The Theory of Constraints (ToC) challenges you to build your company to last – to be ever flourishing; your performance consistently improves, even during challenging times. Your people are happy in their work. Your customers are delighted with your offer. You invariably select the ‘right’ strategic goals – building a successful differentiator and a structure to capitalize on it long-term. Your organization’s people, policies, and practices are aligned with your strategic objectives. The organization is dynamic, constantly pushing to improve its performance.

The principles embodied in the Ever-Flourishing Company (EFC) are to create an organization that will endure, providing long-term security for its stakeholders and societal benefits and informing managers’ strategic thought and actions. They provide leaders with a framework that they can use to create successful strategies and tactics without compromise. Finally, it solves two of the biggest problems for strategists, picking the right objectives and resolving internal conflicts and contradictions.

The principles embodied in the Ever-Flourishing Company (EFC) go beyond mere success; they describe an enduring organization that is a beacon of long-term security for stakeholders and delivers significant customer benefits. These principles are the guiding light for visionary managers, providing a framework that empowers them to craft winning strategies and tactics without compromising their integrity. By embracing the EFC, you unlock the solution to two of the most daunting challenges strategists face: the ability to set the right objectives and the capacity to resolve internal conflicts and contradictions.

In this world of the Ever-Flourishing Company, the possibilities are infinite, and the rewards immeasurable. Escape from mediocrity by embracing the power of the EFC and transform your business into a force that shapes the future.

Four pillars support the Ever-Flourishing Company:

1. A process of ongoing improvement (the organization is constantly driving towards the goal – more now and in the future)
2. At least one Decisive Competitive Edge (the organization has an offer, difficult for competitors to copy, that creates significant and sustainable results for customers, which in turn provides them for the company)
3. Avoids operational risk (the organization offers security for their employees and stability when the market is uncertain)
4. It breaks the Engines of Disharmony (the organization actively works to align authority with responsibility, removing contradictory rewards)

Moving the Organization Closer to Its Goal – A Process of Ongoing Improvement

A ToC strategy embodies the relentless pursuit of ever-increasing performance, a concept famously coined by Eli Goldratt as the Process of Ongoing Improvement (POOGI). But this is no ordinary endeavor; it goes beyond mere operational activity—it’s a strategic imperative. With a systematic approach, visionary leaders forge ahead, developing, implementing, and measuring strategic initiatives that yield extraordinary outcomes.

The Strategic Objective of Improving Performance

Improvement is the driving force of an EFC, encompassing much more than mere efficiency and small wins. It represents a deliberate, resolute journey toward the organization’s ultimate goal. The POOGI is an unwavering commitment to identify and shatter the strategic constraints holding the organization back.

By embracing a POOGI, improvement becomes ingrained in the organization’s DNA; it becomes a way of life. It’s not about sporadic bursts of change; it’s adopting a culture of constant evolution and relentless adaptation.

Green Curve & Red Curve Improvement Paths

The EFC requires both baseline soundness and continuous improvement. The green curve symbolizes the foundation of stability and harmony, while the red curve represents continued improvement.

 The presence of the green curve is necessary for the existence of the red curve; both are essential for organizational success. The EFC strategy is to achieve significant improvement while maintaining stability.

Success requires stability; if it is not already present, the first step is creating it. If your organization’s processes are unstable, there is little room for management attention to improve; managers are caught up in the day-to-day business activity. Put another way, we can’t focus on fire prevention while we’re fighting fires.

A Decisive Competitive Edge

An organization must build a Decisive Competitive Edge (DCE) to get on the red curve. A DCE exists when a company has a decisive, sustainable advantage over competitors.

A Decisive Offer

Decisive means providing customers with unique, meaningful value that competitors cannot easily replicate. A decisive offer is not simply “better” than others; it uses an organization’s operational abilities[1]still far away, indicating that operational excellence with ToC solutions can be the DCE.

It could be changing the product (its physical characteristics or performance), how customers engage with the product, how and when you collect payment for orders, or how the customer receives the product’s benefits—for example, superior supply reliability with penalties that compensate the customer if you don’t keep your delivery promises. 

This offer is decisive in two ways; one, in some markets, few companies deliver 98% on time, and two, few managers will bet they can consistently provide that result. A decisive offer has a superior benefit while blocking competitors from duplicating it.

A Sustainable Offer

An offer is sustainable when it does not stretch or stress the organization to provide it. It can deliver the decisive offer repeatedly without sacrificing its performance in other aspects. For example, lowering prices to gain more sales could create more work with less profit. Entering a new market that requires significant additional capability introduces operational risk. 

The offer doesn’t need to be new, splashy, or expensive (although solving a significant customer problem could be considered splashy). Instead, having a decisive, sustainable offer can be (and has been) created with any of the solutions of the Theory of Constraints.

Avoiding Operational Risk

To move into the growth phase of the red curve, a company must establish operational stability by effectively managing risk. Operational risk is the potential loss due to ineffective or failed internal processes, people, systems, or external events that can disrupt business operations.

Maintaining Adequate Capacity and Reserving Capabilities

The organization’s resource demand fluctuates, causing periods of both under and over-utilization. Managers may optimize labor costs when demand is low by balancing staff levels with demand. Unfortunately, this approach often results in staff layoffs. However, the Ever-Flourishing Company anticipates market variation with strategies that eliminate the need for large-scale layoffs, retaining its skilled workforce even during slower periods. Better planning saves them from incurring the costs of rehiring and retraining new staff when demand eventually picks up again.

The Ever-Flourishing company excels at this by avoiding the trap of over-committing its resources and using its competitors as a buffer (not capturing all of any market they are in). When an organization operates at nearly 100% utilization, operational performance declines, leading to unpredictable and inconsistent outcomes. This inconsistency will negatively impact customer satisfaction, and unreliable suppliers will force customers to seek alternative sources. Even worse, switching costs can prevent customers from returning; even a short-term decline in operational performance can have a long-term effect on future sales. When the company has all (or nearly all) of a given market, any fluctuation in demand affects it.

Financial Support for Operations

If operational risk is anything that exposes an organization to loss of profits, then financial leverage would qualify as such. Debt allows for increased return on investments by increasing asset turnover. Still, it increases risk: (1) debt means future expenses and cash demands- principal and interest, (2) developing new capabilities is not free, and (3) there is uncertainty in the market’s response to a new capability. The EFC uses debt cautiously to build or acquire capabilities only after considering other ways to create new competencies.

