The Ultimate Guide to the Theory of Constraints (TOC)

This article will give you a great shortcut to an executive level knowledge of the Theory of Constraints approach to process improvement and organizational effectiveness. Margaret Ziviski, the Smartsheet author, has also completed the interviews for a follow-on article on the TOC Thinking Processes. I’ll post a link when it’s available.

https://www.smartsheet.com/all-about-theory-of-constraints

How are your Goal-Minus-Ones?

Most companies have a major Goal (big G) which requires achieving 3, 4, or 5 smaller goals along the way. 

It’s vital to see these smaller goals as more than baby steps. They are the critical success factors of your business plan. I sometimes call them “Goal-Minus-Ones” to make sure they don’t get lost in the day-to-day; a costly mistake I was part of years ago.

A company’s primary Goal might be to increase profits by 8% while the associated Goal-Minus-Ones might be to reduce material cost, introduce new products, and to expand into new markets. I just made these up, you’ll have to identify your own, and you’ll probably want to be more specific.

Here’s a real-world example of Goal-Minus-Ones, and to keep it extra real, it includes some details of that big mistake I was part of: 

I once worked in the Man Machine Interface division of a multi-billion dollar company. We made keyboards and touchscreens.

Our big Goal was to increase profitability by 60% every year. That’s right, 60%. That’s an insane Goal for most companies, but particularly in the keyboard industry with its flat growth rates, weak margins, and low barriers to entry. I’ll save how we chose that Goal for another day.

To reach our 60% Goal, our Goal-Minus-Ones were to differentiate ourselves by developing a full keyboard assembly stack (bezel, keypad, electromechanical, backlighting) for the cellphone market, to be the supplier of choice in that market’s exciting growth, to ruthlessly automate and streamline operations to reduce cost, and to harvest our higher margin existing accounts in other markets. Four Goal-Minus-Ones.

Having a full stack was a big deal as it would solve many of our customer's supply chain management issues. So we developed cool automation to make the various keyboard components and put them together. Along the way we developed a process that could make a common keyset for a cellphone in a few seconds, which we could sell, just by itself, at 90-96% contribution margins. That certainly helped us met one of our Goal-Minus-Ones. 

Thanks to margins like that, and to the world discovering cellphones, we made our Goal year after year. Then, without warning, we were sold to a bigger company that was in the process of overextending itself. (Big bonuses were involved. Enough said.)

The bigger company soon declared bankruptcy and liquidated our factories and technology in a fire sale. Wow. Not good times, but that event probably kept us from hitting a wall a few years later. 

You’ve probably been saying, “Hey, I remember when cellphones had buttons you actually pushed!” And a few still do, but not so many. You probably also remember when cellphone models were on the shelves for years instead of months and when Nokia, Motorola, and Erickson made the phones everyone wanted.

What you're remembering was our market. And we couldn’t reach our Goal without serving that market better than anyone else. We went all out to do it - heck, we were even Nokia’s supplier of the year. Another of our Goal-Minus-Ones.

I should point out that this Goal-Minus-One, to be the supplier of choice, implied we’d stay relevant to our market. Even when the market decided to use a different technology. But we weren’t looking for that - we were focused on our nifty product stack and new sales. And we’d made two of our Goal-Minus-Ones! Unfortunately, there were four.

All our cool cellular phone keypad making stuff would have been a boat anchor in a few years, on the exact day Apple introduced the iPhone.

No more keyboards, but at least we had a touchscreen product line, right? You know, just like the iPhone uses? Not so much as it turns out. We had a generations old touchscreen technology that worked great if you were punching a control panel with a muddy glove. Not so well if you were pointing at a tiny letter on a cellphone screen.

What would we have done if we'd still been around when keypad demand went from as much as we could make to whatever people bought through AARP? 

Sales growth and new manufacturing technologies were our “bright shiny objects.” The primary topics of our meetings and hallway discussions. The stuff with the big graphics in our all-staffs. But those were only two of our “Goal-Minus-Ones.” 

It’s painful to look back, but if we’d stayed *equally* focused, day-to-day, on all of our Goal-Minus-Ones we might have had a chance. We’d thoughtfully identified each as a critical success factor, but too much focus on just a couple of them kept us from being relevant in the future. 

