Dr. Alan Barnard and Raimond E. Immelman

Introduction.

This chapter provides a historical perspective on the need for a holistic approach to implementing Theory of Constraints (TOC) as well as sharing the experiences and insights of two TOC experts (Dr. Alan Barnard and Ray Immelman), each with many TOC implementations behind them, through two case studies of holistic TOC implementations-one from the public sector (solid waste management in African cities) and one from the private sector (First Solar Inc.).

Historical Perspective to Holistic TOC Implementations

Most people are introduced to TOC through reading The Goal (Goldratt, 1984). A common question by readers after reading it is, "How can we replicate in our organization Alex Rogo's achievements described in The Goal?"

Since The Goal was first published in 1984, the application and implementation of TOC have resulted in thousands of success stories from almost every imaginable industry and type of organization. The facts related to most TOC implementations are very impressive.

Almost anyone who tries implementing TOC achieves results.

Results are normally very impressive, frequently above what was assumed to be possible.

Results are normally achieved within a very short period.

Most of the time, almost no real additional costs or investments are needed.

Copyright 2010 by Dr. Alan Barnard and Raimond E. Immelman.

Considering these assertions, considering the pressures most organizations are under to do more in less time with the same or less resources, and considering that many large organizations today already have one or more success stories of TOC within their own organization or at least within their industry, one would expect that more organizations would be attempting to implement TOC and especially attempt to implement TOC in a holistic way.

Unfortunately, most of the past successes are from implementing TOC in only one or a few parts of the organization. Such "local" implementations always carry with them significant risks and lost opportunities (as shown by a few cases of TOC success stories that did not stand the test of time1), which include: 1. Implementing TOC in an area (non-constraint) where the improved level of performance is already at a "good enough" level and therefore an improvement in this area, will not translate into more goal units for the organization.

2. Improving a constraint to the level where the constraint moves to another link in the chain, and then being forced to cut "excess" capacity in the TOC link most likely killing any further continuous improvement initiatives.

3. Not capitalizing on improved performance of an area by turning it into a competitive advantage that can get customers to pay more or buy more (just a 1% increase in sales volume or average selling price from such a competitive advantage can result in a 10% or 20% increase in net profit) 4. Not reapplying TOC's Five Focusing Steps (5FS) when the constraint moves or not elevating non-constraints to keep the constraint in the same place.

Goldratt himself, as far back as the late 1990s, started sharing his concerns about the fact that in his view, most TOC implementations are not holistic and reminded TOC practitioners and consultants that the real goal was not simply to make more money or achieve more goal units, but as per the subtitle of The Goal, the real goal was to put organizations on "a process of ongoing improvement" (POOGI) and ultimately turn them into "ever-flourishing organizations (the desired outcome of a Holistic TOC Implementation)."

However, how do you put a whole organization (not just Operations, Distribution, Engineering, or Sales) on a POOGI and do1 it in a way where the implementation of all the win:win:win changes is synchronized to achieve both ongoing exponential performance growth, value, and improved stability/security for all stakeholders?2 As it turns out, answering this broad question was a bigger challenge than anyone had ever imagined. No wonder that in order to develop the first answer to it, it took Goldratt, with the assistance of hundreds of dedicated TOC experts and practitioners, an additional 15 years of work from the first publication of The Goal.

The Goldratt Satellite Program

In December 1999, Goldratt invited managers around the world to join him for a series of eight satellite broadcasts to share his insights on overcoming this challenge. In these sessions, Goldratt (1999) promised to share not only the essence of each of the TOC solutions, but also what he believes are the main obstacles standing in the way of a holistic implementation of these solutions.

Goldratt claimed that the obstacles have little, if any, relation to the type of industry to which an organization belongs, to its economic environment, or even to its size. Most, if not all obstacles have one thing in common: they are all human-related, psychological obstacles. Goldratt believed that identifying these obstacles and designing a process to overcome each of them successfully was the key to implementing TOC in a holistic way.

In the eight sessions, each session dealing with a different part of the organization and therefore a different TOC solution, Goldratt presented the answers to three questions. The questions were: What to Change, to What to Change, and How to Cause the Change. The sessions included the TOC way of managing Operations, Finance and Measurements, Product Development and Engineering, Distribution, Marketing, Sales and Achieving Buy-In, Managing People, and finally the TOC way for developing a constraint Business Strategy to synchronize the implementation of all the TOC applications.

For those organizations that participated in this global initiative, Goldratt shared his own insights and the experiences of organizations that attempted to implement TOC in a holistic way through a series of 14 letters titled "POOGI Forum Letters" (Goldratt, 1999b). In Letter 12, Goldratt directly addressed the challenge of "How to Implement TOC Holistically?" and referred again to the "X-Y Syndrome" (covered in Letter 8) which describes the dilemma of "X" (the department that used TOC to improve) when the constraint moves to another department ("Y").