Engines of Disharmony

In the early 1980s, Dr. Goldratt recognized a significant obstacle to improving factory performance – conflicting incentives or performance measurements. At that time, he stated, “The goal of a plant is to make money, and the measurements we are seeking should measure progress towards that goal. We have seen that cost accounting measurement [of productivity] not only doesn’t measure real progress towards that goal but provides a disincentive.” Executing the OPT (Optimized Production Technology) software schedules contradicted the commonly held beliefs about lot sizing and setup costs. Managers were often unwilling to follow the software’s recommendations. He wrote The Goal: A Process of Ongoing Improvement to overcome these widely held beliefs. “They flew in the face of accepted policies and procedures, but they were obviously correct…at least to me.”, he later wrote.

In the late mid to late 2000s, Yuji Kishira, a leader in applying and teaching the ToC, trained and led the implementation of the concepts of Critical Chain Project Management (CCPM) in many companies in Japan. He noted that managers considered the results in improving human relations and harmonious workplace culture (in Japanese, Wa) more significant than the financial results they achieved. This outcome led to the realization that the true power of the ToC is not the ToC solutions but the solution’s ability to remove the Engines of Disharmony. Goldratt then realized that the foundational element of creating the ever-flourishing company was to improve human relationships. And the obstacles to improving them were the “Engines of Disharmony.” These engines cause conflicting behaviors between individuals and between organizational units (departments).

Managers have long thought that silos in organizations are problematic, but the Engines of Disharmony go deeper than isolated information and warring departments. Silos are not the problem; they are the symptom of the problem. The Engines of Disharmony also lead to conflict between individuals inside and outside an organization. Goldratt stated, “You cannot have an ever-flourishing company with broken relationships…The most important thing in the success of the company is human relationships.”

The ToC eliminates (or reduces) significant sources of friction (the thing that drains most managers’ time) to get things done. Most managers are fighting ‘fires’ caused by friction—the friction they had (inadvertently) created.

The causes of consistent friction are compromises between seemingly necessary conditions, Core Conflicts. A core conflict is a more profound problem – beyond guidelines and methods; for example, short-term versus long-term, centralized versus decentralized, process versus results.

What Goldratt did was identify and name the engines of disharmony. He verbalized them this way:

1. “What is my contribution? Many times, an employee’s effort and its effects on the organization are not specifically connected. Where there is no vision, the people perish. People need to know that their work has value and purpose. If my work doesn’t matter, then why should I make any effort?
2. What is my peer’s contribution? Most people don’t know how many of their colleagues’ activities are essential or at least contributing to the organization. Would you be collaborative if you were in that position?
3. Conflicts. People are operating under conflicts, which may be the results of 1 and/or 2, “making the right decision for my company vs. the right decision for my measures.”
4. Inertia. Many people are required to also do tasks for which the reason no longer exists. People’s intuition is always strong enough to feel it, but not always is it strong enough to convincingly explain it to their superiors.
5. Gaps between responsibility and authority. You, like any other manager, know firsthand – how frustrating it is to have something you are responsible for accomplishing, but you do not have the authority for some of the actions that must be taken to get it done.”

The presence of these engines means that the organization needs to resolve at least one core conflict.

Improving relationships as a path to improved results may seem obvious, but collaboration and teamwork are ephemeral for those who seek measurable causes and effects (what gets measured gets managed). How do you directly measure and thus influence collaboration or better workplace cooperation? We can’t observe all behavior, but we can observe the effects of compromise.

The organization’s architects, its managers, (inadvertently) build engines of disharmony and allow conflicts to exist in their organizations. The biggest obstacle to the EFC is the acceptance of organizational conflicts.

Summary

In conclusion, the Ever-Flourishing Company (EFC) presents a robust framework for building a business that withstands the test of time. By embracing the principles of the EFC, visionary managers can craft winning strategies and tactics while maintaining integrity and creating enduring organizations. The EFC approach revolves around four pillars: a process of ongoing improvement, a decisive competitive edge, avoiding operational risk, and eliminating the engines of disharmony.

The process of ongoing improvement (POOGI) is not just about improving operations but a strategic imperative to continuously and purposefully move the organization towards its goal. It involves developing, implementing, and measuring strategic initiatives to achieve extraordinary outcomes and break through strategic constraints.

A decisive competitive edge (DCE) is crucial for sustained growth. It involves providing customers with unique, meaningful value that is difficult for competitors to replicate.

Operational disruptions can kill the business, and the EFC approach focuses on avoiding such risks. The organization can ensure stability despite market fluctuations by maintaining protective capacity, reserving capabilities, and carefully managing financial leverage.

The engines of disharmony, conflicts and contradictions within an organization, hinder success. The EFC fosters collaboration, teamwork, and harmony within and outside the organization by addressing and eliminating core conflicts.

By adopting the EFC framework, businesses can achieve continuous improvement, establish a decisive competitive edge, mitigate operational risks, and promote harmonious relationships. This approach empowers organizations to create a lasting strength that defies mediocrity.

Bibliography

Goldratt, Eliyahu, (1983), Cost Accounting: The Number One Enemy of Productivity, APICS International Conference Proceedings,

Goldratt, Eliyahu, (1996), My Saga to Improve Production, APICS – The Performance Advantage (USA) Vol. 6, No. 8, pp34-37

Goldratt, Eliyahu, (2002), TOC on Strategy and Tactics, Theory of Constraints a self-learning Program, Goldratt’s Marketing Group

Goldratt, Eliyahu, (2008), The Ever-Flourishing Company – Part One, https://www.youtube.com/watch?v=fv7SCRNZggk

Goldratt, Eliyahu, (2008), The Ever-Flourishing Company – Part Two, https://www.youtube.com/watch?v=ij71X6cxv-I&t=158s

Kishira, Yuji (2009), WA Transformation Management by Harmony, North River Press

Barnard, Alan, (2010), Continuous Improvement and Auditing, in Cox and Schleier (eds), Theory of Constraints Handbook (pp 403-454), McGraw Hill

Barnard, Alan, (2003), New Developments and Innovations in the Theory of Constraints Thinking Process, Conference Presentation at TOCIO Cambridge, UK

Holt, James R. and Boyd, Lynn H., (2010), Theory of Constraints in Complex Organizations, in Cox and Schleier (eds), Theory of Constraints Handbook (pp 983-1013), McGraw Hill

Goldratt, Eliyahu, (2011), Above and Beyond the Competition: A Conversation with Eli Goldratt, Goldratt Consulting, https://vimeo.com/169617632

Cox III, James F., Lynn H. Boyd, Timothy T. Sullivan, Richard A. Reid, and Brad Cartier, (2012), The Theory of Constraints International Certification Organization Dictionary, Second Edition, https://www.tocico.org/resource/resmgr/dictionary/tocico_dictionary_2nd_editio.pdf

S. Patrick Viguerie, Ned Calder, and Brian Hindo, (2021), 2021 Corporate Longevity Forecast, Innosight, https://www.innosight.com/wp-content/uploads/2021/05/Innosight_2021-Corporate-Longevity-Forecast.pdf

Goldratt, Eliyahu, (2011), Never Say I Know, the Tangibility of the Green Curve, The Theory of Constraints International Certification Organization 2011 Conference Proceedings Presented by Lisa Scheinkopf

[1]  Interestingly, some companies built their DCE on operational excellence (i.e., reliable delivery or quick response); years later, their competitors are still far away, indicating that operational excellence with ToC solutions can be the DCE.

