce waste, as long as the reduction will help reduce the total time from receiving an order until the cash is received or will reduce unnecessary truly variable costs, Operating Expenses or Investments, without jeopardizing Throughput, total lead time, or quality.

Fear That We Will Have Too Much/Too Little Because of a Change

A key part of preventing "local optima" and of ensuring that "non-constraints" do not become bottlenecks (especially during times of growth) is the understanding of the concept of "good enough." The normal claim is that if you want more Throughput, better performance, etc., then we need more resources. All managers should ensure that their areas perform at a level of good enough (to meet stakeholders' commitments), which means allocating not too much but also not too little resources, time, or stock. TOC recommends that the best way to establish this "good enough" threshold is to carefully manage the stock, capacity, and time as buffers needed to protect organizational performance and to monitor the status of these buffers. If the buffer goes into the black (e.g., no stock, no available capacity, or past due) or goes into the red too frequently, it is a sign that the "buffer" is too small and needs to be increased. At the same time, if the buffer never goes out of the "green zone" (typically one-third of the total buffer size), then it is not only safe to reduce the buffer, but necessary to prevent waste.

FIGURE 15-16 Using buffer penetration to maintain "good enough" levels of stock.

An example of this mechanism to maintain the right stock levels (not too much and not too little) within the TOC for distribution solution is illustrated in Fig. 15-16.

This same principle can be applied to establishing the "good enough" level for any local capacity, stock, time, or even cash buffer needed to protect and improve organizational performance. Start by putting in place a starting value using the "Be paranoid but not hysterical rule" (e.g., we need three designers to meet current demand). Then establish the buffer zones, normally using one-third for each zone (e.g., 1 person = each zone), and then simply monitor the penetration of the buffer. If frequently all three resources are utilized on important and urgent work, then it would be prudent to add more resources. If frequently two or more resources are not needed on important and urgent work, it probably is safe to reduce the team without jeopardizing Throughput. Of course, with a TOC mindset, we should always check whether excess capacity could not be turned into a competitive advantage (to secure higher prices or more sales) before considering reducing the excess capacity.

Summary of "What to Change to?"

Figure 15-17 summarizes the main direction of the solution to break each of the three continuous improvement conflicts. Organizations can use TOC's BM to identify when to change (when buffers have significant red or black zone penetration) and when not to change (buffers remain in the green or yellow). Organizations can use the 5FS of TOC together with the relevant TOC TP to differentiate between all the many parts that can be improved from the few that must be improved (now). Finally, organizations should ensure that all change initiatives are pipelined based on available capacity and that changes that do not achieve the required rate of improvement should be stopped or modified to get back on track.

FIGURE 15-17 The TOC injections to the when, what, and how CI conflicts.

How to Cause the Change?

Typical Implementation Obstacles and How to Overcome These

Why More Organizations Are Not Adopting a Systems Approach

The logic and results that have been achieved by organizations and individuals that have used TOC's systems approach or systems thinking are compelling. However, we should ask, "If this way of thinking and this way of improving organizations is as good as they say it is, why don't more organizations use it?" Well, the typical response to this question from systems thinking/TOC experts normally includes an answer like ". . . because most organizations naturally resist change." In addition, if asked, "How do you know that this is the main reason?" they are likely to answer, "We know most organizations resist change because most organizations have not yet adopted systems thinking/TOC." This answer is, of course, a tautology in the same way as saying that the reason why customers use our products is because they like them and then explaining that the way we know that customers really like them is because they use them!

Russell L. Ackoff (19192009, an American organizational theorist and Professor Emeritus of Management Science at the University of Pennsylvania, Wharton School of Business, and one of the pioneers in the field of systems thinking) was one of the first authors in the field to try to answer the question:"Why do so few organizations adopt systems thinking?" (2006). In the article, Ackoff stated that he believes there are two reasons-one general (why organizations in general do not adopt any ideas that are considered paradigm shifts) and one specific (specifically why organizations find it difficult to adopt systems thinking). He claims that in most organizations (and in the minds of most people) failure or making mistakes are a bad thing. People would rather make errors of omission than errors of commission. This tendency is then perceived as "resistance to change," but it really relates more to the fear of the possible failure (or even lack of success) of a proposed change. Moreover, considering how many of the past changes in organizations were considered failures or were stopped before completion, it makes sense that most people will feel it is safer to not (fully) support any new change, especially ones considered "radical."

