The TOC Analysis Process Does Work within the Public Sector

During the 5-Day Constraint Analysis Workshops in the InWEnt project, the TOC expert team showed that with a simplified TOC-based conceptual model-the Constraint Analysis and Solution Development Process-we could, despite the added complexities and uncertainties of the public sector, achieve the objective of getting all stakeholders to agree, in five days or less, on the answers to the fundamental questions of Why Change, What to Change, to What to Change, How to Cause the Change, and How to Measure and Continuously Improve.

There Really Are Similar Types of Core Conflicts and Constraints for the Same Type of System

The expectation after the first workshop with City A was that we would find very similar, if not identical, core conflicts and constraints elsewhere because the same (erroneous) rules were used to manage these systems. This expectation was validated as the process was rolled out to the other three cities. The only observed deviation is when additional stakeholders (e.g., politicians) are introduced. This adds one more core conflict (for that stakeholder) that needs to be broken. We will soon get to a point where "analysis/discovery" becomes more of a "validation" against known causes and solutions. Already, after the second workshop (when we proved that the same generic core conflicts existed), I could hand over the facilitation to a cofacilitator, something that would not be possible so quickly if a "new discovery" was needed each time.

It Is Possible to Train-the-Trainer with the New Simplified TOC Process

One of the major concerns after the first successful five-day workshop in City A was whether someone else could take over the facilitation, especially someone without years of TOC experience. The realization, therefore, that we really did identify generic core conflicts at City A was very good news, since the scalability of this type of initiative is to a large extent governed by the availability of experienced TOC experts (that can identify new patterns) that are also good facilitators-a resource that is generally quite scarce. By showing that the major emphasis will move to validation rather than analysis and discovery, it meant that good facilitators could be trained relatively quickly through "train-the-trainer" programs especially if we can provide such facilitators with detailed Strategy & Tactic trees. Nevertheless, working in the multi-stakeholder environment of the public sector requires facilitators who are sensitive and understand and accept the specific dynamics and decision-making structures.

Successful Implementation Requires Follow-Up and Follow-Through

In order to be sustainable, Capacity Building on the municipal level requires (like any important change initiative) active follow-up (prioritization and monitoring progress) and follow-through (identifying and overcoming implementation obstacles) by both stakeholder representatives and for example the TOC experts. This process should go together with enhancing the national financial institutions' capacities to identify and prioritize investments in basic infrastructure that also follow constraint oriented thinking. The same is true for the national development plans. We also learned that the change management process needed to transform a dysfunctional system into a functional system can take longer than the normal term of the local governments' leaders. This implies risks of discontinuity that can even stop the process. The multi-stakeholder steering committees that have been established in the participating cities have been trained in TOC thinking and are supported by local TOC junior experts capacitated during the project. They are an important element that contributes to securing long-term sustainability of the process. These Steering Committees are crucial and should be constituted by "self-selection" by all participating stakeholders at the end of the 5-Day Constraint Analysis Workshop. This committee should be responsible for prioritization and monitoring progress (i.e. serve as the Program Audit Committee), institutionalizing the new changes and help contributing stakeholders identify and overcome implementation obstacles. Through these projects, it has also been shown that S&T can be used as an effective internal and external auditing tool and for testing key assumptions around necessity, sufficiency, and sequence.

The Importance of Finding and Sharing "Pockets of Excellence"

The pockets of excellence that do exist within the solid waste management units and private contractors and community-based enterprise must be identified and leveraged. This is important both to provide benchmarks that can be turned into best practices for rollout as well as to provide a way to quantify the inherent potential that can be unlocked if we can move from competing for survival to collaborating for success.

The Key Is Finding Out How to Change and Then Sustain The Desired Behavior

In May 2005, an article appeared in Fast Company titled "Change or Die" where the author, Alan Deutschman said that, "All leadership comes down to this: changing the behavior of people." He claimed later in a book by the same title (Deutschman, 2007) that in the United States, 80 percent of the healthcare budget was consumed by five behavioral issues (smoking, drinking, eating, stress, and too little exercise) by a relatively small percentage of the population. This has been known and validated by science for many years. Still, the way to change these fundamentally damaging behaviors are still escaping policy-makers and doctors, even to the extent that most people when faced with the decision to change (their lifestyles and behaviors) or die, they end up making the wrong decision by not changing.