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“Truth is ever to be found in simplicity, and not in the multiplicity and confusion of things.” – Isaac Newton

The Theory of Constraints. What sort of management strategy is that? Who calls a management approach a “theory”? And “constraints”; isn’t that the same thing as a “bottleneck”? If you’ve read Eliyahu Goldratt’s book, The Goal, then you know that the theory of constraints is just a dressed-up scheduling system. And a derivative one, at that.

You may have heard or thought these comments yourself.

The Theory of Constraints (ToC) might be these things, but it is more than that. ToC, while being a collection of insights and procedures, is also an approach to understanding and designing systems. From its beginnings as a shop floor scheduling system it evolved to a holistic approach to develop and implement strategies for organizations.

Let’s start with the definition; the Theory of Constraints. Often, the word ‘theory’ used synonymously with unproven. That’s not the meaning here. In the scientific realm, a theory explains how things work, as in, the Theory of Relativity. A theory is only “proven” in terms of its logic and experiments, but it’s useful – until something better is found; it generally works in the real world, not just in the abstract. The Theory of Constraints explains how systems work. All systems have constraints, yet they are often unidentified. Especially in complex systems where it seems the ‘Constraint’ is constantly on the move.

ToC processes apply the approach of the hard sciences to the “soft” social sciences. It attempts to employ scientific rigor to organizational (social) problems and behaviors to better understand how systems behave and solve long-standing problems.

In the hard sciences, the simplest solution is often the correct one. Scientists are trained to use Occam’s Razor; The principle that states that one should not make more assumptions than the minimum needed. It is the underpinning of all scientific theory building. In the same way, ToC searches for the “inherent simplicity” of system behavior; the fewest assumptions or causes, for the most effects.

In scientific inquiry, one observes a certain behavior or effect. Then, asks “why”. “Why did that happen?”. To understand the cause, the scientist creates a hypothesis that explains the effect.  Then, to test the hypothesis, predicts other effects that must also be present if the hypothesis is correct. If the other effect(s) are observed, the hypothesis is strengthened. This doesn’t mean that it is “correct”, but only “strong. Goldratt said (paraphrasing here) “The true test of a good hypothesis is, that when the hypothesis and causal linkages are presented, the audience must say ‘It’s obvious!’”.

In the same way, the Theory of Constraints is a strong theory strengthened by numerous experiments. However, just as any theory changes with new knowledge, so does ToC. This may seem unsettling for those who are looking for a recipe. Goldratt and his fellow developers of ToC never looked for a particular recipe, even though many were found. They were and are looking for something deeper. An understanding.

The germ of ToC could be found in Goldratt’s ideas for scheduling factories.  He used those concepts to build software that scheduled factory production. In the adoption of his ideas, he ran into obstacles, finding policies that were preventing successful implementation. So, he wrote The Goal, to explain the ideas behind the software (the drum-buffer-rope procedure). However, even though these were successful, they were leading to the next constraint, and the next, and the next. The theory of constraints has evolved from scheduling, to cost accounting, to performance management, to sales, to projects, to strategy.

ToC approach to systems recognizes that we do not live in a world of deterministic outcomes, but rather, of probabilities – ranges of outcomes. We recognize that “Murphy” lives (statistical fluctuations) and we make decisions with this in mind. Uncertainty surrounds us. There is a kind of randomness or chaos built into the universe. Therefore, our solutions and decisions must be characterized by the calculation of differing outcomes that are determined by circumstances beyond our control. From the random crash on the highway that makes us late to our meeting to a decision by OPEC ministers on oil production quotas that ripple through the world’s economies. We should not kid ourselves that we are fully in control of our own or our firm’s destinies. ToC provides an approach and tools to cope with that uncertainty.

There are ample documents and books on the procedures of ToC. What is not well documented is how to put them in a strategic framework. Let’s begin with the fundamental assumptions and build from there.

Strategy is Not…

Strategy is not a new idea or a product like the new iPhone or electric cars. Nor is it a list of improvement projects to reduce costs or open new markets. It’s not an aim or mission like winning the war, being the market leader, or solving world hunger.

A strategy is a theory of the organization. A statement of who is the customer (a profile of the market), their need and those that are unmet. It defines the capabilities, products and methods that will meet those needs. A strategy is not necessarily holistic, it can be narrowly or broadly defined, depending on the organization. It could be a strategy of product offerings—soda vs, “healthy” drinks or sedans vs. trucks. It could be strategic, creating a new segment as Apple did with the iPhone and Southwest Airlines did with low-cost no-frills air travel.

Strategy is not a Plan

A strategy differs from a strategic plan in that the strategy focuses on the outcomes, and the plan is how to achieve those outcomes. It helps an organization focus the energy, resources, and time of everyone in the organization in the same direction towards a common goal. It provides focus and impetus to move from idea to action. It is the formalized road map that describes how your organization executes the chosen strategy; the plan is not the end; it is the means to the end. It’s a map.

Strategy is…

Often, the term ‘strategy’ is synonymous with ‘plan’. Porter posits that strategy is a verb; the creation of a unique and valuable position, involving different set of activities. This becomes the guidance for all activities of the organization. Action, supported by solid arguments.

We can boil a reasonable interpretation of the meaning of strategy down to one thing; doing the things that increase value for the entity, however the entity defines ‘value’.

Criteria for a Good Strategy

In view of this, we can conclude that a “good” strategy:

• Drives the organization closer to its goal. There is enough “meat on the bones” to push the organization into some action towards achievement of the goals of the organization.
• Provides security for the people in the organization; the strategy should strengthen the firm’s position and security, and thus its people.
• Provides satisfaction for other stakeholders. Any strategy that violates stakeholder terms cannot be sustained, and thus violates the first criteria.
  • Customers must be satisfied with the product or service.
  • The community should be enhanced, or at least not harmed.
• Promotes sustainable results; it should build on the organization’s strengths and be self sustaining
• Is robust – allows growth even in times of volatility in the company’s domain or market

ToC verbalizes these criteria in this way:

• Build a decisive competitive edge (DCE). Decisive in that the competitive advantage is far better than other firms’ abilities or capacities. Implied is that other firms cannot or will not duplicate this unique facility. It is like the traditional concept of competitive advantage, except that the DCE is based on solving significant customer problems created by the suppliers. For example, brands dictating a minimum order quantity or full truckload shipment policies that dictate large order quantities.
• And the capability to capitalize on it. A DCE is based on operational excellence (i.e., fast delivery, high quality, low cost, etc.), but that is not enough. One must have or build the policies, systems and processes to leverage these abilities in the marketplace. You don’t have to look far to see the failure of great products done in by poor marketing.
• On big enough markets. Not to be too obvious here, but we hope that if we go to the trouble of the previous two items, we would have a large enough market to make it worth our while.
• Without exhausting the company’s resources. We don’t want to “bet the farm” on any strategy, unless we must. We must leverage our existing resources, shifting them to the DCE strategy almost without effort.
• And without taking real risks. We could substitute the word “real” with “big”. The strategy should ensure stability through volatility; it should remain profitable, even during market turndowns. There should be no sacrificing of critical resources (no mass layoffs – low cost sacrifices) or selling off assets. It should ensure asymmetrical rewards (strong profits during growth, limited losses during downturns).