The specific reason, Ackoff claimed, that blocks organizations from adopting systems thinking is simply that there is a knowledge and experience gap especially on the "how to." Most systems thinking (and probably most TOC) education programs cover only the "what" and "why" but not the detailed "how to." Giving students and managers theories and success stories without showing which of their specific assumptions about reality will have to change and not providing practical ways (methods, tools, systems, etc.) to apply these theories make them impractical. This does not mean that most of the required logic, methods, and tools don't already exist. It simply means that education and general awareness, yet again, lag the innovation and field experience that is being obtained by the growing number of practitioners of systems thinking (McDermott and O'Connor, 1997) and growing number of TOC practitioners.

Both the general reason and the specific reason postulated by Ackoff provide a reminder that any change initiative should ensure not only that the principles behind the change are well communicated and understood, but also that these principles are backed up by practical methods (the how to) and concrete examples of how to apply the principles on a daily basis. Without such "actionable information" and a culture that encourages experimentation and ongoing analysis of both successes and failures to continuously improve our understanding of cause-effects (what Senge [1990] called "creating a Learning Organization"), we should expect that the adoption of changes, especially radical changes or counterintuitive changes like TOC and systems thinking, will be resisted.

Enterprise Resources Planning System Does Not Support POOGI Process Such as Buffer Management

Enterprise Resources Planning (ERP) systems do not normally have functionality to support BM (recording reasons of why orders go into the red or black and providing Pareto analysis on the most significant contributors to delays or lost Throughput). However, it has been shown (e.g., Barnard, 2009, using SAP at ABB) that it is possible to relatively easily build this functionality using standard reporting tools included in most ERP systems if the company is using the TOC solution for Production (DBR/S-DBR and BM). However, if the company were using Critical Chain Project Management (CCPM) to manage operations, third-party CCPM software with BM functionality would be required.

Using TOC to Focus and Accelerate Lean and Six Sigma Initiatives

The methods, mindsets, and lessons learned from the failures and successes of TPS/Lean, TQM/Six Sigma, and other improvement philosophies in achieving and sustaining CI have been in the public domain for a long time. And although there are many that successfully applied these principles and methods to their organizations, there is still a large failure rate of change initiatives, even when done under the auspices of a company-wide Lean, Six Sigma, or Balance Scorecard implementation. There are three types of mistakes frequently made in using improvement methods such as Lean or Six Sigma: 1. Selecting the largest local variation, performance gap (actual versus potential), or largest time delays (waste) rather than those with the largest impact on overall organizational performance for improvement.

2. Selecting easy, solvable problems (to achieve local efficiency, incentives, or certification).

3. Selecting problems that match our toolkit (TOC also suffers from this).

The primary departure of TOC in dealing with these three mistakes (from the continuous improvement mechanisms of TPS/Lean and TQM/Six Sigma, etc.) is that TOC does not support CI of every process. It recognizes two basic characteristics of complex systems: 1. Since constraints and non-constraints exist, more is not always better. Improving a specific non-constraint's performance above the level of "good enough" (i.e., the level of protective capacity required to ensure it does not negatively affect the constraint) will not only waste scarce resources, but can also even result in system performance decay.

2. Due to the nonlinearity of the interdependencies, a small local delay, variation, or gap in one part can cause a large system delay or performance variation or gap and vice versa.

Therefore, TOC puts the focus on continuous improvement of the system by focusing improvement on the constraint and those non-constraints that are performing at the level below "good enough," that is, resulting in poor exploitation or lack of elevation of the system constraint. The TOC-focusing mechanism of tracking those parts whose performance is causing most of the "black" or "red" buffer statuses will ensure the excellent tools of TPS and TQM aren't wasted on improving all parts that can be improved, rather than the few that must be improved to achieve more goal units now and into the future.

No wonder that more and more of the organizations that previously used only Lean or Six Sigma or a combination, are now sharing their intentions or results already achieved in using TOC as the primary focusing mechanism for their improvement initiatives10 and as the mechanism to prevent the three mistakes listed previously.