In managing organizations, we know that people at all levels find it hard to change. Their awareness of the negative consequences of not changing and/or the benefits of changing is seldom sufficient to trigger the necessary change. This is mainly due to an awareness and often, an over exaggeration of the potential negatives of changing or benefits of not changing. For successful changes to occur, we need to affect the psychological, emotional, and spiritual dimensions, not just thought. Helping people to reframe the concepts that influence their thinking is the key. This is done by creating a new narrative that's simple, easy to identify with, and emotionally resonant.

TOC, if used properly, can play such a role as it can help stakeholders consider all four aspects (the positives and negatives of changing as well as the positives and negatives of not changing) related to a change in a holistic way. The analogy of focusing all stakeholders to contribute to strengthening the weakest link is a simple, easy-to-identify-with concept, and if combined with the commitment from all stakeholders that winwin-win is the only sustainable solution, can provide the emotional resonance to inspire contribution.

Where Are There Still Gaps or Complexity in the TOC Roadmap and Process?

Feedback from the InWEnt and UNDP projects reminded the team that there are two important steps in the analysis, which should not be skipped: 1. Recognize past achievements (but then show the large current and future gaps remaining and the consequences on all stakeholders of not closing it).

2. Validate the impact of current/planned strategies (that is, can they help break core conflicts/constraints and how will T, I, and OE be impacted) or will they be in conflict with the new strategy? To release the necessary capacity and/or prevent conflicting priorities, these existing programs should be listed and reviewed on the last day since frequently they fall into the category of "what should be STOPPED so we can START doing what is really needed now."

If either (1) or (2) are not done, the workshop will not achieve its objective of reaching full consensus and commitment from all stakeholders on Why Change, What to Change, What to Change to, and How to Cause and Measure the Change to Close the Gap.

Future Research

As mentioned before, managers within public sector organizations, like their counterparts in the private sector, know that the fact that we reach full consensus on what needs to change and how and by whom the change will be implemented does not mean it will be done. To ensure proper execution, we need a mechanism to enable managers at all levels to follow-up and follow-through. Edison's famous quote, "Vision without execution is a hallucination," is a reminder of this simple fact of life.

One way to ensure that good ideas are turned into results is to capture the outcome of a TOC analysis workshop in the powerful S&T format, described in Chapter 15, and then to go one step further by using the S&T tree to develop the implementation plan and manage and monitor execution. Figure 16-14 shows one of the S&Ts created in Harmony (www. goldrattresearchlabs.com) by the InWEnt/TOC and Waste Management expert team for a Solid Waste Management project.

Holistic TOC Implementation in the Private Sector

Where the public sector is typified by bureaucracy, the private sector is typified by competition and immediacy. Companies prosper from their ability to innovate and renew. As soon as a for-profit organization achieves significant levels of profitability, competition will enter the same market sector. All for-profit strategies contain two simple requirements: 1. Defend what you have for as long as possible. Traditionally, this is achieved through intellectual property rights, embedded technology, skills that are difficult to replicate, and price manipulation.

2. Change and improve more rapidly than competitors. Again, this is achieved through successful technology, R&D, mergers and acquisitions, and product or service enhancements.

Before the advent of TOC, the ability to manage change itself as an explicit and discrete strategy had rarely been considered to be the key to rapid and sustained business growth.

It is frequently easier to focus on the first option highlighted above because most of the variables are known, costs can be calculated, and outcomes are fairly predictable. The second option is more difficult to execute and inherently more risky. However, only the second option ensures long-term prosperity. Therefore, the rate of improvement is the crucial variable in long-term success.

We advocate a new frame of mind: one where the process of change in itself becomes the central and accepted function of management. This is not about incremental change, but about large, system-level step change. Top managers who understand this have the greatest potential of success. This type of change is not easy to do because it involves significant work and risk, but has the potential to deliver impressive results as described in the case of First Solar Inc.

FIGURE 16-14 Example of a public sector SWM S&T created in harmony.

The Birth of First Solar Inc.