A ToC Strategic Approach

A ‘ToC strategy’ is built around the organizations’ constraint(s). The strategy would explicitly acknowledge the current constraint and contain the elements to either break or elevate that constraint, including the emergence of and breaking new constraints during the execution of the strategy. For example, if the constraint is the market, we would build the strategy around growing sales, navigating the (planned) changing location of the Constraint (i.e., internal capacity, distribution, back to the market, etc.).

Secondly, a ToC strategy built with the idea that the organization’s performance should be constantly rising. That improvement is a way of life for the organization, not bursts of change, but constant change. This gives rise to the concept of the Ever-Flourishing approach.

Third, a ToC strategy relies on innovation. Innovation is in removing a significant limitation to creating value. Value for your firm, value for partners in the supply chain, and value for the end customer.

Problems with Strategy

A successful strategy has at least three problems to solve: choosing the “right” objectives, developing a plan to realize them, and successful execution of that plan.

There is significant amount of research that show many strategic initiatives do not bear the fruit envisioned. Almost half of all strategic initiatives undertaken fail.

There are significant obstacles to strategic success. Planners often have incomplete information. For example, what buyers “truly” desire and their motivations. There are entire industries devoted to just these 2 questions!  Even among the experts, you’ll find that the strategic information is still not perfect, rife with wishes and bias.  I’m reminded of Henry Ford’s quote, “If I had asked people what they wanted, they would have said faster horses.”

Many strategies fall short because it’s difficult to understand what influences system behaviors. The customer, the competitors, even the organization itself are hard to analyze because of the number of variables and their relationships are difficult to identify and quantify.

Planners themselves are subject to bias and wishful thinking. They create strategies using untested assumptions and fill them with geographical and cultural biases. They hold on to the past, when they should be embracing the future. Think of Kodak’s reliance on film, even though they invented digital photography. Or Chevrolet’s introduction of the Nova in Mexico, where Nova literally means no go (No-Va). We are all subject to the “blindness” and bias. Recognizing it is the difficulty.

Further, strategy failures are tied to the lack of a theory of implementation.  To successfully execute an organization’s strategy, it must have a singular focus of the people (every person?) in that organization. A strategy is incomplete unless there are mechanisms to create, monitor, and reward that focus as it is expressed. Critical implementation questions such as, “How do we know if we’re on track?”, “Who is responsible for each element?”, and “When should we intervene or reevaluate the strategy?” must be answered.

Complex systems hide the relationships that matter to a successful strategy. Planners and executives are often domain experts, but sometimes lack the understanding of how the “system” works. For example, how a firm interacts with its competitors or the reasons why their products are chosen over their competitors. There aren’t many people that can provide a detailed operational map of how a firm delivers its strategic choices to the customer. And understanding how these two systems interact? Most planners are relying on intuition, not a rigorous analysis.

A lot of attention is given to the planning aspect of strategy with little attention to how to manage its execution. Often, the skills to successfully implement the strategy are absent from the strategy itself.  It’s hard to know what you do not know, so sometimes strategies fail because of lack of rigor in implementation planning.

Finally, no strategy can succeed with cross functional conflicts in the organization. Any strategy that has one silo “winning” at the expense of another is doomed.  Conflicting standards of performance, compensation, and rewards (informal & formal) will break any strategy.

What ToC Offers to Strategists

ToC offers a framework that overcomes many of the obstacles that break most strategic initiatives. Whether they are “correct” is a matter of judgement. And a set of tools to overcome many of the obstacles to creating and delivering a good strategy. 

The approach to strategy, with operational excellence as the foundation, then focusing on the problems (undesirable effects) that are inherent in the “standard” way of doing business offers a fresh perspective in arriving at a strategy that will cause success.

With the Thinking Processes (TP), you can analyze and deepen your understanding of complex system behavior, highlighting the cause-and-effect relationships and revealing hidden assumptions. This can go a long way to breaking the complexity obstacle, both in understanding the existing system’s behavior and predicting its future behavior, identifying risks in new strategies. Further, a significant feature of the TP is the ability to identify and resolve cross functional conflicts and establish congruent standards of performance.

To find a “right” strategy and its potential results, ToC recommends a rigorous analysis of the market using the thinking processes of the Current Reality Tree, Evaporating Cloud and Future Reality Tree.

Using the Strategy and Tactics tool provides a theory of implementation and a roadmap to develop the supporting tactics to successfully implement a strategy.

The most important feature of a ToC-based strategy is its focus on the most critical issues—the Constraint(s) and the uncertainty that affects them. The only strategy worth implementing is one that systematically breaks the limitations of higher performance and drives the organization towards its Goal.

Bibliography

Cooper, Marjorie, ToC handbook (2010), Traditional Strategy Models and the Theory of Constraints

Goldratt, Eliyahu, ToC handbook (2010), Introduction to ToC- My Perspective

Spender, J.C., Business Strategy (2014), Oxford Press

Michael E. Porter (2000), What is Strategy, Harvard Business Review

Goldratt, Eliyahu, The Gestalt of TOC (2010), YouTube https://www.youtube.com/watch?v=DQoO8y3En3w

Boston Consulting Group, (2014), Strategic Initiative Management: The PMO Imperative

Goldratt, Eliyahu, (1996), My Saga to Improve Production

Goldratt, Eliyahu, (2011), Building a Blue Ocean Strategy, http://toc.tv

Goldratt, Eliyahu, (2011), Goldratt Satellite Program Marketing – Unrefusable Offers and Market Segmentation

Rumelt, Richard, (2011), McKinsey Quarterly, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-perils-of-bad-strategy

Edinger, Scott, (2012), Three Cs of Implementing Strategy, http://forbes.com

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What does it truly mean? Does time equal money in my project?

If I lose time, I waste money? or If I delay, I get the money later?

If it’s the first definition, you are saying, money is like time. If I waste it, it’s gone forever.