The X-Y Syndrome of Local TOC Implementations

Goldratt argued in Letter 8 that organizations faced a major dilemma in embarking on a holistic approach. In order to improve the performance of an organization continuously, the management of that organization must move the organization on a holistic approach, which requires them to start with a confined TOC application. At the same time, to improve the performance of an organization continuously, the management must not start another "short-lived" program, which requires them not to start with a confined TOC application.

Goldratt proposed that the way to break the conflict was to challenge the assumption that "the only way to start a holistic approach is to start with a local project." However, where should we start?

In the section which is the most receptive?

In the section which is the most representative?

In the section which is the constraint?

Goldratt warned that none of the above answers are valid due to the X-Y Syndrome. He challenged managers to think about what happens to a part or link that is managed according to a holistic approach (X) while the rest of the organization (Y) is managed conventionally. (See Fig. 16-1.) It is clear that even if X was the constraint initially, soon their improvements will be blocked by another upstream or downstream link (Y) since the significant improvement of "X" (e.g., Operations) will create major pressure on "Y" (e.g., Procurement, Engineering, Sales, or even Marketing). When Y fails to improve its performance, "X" will start feeling frustrated and will start fighting the entire system or chain. In most cases, this will be a losing battle.

FIGURE 16-1 The X-Y Syndrome-who will win?

Since reality has shown that although possible, it is unlikely that X's improved performance from applying the TOC/holistic approach will inspire other upstream and downstream links to follow suit, the question is where or maybe how to start with the implementation of a holistic approach such as TOC?

Goldratt proposed that rather than start with a local implementation or pilot (starting a holistic approach with a local implementation is an oxymoron), why not start by involving all key stakeholders to devise a holistic strategy for the organization?

The "4 4"-First Attempt at a Process to Launch a Holistic TOC Implementation

To implement TOC holistically throughout an organization requires two important paradigm shifts. The first relates to the inherent potential that can be unlocked in most organizations and within each function of the organization simply by changing the rules from the traditional way or Cost World3 to the TOC way or Throughout World.

The second paradigm relates to the importance of people and the fact that it is possible, with the right approach, to turn resistance to change into an active contribution to change, as long as the change makes sense and as long as it is based on a win-win-win solution.

Goldratt recommended that a holistic approach to implementation should start (if possible) with exposing key stakeholders to these two necessary paradigm shifts through understanding the TOC solutions for each link and then guide stakeholders to use the insights gained to devise a winning strategy for their organization, backed up by prudent tactics all laid out in a detailed action plan that must be achieved with the consensus of all stakeholders.

Moving the organization on a holistic approach in this way, Goldratt argued, could potentially break the conflict of where to start, since the first "local project" will simply be the first step to implementing a holistic strategy for the organization.

However, Goldratt warned that to reach "true consensus" it is not enough that each top manager agrees on the outcome, or that each top manager feels that his or her concerns (at least those that are important and urgent) have been adequately addressed. To ensure that the resulting action plan will be aggressively implemented, each top manager should rightfully feel that his or her contribution is vital and that the outcome is his or her baby; that is, all top managers take full ownership and responsibility to make this work.

However, Goldratt warned that a number of obstacles could block such an objective: The strategic direction concentrates only on one side of the existing conflict (local versus global optima or short- versus long-term).

The strategic direction is nothing but polishing an existing compromise such as focusing on further reducing process cycle times when the major cause of delays is batching of orders.

The suggested tactics are based on prevailing erroneous assumptions such as improving efficiencies is the best way to reduce cost per unit.

To overcome these obstacles and achieve the full objective of developing a holistic strategy for the organization, Goldratt proposed a new process-the 4 4.

The first "4" refers to 4 days where management, through the assistance of a TOC-expert facilitator, would gain a deep understanding of all the major cause-and-effect relationships governing the organization. They would be exposed to the prevailing erroneous assumptions within each of the main functions of the organization and become familiar with the common sense solutions (of TOC) stemming from a holistic approach.

Goldratt also warned against obstacles that could derail achievement of the outcomes for the first 4-day session. He cautioned against: The tendency to jump ahead (working on a solution when there is not yet agreement on the problem).

The dominant person (who makes it difficult for others to contribute).

Lack of discipline in formal logic (accepting any reservation or idea without challenging it).