First Solar's origins can be traced back to the oil crisis in the 1970s. At that time, a well-known American entrepreneur, the late Harold McMaster, realized the need for low-cost renewable energy to mitigate the risk of fossil fuel supplies. With his experience and financial success in glass production and related manufacturing equipment, Harold rounded up 57 investors to fund Glasstech Solar in 1984. He wanted the investors to help fund his vision of producing solar panels so efficient that 2000 square miles of solar panels located in the Arizona desert would satisfy the entire United States' need for heat and light.

In 1987, with the sale of Glasstech holding company, Harold kept ownership of the solar business. With 47 of the original investors and $11.5 million, he continued to pursue his vision. Based in Toledo, Ohio, the company focused on a unique photovoltaic semiconductor process-that of depositing thin-film semiconductor on a glass substrate. The initial focus was on amorphous silicon as a semiconductor but, by 1990, after burning through $12 million, the company was running out of money.

Under pressure from Jim Nolan, Vice President of Operations, Harold decided to change course. Glasstech Solar became Solar Cells Inc. (SCI) and Harold offered to pay back any of the investors who wanted out. He raised another $12 million and started again with a relatively unknown and risky photovoltaic semiconductor material-cadmium telluride (CdTe). Cadmium telluride had an ideal band gap, a simple structure, required no doping, produced films that bonded well, was tolerant to impurities, and could be constructed from mostly readily available materials. The crucial missing piece was the ability to manufacture CdTe solar panels in large quantities at a low cost. Given that the entire global demand for solar panels was only 125 megawatt (MW) at that time, the strategy to develop large-scale manufacturing capability was a huge gamble in the face of proven and established crystalline silicon technologies. To put that in perspective, the 2008 demand for solar was 5950 MW. Racing against time and very significant cash constraints, Jim Nolan and his team invented a unique and innovative Vapor Transport Deposition technology that provided the breakthrough to large-scale manufacturing. By 1993, the company had built a pilot production machine, driven by a flurry of technology breakthroughs. Cash was so tight that employees bought discarded school furniture at auction to use as office furniture.

In contrast to Harold's 500-MW dream plant, Jim wanted to commercialize the technology as soon as possible. Trying to find buyers for a completely new technology in a market that still considered photovoltaic energy a curiosity proved a real challenge. By 1993, the plant was producing 0.2 MW per year-a far cry from Harold's 500-MW vision. By 1995, five of the seven key managerial and technical staff had resigned, considering SCI too risky to sustain a career. Harold sold yet more shares, forced to buy most of them himself because the high level of perceived risk deterred even the most daring investors.

By 1998, SCI had burned through $35 million without turning a profit. Time was running out.

Despite living on the ragged edge of failure for so many years, the dream came to life again when the company reached a new milestone-the production of a 60.3-W module with 8.4 percent efficiency. They knew there was gold at the end of the rainbow.

By 1999, the lone manufacturing line was producing 20 panels a day, still fraught with quality problems. Adding to the systemic risk was the demise of BP Solar, the only other major company that had been working on commercializing CdTe. It dealt a huge blow to investor confidence and left SCI as the lone entity in the United States and a dark future.

Enter True North Partners, a private equity firm backed by the late John Walton, son of Sam Walton, the creator of Walmart. Mike Ahearn, a partner at True North, saw the long-term business potential in thin-film solar technology and convinced John Walton to invest in SCI, providing some $10 million in operating capital.

The investment opportunity was made interesting by the following: Semiconductors were manufactured without the use of clean rooms.

The manufacturing process was self-contained and end-to-end.

Widely available materials were used other than for the semiconductor itself.

The manufacturing process was low cost and easily scalable.

With the new investment in the now-named First Solar came Mike Ahearn's hard-nosed business skills and relentless drive for bottom-line results, which unfortunately did not fit well with the pioneering culture of "turning knobs and seeing what happens."

Management found it difficult to adapt to True North's expectations and, in 2003, True North Partners bought out the entire shareholding, gaining full control of First Solar's destiny. From that moment on, the company blasted off on its meteoric rise, culminating in its inclusion as an S&P 500 company in 2009.