If it’s the latter, you are saying that the delay causes a loss or missing opportunity (during the delay), never to be recovered.

Which is it?

As a practical matter, for a manager delivering a project or results, the main issues are waste and opportunity.

Is all time “wasted” truly lost? How do you know?

Managing Time

Most managers break their projects down into individual tasks with individual deadlines. Like this

Straightforward, isn’t it? Make a list of tasks, estimate durations, link them together and you have your sequence and completion dates. Day to day, your job is to keep those tasks completing on time. To deliver on time, meet all your dates. Don’t be late, each task is important, each resource is important.

Opportunity Time

The problem is that not all task sequences are the same. So, you manage the critical path; if you’re sophisticated, you’ll manage the critical chain. Certain sequences will dictate the overall duration of the project. You’ll give higher priority to one sequence over another.

Here’s the thing about time. By declaring one sequence of tasks more important than another, you are choosing some time to be more crucial than others. Losing time on a non-critical sequence is less important than on the critical sequence. Therefore, in some cases, time is not money. In other cases, time lost is a loss of a LOT of money; the value of the entire project!

During the life of a project, the manager makes tradeoffs between time now and time later. Completing the project delivers a certain value; the value of rental income for a building, the value of a new capability, the value of entering a new market, the value of a new feature, etc. Every project worth doing, is worth doing sooner.

When you’re the project manager, to make an educated decision, you must determine the value of a day. What’s a day worth? And, is the task on the critical chain (which is the shortest time to complete the project)? IF your task is on the critical chain your decisions could be very different than if your task decision is off the critical chain.

Time is Expensive?

You could argue that wasting time on the non-critical tasks costs money. Maybe.

Let’s pick a resource. Let’s say your engineer completes 2 tasks this week, but she can’t do more because she’s waiting for some information. The week before, she was much more productive, she completed 4 tasks. Does that mean that the week where 4 tasks were completed your expenses were lower? Your expenses change only when her pay changes. Only if she was paid less the week 2 tasks were completed. Time equals money only if the expense varies in direct proportion to the work delivered.

For most of us and for most resources, time lost does not equal money lost. People are not paid to produce work; they are paid to show up. The view of the enterprise is that expenses are a function of the number of people on the payroll, not the amount of work that is done. Payroll costs are fixed costs, not variable. Expenses are related to hiring decisions, not production. We can never say time = money when it relates to work, because expenses don’t vary with production. Time = money when look at how many people are on hire per day, week, month, etc.

So, time equals money, sometimes. Not all time is equal. Not all time is costly. Some time is worth a great deal. The cost of time is not the same as the value of time.

Most lost time is simply lost, because most resources are not on the critical chain. And that’s ok. Some lost time affects the critical chain and it’s not ok. What matters is the effect of lost time on the completion of the project, not the completion of an individual task.

The skilled manager must know the difference.

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You don’t see it coming until it’s too late. Everything was “green” until it wasn’t. All parts of the project were close to being on time. At least until they weren’t.
If you knew earlier, you could have made changes that wouldn’t be as costly and damaging to your customer relationships as the choices you’re making now.

That light at the end of the tunnel? Definitely a train.

So what to do?

Most project managers and executives assume that since the schedule showed the project was on time, it must have been a bad schedule that caused it. If we had planned better, we would have finished on time!

Well, maybe.

Projects are not abstract things, lived out in spreadsheets or software.

There is no such thing as a perfect plan, no such thing as a 100% accurate forecast. After all, who can predict the weather?

Here’s the thing. Uncertainty is What Makes a Project a Project. When we start the projects, we know many things we will encounter on the way to completion, but not every thing. That means surprises are a way of life in the project world. Any plan is made up of educated guesses about what will happen in the future. How accurate could they be?

Experienced project managers develop coping strategies: negotiating for more resources, disguising contingency, stakeholder management, risk management processes, increasing the amount of detail, frequent re-planning, and more. All of these are good to have, but they don’t get at the root of schedule variation; they’re coping strategies for the surprises that plague every project.

No matter how good you are at planning, you will never have a perfect schedule. You can make them better, but they will never be perfect. Improving your planning is not where you’re going to find the biggest opportunity. You be nimble during execution. If you’re not, your great plan will not matter anyway.

Let’s agree that your schedule will not be very good. How do you know if you’re in trouble? How can you quantify your nimbleness? How do you pull out of a bad situation?

The Early Warning Signs of a Project in Trouble

Project planning is a bit like time travel. Who knows what we’ll find there?

So rather than be the best forecaster, build the best time machine, the project delivery process. Your execution behaviors are the best predictors of project success.

While we can find opportunity in every plan (I started my career as a scheduler), look first at what the project team is doing.

• How they’re managing the project.
• How flexible are they?
• Do they respond quickly?
• Decisively?
• How are they responding to the day to day surprises that are presented to them?

There are behavioral indicators of whether your project will be on time. They can be observed, measured, and improved.

1. Focus on the future; what needs to be done, not what has been done
2. One team, one goal; the team members’ functional objectives are subordinated to project objectives
3. Task priorities are stable; they do not change from day to day so resources are able to work on each project task until completion
4. We know where the leverage points to accelerate progress; bottlenecks are clearly identified and communicated
5. All leading to rapid resolution of the unexpected

So let’s look at your team. Are they doing any of the following?

Living in the Past

In many projects, reporting progress is a substitute for moving forward. True, you must understand where you are relative to where you’re going, but reporting completions is not a substitute for managing the future.

If your team is living in the past, they’ll be spending a great deal of time reporting “progress”; percent completed and giving the reasons why things are not done. They’re a little stuck; working to understand where they are in the project. Project meetings are spent sorting out what has been done and negotiating priorities. They’re not looking forward and project progress reflects it.

You won’t get to your destination looking through the rear view mirror.

Check out this video to learn more of this symptom and you can do about it.

Conflicting Goals

Many times, the only person who is actually on the project is the project manager. He then spends his time on enrollment and buy in activities, rather than the core task of moving the project ahead. It happens so frequently, there is a section of the body of knowledge devoted just to stakeholder management.

If any team member has conflicting goals, they will not be fully engaged with work of the project, they may even make decisions that make completing the project more difficult. They don’t respond to questions quickly, don’t come to meetings, are not working with the rest of the team to move the project forward.

In order to win, everyone on the team must have the same goal.

Check out this video to learn more of this symptom and you can do about it.

Shifting Priorities

The project team members are spending their time sorting through the work to determine which tasks should have the highest priority. They’ll respond to the latest communication from a customer or a friend, or a boss. They’ll be switching – changing priorities for the resources (people) doing the work of the project.

When priorities are changing, more work is added to the project, time and productivity are lost, and the project is delayed.

Priority shifting breeds multitasking; the number one killer of productivity.