There are many other kinds of Goal-Minus-Ones besides the ones we ignored. Every company or organization has their own, and staying equally focused on each can be a challenge. 

Here’s another example: I work with companies to design and deliver better services. Almost every one of them has identified employee engagement or development as a Goal-Minus-One. It drives all kinds of better decision making and it’s a leading indicator of client or patient satisfaction. Most companies survey employees quarterly or annually as a way to track engagement. That’s awesome, and they want the checkmark, but surveys aren’t enough to catch a rapidly developing problem.  

What should they be doing?

Business Purgatory and Change

True story, I had a nightmare this weekend about being an executive at a company’s annual planning meeting. Somehow we’d identified 1,700 vital strategic initiatives and everyone was voting by sticking little dots next to the five they most supported. I tried to stop it, to bring more focus to the process, but I couldn’t move or talk. 

It was kind of like being stuck in a business version of Purgatory. 

Many of us have experienced this Purgatory. We spend a week or three doing business planning, covering conference room walls with flip chart paper, each page covered with a peculiar offsite language, describing awful and awesome ideas which will never be implemented. 

This Purgatory is one extreme of business planning.

Another extreme occurs when a team takes six months, or a year, to produce a big honking binder which is presented, a page at a time, while everyone checks their email. These binders will age gracefully on bookshelves throughout the company. 

In between these extremes lies the common annual planning session. Years ago these sessions probably began with a big goal or a crisis, but they’ve slowly become more about alignment around the current trajectory. Maybe with some team building thrown in. Each year SWOT templates are completed, spreadsheets updated, and projection curves tweaked. Everything is done with a sense of inertia from the pervious year's planning session. 

Most of us have been in at least one of these types of planning sessions, and while none are totally bad, they’re just not as good as they need to be. I’ll suggest three reasons why this is true:

First, these meetings are most often about the ones holding it, not the customer. 

Second, these meetings seem expensive. As a result we limit the number and levels of participants and miss valuable insights, solutions, and buy-in from the full diversity of our organization. And by full diversity I’m looking at you Millennials, but also other folks who see opportunities and express ideas in ways outside of the norm.

Third, in none of the above is there a real opportunity for a meaningful dialog about required or desired change, the obstacles in the way, or to create a realistic plan for change.

I want to suggest that "change" serve as the touchstone and milestone for planning meetings. In my experience every planning session needs to answer four “change” questions: 

1. Why change?

2. What to change?

3. What to change to?

4. How to make the change?

These could be internal changes to improve effectiveness or culture, external changes to retain customers or increase sales, or strategic changes to expand into new markets or partnerships. 

One thing I’ve found important when I facilitate planning meetings is to respect each of the four change questions. Many folks naturally jump straight to “What to change to?” before the other questions are answered. Inevitably someone will ask one of the other “change” questions that we’d skipped or only kind of answered and we’ll realize we have to go back and do it right.

Every planning session should also answer the Who? When? And How will we know? questions since most of us are measured on our actions and results, not our plans. Dang it.

How long does it take to answer all of these questions? As it turns out, not so long. Each group has their pace, and it depends upon the magnitude and complexity of the situation, but the simplicity of the questions supports a surprisingly smooth flow to the process. I’ve worked with teams to plan a new product from concept to international launch, to simultaneously revamp maintenance processes across Latin America, or to completely rebuild a supply chain in three to four days. Larger changes might take two to three shorter sessions, with folks doing some homework in between. 

How often should we have these meetings? Well, how fast is your market or environment changing? How flexible is your organization in moving from one product or service to another? How well does it accommodate change? Are you a large CAPX business? The answer could be annually, every six months, quarterly, or something else. 

What I often see, since each organization usually handles change better as time goes on, is that the planning sessions become shorter but more frequent, as the organization moves up the experience curve and becomes more confident and proactive.

To sum this up in a dreamy way, major planning sessions should be gut checking, inclusive, customer driven, dialog creating, action producing events. They should also happen often enough and fast enough to keep the organization in sync with, or even ahead(!) of market and environmental changes. 

And please, let’s leave the 1,700 initiatives and little dots for other companies. The ones in Purgatory.