One of the first actions Mike Ahearn took was to assemble and integrate a superb top management team. This entailed the painful hiring and firing of managers until the best team was in place. To bring discipline to experimentation with manufacturing processes, Taguchi's Quality Engineering approach was introduced. To reduce process variation, Six Sigma was introduced, and to maximize Throughput, TOC was introduced. This was executed under the leadership of the new COO, George "Chip" Hambro.

As the manufacturing process matured, the constraint moved to the marketplace. In November 2002, Kenneth "Ken" Schultz joined the company as Vice President of Sales and Marketing. Having worked with John Walton in another company in the past, Ken was faced with the task of finding a market for the avalanche of solar panels that now started pouring off the much-improved manufacturing line.

The company had been searching for new applications for solar panels, including solar-powered refrigeration and similarly powered water pumping installations, but none had demand that would match First Solar's growth objectives. As luck would have it, two events on the other side of the world were about to change First Solar's destiny forever.

The German federal government introduced legislation to provide financial incentive for the use of renewable energy. This triggered extraordinary interest and growth in the use of renewable energy, including photovoltaics (PV), just as First Solar's low cost, high volume manufacturing process was coming to life.

The second event was the demise of Antec Solar after multiple bankruptcies. That company had been the only other solar panel manufacturer using CdTe as its semiconductor material. That left First Solar as the only company able to manufacture low-cost solar modules in large volumes. Trade press banner headlines described First Solar as "The Last Man Standing," predicting that the CdTe technology was all but dead.

This helped detract potential competitors from developing the same technology, opening up a precious window of opportunity where First Solar could perfect its low-cost, highly automated manufacturing technology.

With the advent of the renewable energy feed-in tariff, a number of project development companies also emerged in Germany. They found the large-scale project development opportunities, and coordinated the finance, site permitting, and construction. Their entrepreneurial, high-risk culture meshed well with that of First Solar, and First Solar forged close ties with key players to secure a strong foothold in the nascent market.

Throughout the period of torrid growth, Mike Ahearn steered the corporate strategy by three simple rules: 1. Set goals that were clear, measurable, and challenging.

2. Systematically identify and remove constraints that prevent the company from achieving those goals.

3. Drive execution excellence.

This simple, but by no means easy approach had a profound impact. It resulted in the exponential growth of annual manufacturing capacity from 25 MW in 2005 to more than 1000 MW in 2009, a 40-fold increase in four years.

The increase in capacity was matched by a commensurate gain in output as shown in Fig. 16-15. The leftmost vertical axis represents annual module production, while the rightmost vertical axis represents module efficiency. The horizontal axis is the period from 2001 to 2007.

Mike Ahearn also re-engaged Jim Nolan, the stalwart VP of Operations from the early days, appointing him to the First Solar Board of Directors to secure access to his deep knowledge and understanding of the company. Throughout this time, John Walton remained a committed provider of capital, investing some $165 million up to the IPO in November 2005. That investment turned into a public company with a market capitalization of some $12 billion.

By 2009, sales had grown to $1.2 billion and net profit had grown nearly 10-fold. The First Solar management team gained the respect of Wall Street, with its enviable record of delivering on its promises. One analyst wrote: "I have gained much more appreciation for the caliber of First Solar's management team. This company has executed at an extremely high level and is well prepared to face future challenges."

One Merrill Lynch investment analyst figured out what was really contributing to this enviable track record. In an investor note dated June 2009, he wrote: Corporate philosophy revealed Mixed in with the roadmaps on cost/watt and conversion efficiency at the analyst meeting were telling indications of First Solar's business approach. Although financial performance eventually dictates stock price, our view is that financials are a lagged reflection of philosophy, strategy, and execution. Management's goal of building a company to last 50 to 100 years may seem like hubris but is the right approach for an early leader in a potentially huge market.

FIGURE 16-15 Exponential growth of First Solar's annual Throughput.

Theory of constraints explains corporate actions Management alluded a few times to using a "Theory of Constraints" in running the business. Theory of Constraints is a management approach introduced by Dr. Eliyahu Goldratt in 1984 that says organizations can be measured by Throughput, Operating Expense, and Inventory. The company's acquisitions and other actions have been aimed at removing constraints throughout the solar value chain.

What follows is a description of this remarkable holistic application and implementation of TOC.