In my last post I presented what Dr. Eli Goldratt  explained in his book, It’s Not Luck, that “within any complexity, there is an inherent simplicity that governs the throughput of the organization.” Gerald Kendall , in his book, Viable Vision, told us that “the fact is, you simply cannot break the system down into parts to find this simplicity. In fact the opposite is true.” In order to get a rapid and significant improvement in performance, it is imperative that we look at the entire organization as though it was a single system, which it is.
Most companies address this idea of complexity by dividing the organization into small, bite-sized and “manageable” pieces and then try to improve each individual piece. And since each of these pieces (i.e. different functions and departments) are typically set up as cost centers, the order of the day is to focus on reducing costs in each function. The problem with this approach is that it often leads to huge problems. Things like cost reductions in one part of the organization, might have a negative impact on another part of the organization.
The guiding assumption behind Viable Vision is that improvement in the throughput of any system is governed by very few factors and it is these few factors that drives the inherent simplicity.
In today’s post we will begin to dig into the silo approach for managing organizations and which factors the management team must focus their improvement efforts on to get the major profitability boosts Kendall describes in his book.
The Silo Approach
As mentioned earlier, most organizations deal with complexity by breaking down their organization into functional areas and then demand that each area go figure out how to improve itself. Kendall refers to this approach as the silo approach for obvious reasons. The important thing that we must understand is why this silo approach blocks the realization of a Viable Vision and fails to improve the system.
Kendall  explains that “the cross-functional conflicts are driven by this silo approach where the organization measures each silo on improvement individually.” If you are treated as an independent cost center (e.g. procurement, manufacturing, etc.), improvement typically means that you will focus on cost reduction and greater efficiency within your silo rather than improvement to the system as a whole.
In order to implement a Viable Vision successfully, it is clear that senior management must remove cost accounting distortions (e.g. how inventory is treated, make-buy decisions, etc.). Clearly senior management must find a way to leverage its resources by identifying the “right place” to concentrate improvement efforts. This right place is, of course, the “system constraint” and nowhere else! Kendall  explains that in order to improve the system, every senior manager (and lower-level managers) must overcome four major challenges as follows:
- Identify the biggest leverage point for improvement, not within your silo, but within the overall organization. Only such a leverage point can bring your organization to have net profits equal to total current sales within four years.
- Define what each part of the organization must do to exercise that leverage.
- Remove distortions by developing a deeper understanding and measurement system among all managers of the cause-effect ramifications of their decisions across the supply chain.
- Develop the logistical systems to alert the entire senior management team to the early warnings necessary to prevent disaster in their day-to-day operations. This will enable their major focus to remain on achieving the leverage.
In up-coming posts we will provide practical answers to help you overcome these challenges.
In my next post, we’ll discuss what Kendall refers to as a “new frame of reference.” As always, if you have any questions or comments about any of my posts, leave me a message and I will respond.
Until next time.
 It’s Not Luck, Eliyahu M. Goldratt, The North River Press, Great Barrington, MA 1994
 Viable Vision – Transforming Total Sales into Net Profits, Gerald Kendall, 2005 self-published
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