To overcome these obstacles and to ensure there is a true consensus on the holistic strategy that needs to be implemented, Goldratt proposed the second "4"-4 days invested into doing a full TOC Thinking Processes (TP) analysis on the organization to achieve consensus on What to Change (Day 1), to What to Change (Day 2), and How to Cause the Change (Day 3), with Day 4 as a buffer.

Goldratt proposed the following steps (following the three-cloud approach as presented in Chapters 24 and 25): To reach true consensus on "What to Change?"

1. Each individual contributes the biggest undesirable effects (UDEs) that exist in his or her area of responsibility with respect to achieving the organization's goal (or closing the gap).

2. Each individual presents his or her conflict cloud that blocks them from removing their UDEs.

3. The group reaches the generic or core conflict cloud (the deepest conflict blocking growth and stability for the organization as a whole of which all the other UDE conflicts are just examples of) for their organization.

To reach true consensus on "to What to Change?"

4. The group exposes the erroneous assumptions underlying the generic conflict cloud.

5. The group identifies the direction of the solution that could break the generic conflict cloud.

6. Each individual applies the direction of the solution to his or her UDE conflict cloud to generate specific injections (to remove their specific UDEs and to prevent possible negatives on any stakeholder related to the new solution).

7. The group adds the missing injections to the main direction.

To reach true consensus on "How to Cause the Change?"

8. Each individual contributes obstacles that might block the implementation of the injections.

9. Each individual turns his or her obstacles into intermediate objectives.

10. The group builds the roadmap showing the dependencies between all the injections and intermediate objectives.

11. The group translates the roadmap into an implementation plan with each action assigned to a specific manager, together with estimated duration, etc., from which a Critical Chain plan can be built.

A significant number of organizations followed Goldratt's advice and started their journey to implement the TOC holistic approach with the 4 4 process. The 4 4 process seemed to work where other approaches failed because it helped overcome some obstacles that other approaches could not (Kendall, 2001). However, reports from TOC champions and supporting TOC experts made it clear that there were still many obstacles blocking organizations from implementing the necessary and sufficient changes to put their organizations on what Goldratt called "the red and green curve" of exponential growth (red curve) and improved stability (green curve).

One of the major remaining obstacles was how to get the owners/executives of the company to become the internal champions for the TOC implementation a necessary condition for both a holistic and sustainable implementation of TOC.

The Viable Vision Initiative

In November 2002, Goldratt wrote in a letter, "When I do an analysis of a company I am somewhat satisfied only when I clearly see how it is possible to bring the company to have, in less than four years, net profit equal to its current total sales." In 2003, Goldratt, rather than keeping the vision to himself, shared it with company owners, executives and senior managers around the globe, not just the vision, but also the reasons why he believed this incredible vision was viable for most organizations. Many company owners and executives responded positively to Goldratt's invitation to partner with the Goldratt Group and other TOC providers to validate if such an incredible vision was possible for their organizations.

This provided an excellent research opportunity to develop further the process to help organizations develop a business strategy that is based on building, capitalizing, and sustaining a decisive competitive edge by satisfying customers' important needs to the extent that no significant competitor can and also for learning how to really turn company owners and executives into the internal champions to personally drive the execution of the business strategy.

Since 2003, many lessons have been learned, not only how to increase the probability of achieving and sustaining the desired growth and stability for organizations, but also what changes in the process and solution design should be made when applied to different types of organizations. At the same time, we know that we are in no way there yet. Every time we experience an inconsistency between what we expect and what happens in reality, it provides us with a valuable opportunity to develop and test a new hypothesis of what it will take to really put an organization on the journey toward an ever-flourishing organization.

Using TOC's Strategy and Tactic Tree to Guide Holistic Implementations

One of the important lessons learned by studying what worked well and what did not work well within the Viable Vision projects specifically and within other holistic TOC implementations was the need for a mechanism to define, validate, and communicate all the necessary and sufficient changes needed for achieving growth and stability as well as the sequence in which these have to be implemented. Goldratt realized this challenge could be solved with the Strategy and Tactic (S&T) tree, a TP tool he invented in the 1980s but formally documented in 2002 (Goldratt, Goldratt, and Abramov, 2002).

In 2006, Goldratt started investing time into developing generic S&T trees for the types of organizations that can turn a TOC logistical implementation into a decisive competitive edge. The intent of these S&Ts was not only to provide a mechanism to capture all the latest "how-to" knowledge related to each of the TOC applications, but also to prevent the two most common mistakes in holistic implementations (Ackoff, 2006): Errors of Commission (doing what should not be done) and Errors of Omission (not doing what should be done).4 However, is there a "one-recipe-fits-all" or simple roadmap that organizations can follow when considering implementing TOC in a holistic way, especially considering the differences between types of organizations and differences between organizations from the public and private sectors?