As an example, Sanmina SCI, a large semiconductor manufacturer in the United States reported (Pirasteh, 2007) that it did a study on 21 of its factories over a 2.5-year period to measure the results achieved using only Lean (4 plants), only Six Sigma (11 plants), and TLS (Theory of Constraints as the focusing tool for Lean and Six Sigma) (6 plants). The results were staggering. Although each plant contributed toward the total savings, the six TLS implementations contributed 89 percent of the total savings. This meant that the results of a Lean or Six Sigma implementation could be improved by a factor of 15 if focused in the right area (on the system constraint or non-constraints that limit better exploitation or elevation of the system constraint).

Other examples of the leverage that can be achieved by implementing TOC after Lean and Six Sigma include the following: Delta Airlines (Mays and Adams, 2007) reported that despite implementations of Six Sigma (1999) and Lean (2000), they filed for Chapter 11 bankruptcy. In 2006, they started with their TOC implementation within their Maintenance and Repair Organization and within less than 12 months increased Throughput by 25 percent, reduced turn-around-times (TAT) by between 10 and 40 percent and increased revenues by 20 percent, without an increase in OE, making a significant contribution to the successful turnaround of Delta.

Warner Robins Air Logistics Center reported that after a successful Lean implementation they reduced their TAT on the maintenance of the C5-Galaxy from 390 days to around 240 days between 2000 and 2005. After implementing TOC, they managed to reduce it to 170 days within less than 6 months (another 30 percent reduction).

Seagate Technologies (Zephro, 2004) had completed over 4700 Six Sigma projects, reported $1.2 billion in savings, and trained over 8000 employees as Green, Brown, and Black Belts by 2004. However, a review of their Six Sigma projects and feedback from stakeholders made them realize that the DMAIC11 analyze stage lacked a strong effect-cause-effect tool, the DMAIC improve stage didn't have an effective tool for solution development, the DMAIC improve stage didn't have a method to resolve conflicts, generally projects took too long to complete (average 6 + months), and Belts did not have a way to prioritize and mine projects. To solve these problems, Seagate introduced the TOC TP to supplement the DMAIC tools. The results have been impressive: Project approvals increased since they are more focused and they have more clearly stated problems and solution paths that include how all stakeholders will benefit. They also reported less resistance to buy-in for proposed solutions and faster and more successful project completion (project completion rate increased by 80 percent, number of projects completed increased by 70 percent). Graduating Transactional Belts voted Current Reality Tree (CRT), Future Reality Tree (FRT), and Evaporating Cloud (EC) the most useful Six Sigma tools in every wave since introduction.

Not only TPS/Lean and TQM/Six Sigma are benefitting from the focusing mechanism of TOC. Researchers, using other improvement methods such as Business Process Reengineering (Al-Mashari et al., 2001), Agile Management for Software Development (Anderson, 2003), Activity-Based Costing (Vergauwen and Kerckhoffs, 2009), ERP Software Implementations (Barnard, 2001; 2009), and Balanced Scorecard (Breyfogle, 2008), are starting to present case studies on how the use of TOC as the "systems or holistic approach" enables achievement of faster and more significant improvements and reduces or prevents the past high-failure rates of powerful methods wasted on local optima. These results show to what extent TOC as a focusing mechanism can unlock inherent potential.

Using TOC's S&T as a CI and Auditing Tool

Introduction to TOC's S&T TP

The introduction by Dr. Eli Goldratt and coworkers (2002) of a "new" TOC-based TP called a Strategy and Tactic (S&T) tree is being viewed by more and more executives and managers who have been exposed to it, as one of the most important breakthroughs in ensuring that holistic business or organization strategies are defined, properly validated, communicated, and implemented to achieve harmony within organizations. The S&T tree, they believe, can for the first time provide them with a practical process and logical structure for defining and communicating all the necessary and sufficient changes as well as the sequence of implementation of these changes to achieve more goal units for the organization-not just what to change but, more importantly, what not to change, and especially how to implement the changes and why.

As with many breakthroughs, this breakthrough started with a simple question by Goldratt (Goldratt et al., 2002): If "strategy" is really at the highest level of an initiative or organization and defines the direction that dictates all activities, and "tactics" are lower down in an initiative or organization and define the activities that are needed to implement the strategy, then where does "strategy" end and "tactics" begin?