Check out this video to learn more of this symptom and you can do about it.

Wandering Bottlenecks.

The project never has enough resources to complete the work at hand. Finding more resources is a constant battle. There’s never enough time or budget. It just seems that the right resources are not available when you need them. The team may feel a little like they’re playing project “Whack-A-Mole”.

There is always a constraint that limits the rate at which the project can be completed, but if it’s always moving from week to week or day to day, it indicates a poor grasp of the resource requirements to complete the project.

The bottleneck is where you get leverage to go faster. If you don’t recognize it, you’re just spinning your wheels.

Check out this video to learn more of this symptom and you can do about it

Slow Response to Problems

Many projects are riddled with the “I sent an email, but have not gotten a response.” kinds of problems. Yes, the different time zones are an issue. Yes, we get hundreds of emails a day, but a delayed response to a critical problem slows the entire project down.

A slow response to problems indicates a team that is not engaged. They have a poor understanding of what the important issues are, who owns them, and what is needed to resolve them.

The single largest aspect of project duration is wait time. The more you wait, the longer it takes.

Diagnose Your Project. Will You Be Late?

Take a free project execution maturity assessment and see how you’re doing.

Experienced project managers and executives may still point to the plan as the biggest cause for troubled projects.  Or the assumptions behind the plan. They have a point, I have never worked in a recovery project where the plan was acceptable or was even being used to drive the day to day behavior. I’m talking about leverage. In a recovery situation, you must focus on the most critical elements that will get your project back on track as quickly as possible. You can’t fix everything that’s wrong, you have to fix the things that will give you the biggest results as fast as possible. Re-planning your project is an excuse to delay taking the necessary medicine to get things moving. Focus on execution. that’s where your leverage is.

Next up, a project recovery strategy. If you’re in a hurry, you can watch the webinar on this topic here

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1. They Avoid Multi-tasking

Even though many people think multitasking is good, research shows just the opposite. It shows that dividing attention across multiple activities is taxing on the brain and often comes at the expense of real productivity. As much as a 40% loss. And it can also increase stress for the people multitasking.

In another way, multi-tasking adds work to your project because of task switching. For any task, there is a certain amount of time to setup – to begin doing the real work. For example, to re-start a task, I have to review the work I’ve done, determine where I left off, and then decide what to do next. The more complex the task, the longer this set up time takes.

The more complex a task, the longer the set up time is, causing even more delays. The more switching I do, the more additional work I must do, and the longer every project takes.

The successful project manager guards himself and his team from multitasking.

2. They Communicate Visually

At the ground level of the project, communicating information such as status, obstacles, priorities, and risk are a constant and never-ending challenge.

At the governance levels, program and portfolio owners are often faced with situations where they have either too little or too much information. The quality and timing of the information provided can be subjective, and is usually dependent on the person delivering it. So, if better execution is a goal, and effective communication is the top challenge in execution, it follows that improving communication will lead to improved execution and better business results.

By providing a visual representation of the work, the team develops a shared understanding of where they are and what needs to be done. This improves communication, because they share the same objective viewpoint. People spend less time reporting information like status, obstacles, priorities, and risk and more time on action.

Good project managers give the entire team a view of the playing field so they can act.

3. They Collaborate Intentionally

We know that in under-performing projects, issues are identified very late, and important communication is delayed. The right problem solvers are brought in too late to prevent the problems, and additional work—putting out fires—is then added to the workflow. Capacity runs short, the project is delayed, and costs go up.

Focus on face-to-face accountability – emphasizing what will be done, rather than what has been done.

Create a few simple rules to focus your team on what is to be done, not what has been done. History debates are for analysis, not collaborative execution. Establish guidelines and structure to bring the right people and good communication to the forefront to create action.

4. They Build a One Team, One Goal Approach

Most project teams consist of multiple disciplines from a variety of sources. Each of these team members are placed on the team to accomplish the project’s objective, yet, they bring with them the objective for their functional disciplines as well. Delivering the project is important, but not their main goal. In which case, we have people on the team whose goals do not match.

When functional goals are aligned, each member of the team is free to act in the best interest of the project, without being hindered by conflicting goals from other areas. This eliminates a major source of internal conflict, and speeds decision-making and action.

The savvy project manager pays attention to conflicting objectives among the team members and resolves conflicts between them.

5. They Control the Work in Progress

It seems like common sense: start sooner, you’ll finish sooner. The problem is that everyone starts sooner! Increasing volumes of work in progress increases confusion and conflict—and decreases real productivity. Having a lot of work does accomplish the objective of keeping people busy. However, while everyone is busy, the true picture of the overall project is obscured until deadlines approach, when the failure to complete the right tasks becomes all too visible.

To control work in process, managers establish and enforce pre-release criteria to match work releases with the rate of work completion and ensure no work is started that cannot be finished.

Keep the volume of work under control. Don’t overload the team with too much. Don’t start on projects just for the sake of starting. Successful project managers are focused on finishing.

Successful project managers don’t try to do everything, they focus on the few critical elements that make the difference between doing the work and delivering the work.

Learn more about what is working and what isn’t working in delivering projects. Read The State of Project Management Practice Research

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The goal is to change the rules that are affecting your ability to make MORE.  In my last post, I wrote about challenging the assumptions.  The supply chain or supplier strategy is a great place to start.

What about the material specification itself?  Most material specifications are established by a default rule of thumb established to minimize risk of failure.  The result is a conservative specification that will cover a wide swath of situations.  I seldom see material specifications done to maximize throughput.

What’s available to challenge?  Everything.  Dimensions, tolerances, material specifications, storage requirements, quality checks, etc.  Another place to look is deeper into the supply chain.  What about your suppliers’ suppliers?  What you challenge will be determined by what gives you the most productivity.

When we worked with a boom manufacturer, we found that the output of a particular type of boom was constrained (at all suppliers) by a worldwide scarcity of a key component.  This scarcity was about three links earlier in the supply chain.  We looked for a substitution.  Working with the engineering and supply chain teams at the supplier and the customer, we found another material, which was significantly cheaper, allowing them to purchase three times the amount of the new material for the same price as the old material.  With all the materials in full supply, the boom manufacturer was able to boost output tenfold!

Not only are the technical specifications open to challenge.  Your supplier management rules are open to question, too. Just like the engineers create conservative rules to minimize technical risk, it is common practice to make policies to minimize commercial risk.

Some common things we look at are: batching policies, supplier qualification, supplier selection (sole source is my favorite), price breaks on quantities, delivery frequencies, and more.  Often supplier selection is based on mostly on price, without consideration to supply risk.

When we worked with one supplier, we questioned a long established rule of restricting their purchases from any one supplier to no more than half the supplier’s total output.  This limitation was restricting their output as they were lacking the supplies to produce more.  This easy fix untapped the potential to quickly and dramatically increase supplies, and in turn the factory’s output.

