Eli Goldratt talked about management attention being the ultimate constraint in any organization. His reasoning was simple – there are more things that can be done by management to improve the business than they have capacity to do. So the rate of on-going improvement in the business is determined by this precious capacity.
Where does a leader spend their time? Mostly in leading change. Envisioning a new reality and taking actions to move the organization closer to this reality. There is creativity involved in growing and managing a business. On one hand a leader has to force change. On the other hand a leader has to create stability. Most often leaders address this dilemma by adopting the structure of an “initiative” to cause the disruption. An initiative is a focused roll out of changes to achieve a goal. This structure allows changes to be organized, managed and measured, while leaving other elements of the organization running in a stable fashion.
There are different kinds of initiatives active in an organization – some focused around cost reduction, others focused around reorganization, some IT projects and few on ways to increase revenue. These initiatives place a special burden on management attention. The more holistic they are the more they need to be managed in an integrated way by the very top leadership of the organization. This allows leaders to imprint their thinking on the organization.
But there is a problem – there are often too many of them. And they do not get the attention it takes to make anything succeed. They get delegated down and as a result, often watered down.
The question is why does this precious commodity get wasted? Why cannot focus be maintained while an organization absorbs changes big and small? How to structure the management process around the portfolio of initiatives so that the most valuable are done and others are stopped or sequenced out?
Why does an organization get into a situation where there is too much going on and management attention is spread thin- here are some of the typical situations
- The good problem– There is an abundance of opportunities and it is hard to say no.
This is the “good problem” every organization wants to have. The organization is doing so well that opportunities abound. To capitalize on these opportunities requires initiatives. Different people in the organization see the opportunities differently. This creates conflict if the selection is narrowed. Leaders fear politics and embrace “all of the above”. It is seemingly not possible to say no, the result is too much going on.
2. The bad problem – Cost reduction has become necessary and despite the abundance of initiatives the committed results are not sufficient to achieve business goals
For example the company needs to reduce its labor costs by 10%. The best possible cost reduction initiatives will do is reduce the cost by 5%. The remaining gap adds urgency to doing all the planned projects, doing them urgently while continuing to look for new projects to bridge the gap. This keeps the organization in a constant state of overload as every idea needs to be considered and no existing initiative can be cancelled. Costs are everywhere and surely “a penny saved is a penny earned”. This situation leads to a proliferation of initiatives.
3. The ugly problem – There is pressure to reduce the silo behavior.
Silo behavior is every leaders nightmare. There is more leadership energy spent shaping behavior of the management team. Getting people to be collaborative and open. This is a hard problem because the organization is intrinsically built to create silos. Accountability, responsibility, measurements are set up to divide and conquer. This conflict is an endless source of initiatives. IT systems to increase visibility and make decisions more globally aligned. Reorganization to resolve local vs global conflicts. Team building, creating vision, articulating mission, embracing values. All valid attempts at raising people out of their silos and aligned more closely with the global. But the result is too many initiatives all competing for attention.
Addressing the underlying problem of too many initiatives is critical in all circumstances “the good, the bad and the ugly”- when the going is good, when it is not and when the culture is stagnating with silos. The problems cannot be ignored but needs different thinking to solve them.
Solving the good problem
Eli gave us a comprehensive way of evaluating the value of ideas. The basic definition of value
“Value is created by removing a significant limitation for the customer, in a way that was not possible before, and to the extent that no significant competitor can deliver.”
Using this definition creates a filter that helps focus energies on a few offerings.
For example in TOC we have the good problem. There are so many applications – DBR, CCPM, Supply Chain and Distribution, Retail, MRO, Thinking tools, Innovation, IT, the list goes on and on. All of these remove a significant limitation, they provide a true breakthrough. But the proliferation of opportunities dilutes the attention of people trying to bring TOC to the mainstream. What to focus on? How to simplify the message?
What is the limitation that only TOC can remove? I think practitioners and students of the subject will agree that it solves the local vs global problem in a far better way than any other option. Transforming operations, transforming culture and transforming deeply held beliefs in people. It creates a way for people to unleash the potential of local performance in the interest of the global. This is where Eli ended up – emphasizing the breakthrough of TOC thinking as a way to truly transform culture.
Solving the bad problem
The bad problem is being in a state where cost is the only way to compete and the cost structure is too high. In this situation companies run the risk of pursuing phantom cost savings and getting into a death spiral.
Let us consider a simple case of a company trying to reduce costs.
The classic example is a company that uses cost accounting logic to drive costs down. It focuses on Make vs Buy decisions. It compares the cost of doing work with the burdened rate of employees to the rate available in the market. Where ever the outside rate is better work is outsourced out. But internally the only savings are the direct salaries of people who lose their jobs. Typically the overhead does not change significantly. If the direct salaries are lower than the money being spent outside, we have the phenomenon of Phantom Cost savings. The more such decisions are made, the more the burdened rate increases creating a Death Spiral of increasing costs, increasing complexity and increasing conflicts (not having conflict resolution other than the courts enforcing contracts should stop companies from going down this path. But that is a separate post in itself).
One of Eli Goldratt’s oldest ideas is the idea of making decisions based on the impact on Throughput (T), Inventory (I) and Operating Expense (OE). This system of making decisions is in contrast to the traditional approach using cost accounting. In the above situation using the Throughput Framework the plan to reduce cost would be to increase flow internally and driving Inventory down and Throughput up. Selling the additional capacity in segmented markets at a competitive price. It would be to bring in work rather than send work out. Sharp contrast to the traditional approach.
Using the TOC Throughput Accounting and decision making framework it is critical to reduce the options around cost reduction and launch fewer but better initiatives.
Solving the ugly problem
The true limitation TOC removes (not completely but certainly to an extent that no significant competitor can match) is the silo problem. The silo problem typically creates pressures for reorganization or more integration through IT or other leadership initiatives.
Reorganizing does not address the root issue. Silos are created because of confusion between measurements and goals. When there is a gap and there is always a gap it leads to local decision making that is suboptimal for the whole. What is necessary is to create a culture of focus on the flow, on the purpose of the organization and the value it delivers to its customers. Of course in a clearly articulated reality but equally in the mechanics of execution – policies, measurements and agendas that force the right attention at the right time.
IT too does not solve the problem. Presenting people with information based on local efficiencies and cost accounting rules only increases the silo mentality. Making the problem worse. Here there is an urgent need to embrace IT which is based on TOC principles. Built to support the language and decisions of the particular organization.
Exploiting Management Attention
Management attention is the constraint to both the current success and future growth of the organization. It is the ever present constraint not because of the good problem or the bad problem- which are a function of the conditions an organization finds itself in, but because of the ugly problem that every organization struggles with. This is the reason for TOC to exist and why it must enter the mainstream. This is the reason for a full change in paradigm from reductionist to holistic. This is the reason to shift from the Cost world to the Throughput world.
The method to solve the management attention constraint is holistic TOC. The mode of implementing is through a Portfolio Selection and Execution process around management initiatives. Putting such a process in place opens the opportunity to execute these initiatives with the discipline of flow. An entry point to resolving the most important problem for almost every organization.
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