Goldratt realized that answering this question required that the words "strategy" and "tactic" had to be defined more clearly than before. His new definitions were inherently simple, yet powerful. He decided to define "strategy" as, simply, the answer to the question:"What for?" (The answer is the objective of a proposed change.) "Tactic" is defined as, simply, the answer to the question "How to?" (The answer is the details of the proposed change.) From these definitions, it is clear that every strategy (What for?) should have an associated tactic (How to?) and therefore strategy and tactic must always exist in "pairs" and must exist at every level of the organization.

FIGURE 15-18 Traditional versus Goldratt's definition of S&T.

Figure 15-18 shows the implication of the changes to the definitions of strategy and tactics proposed by Goldratt.

Goldratt's proposed Strategy and Tactic tree (Goldratt et al., 2002) therefore can be viewed as simply a logical tree of the proposed changes that should be both necessary and sufficient to ensure the synchronized achievement of more goal units for the organization. However, any logical tree is only as valid as the assumptions on which it is based. Therefore, it is the responsibility of managers at every level in the organization to not only contribute to defining and communicating the strategy and tactic for each proposed change, but also to define and communicate the logic of the proposed change. This includes, why the proposed change is really necessary to achieve the higher level objective and ultimately the goal of the company, why they claim it is possible to achieve the objective (strategy) of the change (especially considering it has probably never been achieved before). They must then address why they claim their proposed change (tactic) is the best or even the only way of achieving the strategy of the change, and finally, the advice or warning they would give to their subordinates to ensure the sufficiency of the implementation of the proposed change.

Each S&T node in the S&T is therefore simply a proposed change that should answer: 1. Why the change is needed (Necessary Assumption)?

2. What the specific measurable objective of the change is (Strategy)?

3. Why we claim the strategy is possible and what specific requirements, potential negative branches, or obstacles must be considered when selecting from the alternative ways (tactic) for achieving the strategy (Parallel Assumptions linking Strategy with Tactic)?

4. How to best achieve the objective of the change (tactic); for example, what changes should be made to processes, policy, IT systems or measurement?

5. What advice or warning should be given to subordinates, which, if ignored, will likely jeopardize the sufficiency of the steps they would take to implement this tactic and which is likely to be ignored (without the warning) (Sufficiency Assumption)?

FIGURE 15-19 S&T level 4.11.5 for achieving a process of ongoing improvement.

Figure 15-19 shows how the S&T can be used to define and communicate the necessary change to "Achieve a Focusing Mechanism for Process Improvement/Capacity Elevation" by explicitly answering the questions of: 1. Why the change is needed (necessary assumptions), 2. What the specific measurable objective is for the change (strategy), 3. Why the objective is possible and why the tactic is the "best" way (parallel assumptions), and 4. How (the new procedure for implementing the change).

The most recent update on the applications of TOC's BM as a POOGI can be found in the generic S&T trees12 released by Goldratt. The relevant POOGI parts of the S&Ts for manufacturing companies, distribution companies, and projects companies are included in these generic S&T trees. Each of the POOGI processes typically have three components: (1) recording reasons for red and black buffer status, (2) conducting a Pareto analysis on reasons for identifying the primary causes of delays/unavailability, and (3) developing and implementing improvement projects (e.g., Kaizen events) to address the primary causes of delays/unavailability.

TABLE 15-6 Engines of Disharmony versus Engines of Harmony

Using the S&T Tree to Achieve Harmony within Organizations

How much of this knowledge is defined properly, documented, communicated, and systematically validated/invalidated within a typical organization? Field experience shows that very few organizations, if any, have taken the time to develop their business strategy and tactic to this level of detail. Unfortunately, there is a price to pay for managers and employees at all levels for not being able to answer these simple questions for their area of responsibility. The price you pay is the risk of what Goldratt, in recent public events, has called "disharmony" in the organization. Goldratt identified five "engines of disharmony" that make achievement of CI culture and harmony within any organization difficult and to which a well-defined and communicated S&T can provide the engines of harmony (Table 15-6).

Using the S&T to Monitor Execution

Edison's famous quote, "Vision without execution is a hallucination," is a reminder of the simple fact that without follow-up and follow-through, we will not get the desired results.