Finding extra capacity is not rocket science, but it does require an eye on the process and a willingness to challenge what you’ve done in the past – sometimes an uncomfortable activity.  I enjoy it, though.  Eli Goldratt, my friend and mentor, said famously, “Sacred cows make excellent steaks”.  I agree.

Read how we sacrificed those sacred cows in the materials and supply chain and in turn, achieved great results in lesson 5 in our eBook, Achieving Top Performance Under the Worst Conditions: 7 Lessons Learned from a Disaster. 

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When our consultants find something blocking the process, we use a simple technique to find the hidden assumption(s).  We’re not challenging every assumption, just the ones that create situations that block us from where we’re going.  It does involve asking the question, “Why?”.  Sometimes we ask it 5 times.  But asking “why?” just tells us the “reasons”, not always the assumptions.

A couple of words about assumptions – we’re all familiar with the word game played when someone says “assume” (for those that aren’t aware of that, when you make an assumption, it makes an ass|u|me), but that’s not what I’m talking about here (although I do agree with that statement).  I think of assumptions as a person’s basic understandings of how things work.  This is useful for thinking in terms of cause and effect.  For example, the cause, “I kick you in the shins” will likely result in an effect like, “you will be angry”.  Not very hard, but the assumptions I make in this situation could be, “you don’t like being kicked in the shins” or “your feelings will be hurt by an attack on your person” (actually, this latter statement has another assumption, “when people’s feelings are hurt, they react with anger”.  Each of our processes has causes to create effects.  Sometimes, we don’t like the effects, so, if we want to change them, we should dig into the assumptions around these cause and effect relationships.

In a process, assumptions take the form of management rules (Why are we doing that?  We’ve always done it that way!), understanding of technical process (we have to put a 15 degree radius to allow for a subsequent step), quality requirements (inspection steps), or product specification requirements (dimensions or features).  These are baseline parameters of how the process functions and its boundary conditions.  Most of these are important and needed.  However, over time, these rules and requirements can become like barnacles on our process, no longer needed and slowing down the process.

Our goal is to find the assumptions that are erroneous.  An erroneous assumption is the rule, requirement, or boundary condition that is no longer required. (Why are we doing that?  I don’t know! We’ve always done it that way!).  The only way to find those assumptions is to zero in on the blockages and ask why certain requirements (the ones that are slowing you down) are necessary.

The process we use to find and challenge assumptions is to simply ask why and identify the assumptions that are no longer valid or could be made invalid.  Meaning, not every assumption is a fixed thing.  We can change things around.  Some are not valid in every situation – do we need to take this step for every product or just for specific customers?  Do those policies still apply in this situation?  Can I get the policy changed?  Can I find a different way to satisfy the requirement other than the one in place?

Take, for example, Pinnacle Strategies’ work during the Gulf Oil spill.  When we were working with boom manufacturers, our consultants went to several boom manufacturers to find more capacity.  The companies usually had rigorous specifications from their customers, as the quality requirements were support usage for many years.  However, we wanted as much boom as possible, in as short of time as possible, for a short burst of intensive work.  The companies were building heavy duty products designed to meet a wide variety of situations.  The boom that was needed was for a specific environment, with specific requirements, for a short period of time.  Some features could be left out, thus reducing the time to manufacture and thus releasing extra capacity to make more.

This is our experience over and over.  There is ALWAYS more capacity than you think.  You just have to do a little digging and challenge your assumptions.

Read more about how we achieved great results by challenging the assumptions in lesson 4 in my eBook, Achieving Top Performance Under the Worst Conditions: 7 Lessons Learned from a Disaster.

As always if, you have questions or comments please feel free to contact me by emailing me.

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In a more practical sense, if I’m a leader of an organization, how do I know my team is doing the right things?  If I’m a team member, how do I know what actions to take?

Every organization is formed for a purpose.  In order to achieve its purpose and goals, organizations develop around sub-organizations (functions) and processes that accomplish them.  These sub-organizations then have their own purpose and goals, for example; accounts payable’s goal is to ensure the bills get paid.  Presumably, each of these sub-organizations is in alignment with overall goals and objectives of the global organization.

As the organization becomes more complex, it becomes more challenging to maintain this alignment, so the organization establishes performance management systems to maintain alignment of purpose and activity among the constituent (local) organizations.  These systems are often referred to colloquially as “the measurement system” or “the metrics”.  Managers seek the relevant measurements to make decisions and drive appropriate behavior in the enterprise; whether to correct a course of action, direct a new course, or even stop.

The performance management system is the formal and informal process of measuring and responding to the organizational process to achieve its goal(s).   It creates and applies uniform standards, quantifying and managing process performance.

Here are a few things to think about.

Establish the standards.  Create a common benchmark of performance.  This can take the form of a database of work to be done, a common set of objectives, or even an agreed upon set of goals. If you don’t know what the objective is, anything will be acceptable.  So be purposeful and deliberate about determining your direction.  Essentially, the standard are the “why” of what is to be performed.

Know the process.  The process is the “what” of your process – the details that determine your progress towards success.  If you have never mapped the process or supply chain, now is the time to do it!   It’s essential to know the behaviors required and the results of those behaviors – you can’t measure what you can’t quantify.

Create decision gates. Now that you have the process mapped and can clearly articulate the steps towards the goal, you can identify where decisions need to be made.  Quantify the decision process – who can make what decisions and when escalation is required.

Identify the constraint. Now that the process is mapped and all steps are clear, you can see where the bottlenecks are and what is holding up the process or supply chain from moving faster – you can focus on the areas that are most critical.

During the oil spill in the Gulf of Mexico, BP built the largest civilian maritime fleet ever seen (over 14,000 vessels). In the haste of containing the spill, keeping detailed records were not a priority.  Equipment was rented and used with no documentation and boats were commissioned to clean oil with no record of their model or serial number.  This lack of communication and documentation became a big problem when it was time to decontaminate the cleanup vessels.  We employed these lessons to drive the process and completed a task in less than six months that was originally estimated to take years. These lessons worked in the worst conditions, imagine how they could help you now.

Read how we achieved great results by applying uniformed standards in lesson 6 in our eBook, Achieving Top Performance Under the Worst Conditions: 7 Lessons Learned from a Disaster.

Also, have a look at some of our thought leadership on performance management here.

As always if, you have questions or comments please feel free to contact me by emailing me.

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Why is this so important? Can’t we just start with, say, “The goal is to deliver machine X”?

Unfortunately, such vaguely defined goals leave a lot of room for interpretation and chances are different people will come up with different interpretations to fill their perceived void. Others get lost and lose their motivation.

In our practice we often find that many problems in project planning and execution have to do with the lack of a clearly defined goal, turning a project to a plaything of change requests, complete “rescoping”, unclear priorities, demand management and similar things. How are you supposed to deliver in time, within budget and scope under such conditions?

To avoid these issues, start with a clear definition of the project’s goal that is consensus among stakeholders. You will find a simple tool to be helpful. It is called ODSC, for Objectives, Deliverables and Success Criteria for three goal dimensions. It is powerful for verbalizing and agreeing on a project’s target.

Before we go into that – who do I mean by “stakeholder”? You should go rather wide than narrow and involve project leaders, managers, members, senior management, even customers and suppliers.

Objectives – The first dimension states the purpose or objectives of the project. Why is it important to the stakeholders? What problem or demand is to be addressed by the project? Would the objective solve this problem or meet the demand? Always take the throughput (performance) of your organization into account.

A discussion will reveal many different facets, in New Product Development these may range from turning a technological breakthrough into a product, to increased profit margins, to opportunities for fostering the corporate image. To ensure a broad perspective and consensus from all stakeholders, you should look for six perspectives: financial, process, employees, customers, corporate culture/philosphy, and corporate social responsibility. So the objectives of our example may be:

The post Where Are You Heading? appeared first on Projects in Less Time - Mark Woeppel.

I’m continuing my series on the Achieving Top Performance: 7 lessons learned in a Disaster, an elaboration on the work we did during the Gulf oil spill.  This week covers the final lesson, communications.  In my last blog post, I wrote a little about the performance standards.  This post continues that discussion and I’ll get into the communication and feedback process of those standards.

As an organization grows or changes, so does the complexity of managing the performance and processes. Unfortunately many organizations’ communication and performance management processes suffer from one of two conditions as a consequence: underdeveloped and fragmented or bloated and burdensome. Either way, the result is ineffective and misaligned performance systems and processes that do not support – and frequently work against – your ability to diagnose and direct performance towards your goals.

Often, the performance management systems are focused on functional performance (reflecting the organizational structure).  The problem with this approach is that “functions” do not equal “processes” and fail to account for the interdependence among functions.  The result is that one function can do well while other functions’ (and the organization’s) performance suffers.

We can validate what we know intuitively by a small experiment.  Add up all the performance indicators in various functions.  Do they sum up to the organization’s global numbers?  Of course they do not.  We know this intuitively, as we are witnesses to mangers gaming the system to make their numbers.  The implication is that managers at various levels know the performance management numbers are at best, an approximation of organizational performance and at worst, making the numbers actually harms the business.

It’s in this environment of mistrust of the numbers that we expect managers to perform well and deliver bottom line results.

The challenge in managing organizational performance is to have local managers align their functionally oriented behaviors and decisions with organization’s goals.  For example, in a for-profit entity, managers must make decisions that will produce favorable outcomes based on the same measurements to which the stockholders and customers hold the organization accountable for.

Additionally, managers and system owners must be able to predict and accurately measure the effect of decisions that are made deep in the organizational structure and see their effect upon the goals of the organization as whole.  With the current processes, they are simply unable to get an accurate picture of how well the processes that lead to the results are operating.

There is also the issue of timing.  Having the right information in the hands of the right people at the right time enables managers to capitalize on opportunities and be prompt in remedial actions.

Budgets Offer an Incomplete Picture of the Business

In most organizations, the main performance management system is linked to the financial aspects of the organization – local budgets.  I am not arguing against budgets, they just offer an incomplete picture.  The main driver of budget behavior is based on dividing the organization into functional areas.  They measure the financial effect of the decisions made in the past, but do not make a decision model.

Good for allocating expenses, but difficult to judge a particular decisions’ impact.  Especially when a manager has accountability for process decisions that affect expenses in other silos (For example, the sales function could make promises to customers that cause operations to spend excessively to meet them.).  Most importantly, budget management assumes a fixed revenue source, over which local managers have little or no control.  The reality is, that local managers, being part of the system, have a significant impact on the revenues of an enterprise.

Additionally, revenue is not a fixed thing; it’s a projection – a forecast.  The result is that local management decisions become one dimensional – based on expenses and local optimization of a revenue level that may or may not reflect the current state.  The result is often a sacrifice of revenue and market opportunities so the budget will be right.

The solution is not a balanced scorecard, but a focused set of process–based measurements and diagnostics that illuminates process behavior – the predecessor to results.  These measurements, carefully calibrated to system and process behavior are then linked to reinforcement mechanisms to ensure alignment at all levels of the organization and across process boundaries.

These measures must then have a communication process that ensures the rapid response organizations require.

This was the problem we faced during our work with the vessel cleanup operation. BP had contracted thousands (yes!) of different teams of vessels and crews.  We worked with them to create a process to manage the cleanup operation and the performance of the many remote vessel cleaning operations. Without coordinated communication between the clean up sites and the command center, the constraint of the entire operation – the dock space – often stood idle or full of vessels waiting to be decontaminated.  Each morning, there was a meeting to discuss progress, but there were there were as many communication methods as there were contractors (and there were plenty).

Mistrust and confusion was common.  More importantly, the command was unable to understand the status of the project and the decontamination sites were operating independently, out of sync with the global objectives.

Managing the Performance

We implemented the following principles to accelerate the performance management communications of the teams.  They weren’t the ONLY things that were done, but the most critical:

Have the right information.  Focus on the constraint.  Since the constraint determines the overall process capability, it becomes central to the communication strategy.  We reported things like dock utilization, lost time, vessels waiting to assess the health of the process.  These weren’t the only things that were reported, as we were concerned about safety, too.  But the constraint performance information was central to knowing the progress and developing action plans.

Have timely information.  This is a discipline for the reporters of the information in terms of accuracy and for the managers using the data; regular (daily!) reporting and regular (daily!) cross functional reviews.  Having the all reporting on a common time front helps decision makers assess the quality of the information.  Having it as recent as possible gives a clear view into the process at the moment.  We had daily reports and weekly reviews of the aggregated performance.  These performance reviews were active – where are we, what do we need to do and short – less than a half hour a day.

Have templates for communication.   Making consistent, standardized communications helps everyone understand the information and the process.  By having a prepared template, meeting preparation time is reduced as everyone knows what is needed, how to present it, and with repetition, where to find the required information and what is critical to the process.  Standardized communications greatly increased the effectiveness of the management process.  The meetings themselves improved in terms of focus and quality of information discussed.  The process became more transparent, so everyone involved remained informed and could make better decisions.

Read how these changes to accelerate communication greatly impacted the results in lesson 7 in our eBook, Achieving Top Performance Under the Worst Conditions: 7 Lessons Learned from a Disaster.

Also, have a look at some of our thought leadership on performance management here.

As always if, you have questions or comments please feel free to contact me by emailing me.

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