In my last post we completed our discussion of “What to change?” as well as Goldratt’s Five Focusing Steps. As a refresher, the three most important questions a company must ask and answer if their continuous improvement initiative is to be successful are:
- What to change?
- To what to change to?
- How to make the change(s) happen?
Additionally, as a refresher, Goldratt’s Five Focusing for the Theory of Constraints were:
- Identify the System’s Constraint(s)
- Decide how to Exploit the system’s constraint(s)
- Subordinate everything else to this decision
- If necessary, Elevate the system’s constraint(s)
- If, in a previous step, a constraint has been broken, return to Step 1, but don’t let inertia become a new system’s constraint
In today’s post we will begin our discussion on the second question, “To what to change to?”
To What to Change to?
I started this series of blog posts by talking about the disappointment companies have experienced as they progress through their improvement initiatives. I told you that in order to avoid these disappointing experiences, you must always look at those things that result in improvements to the total system rather than isolated local improvements. I explained that one of the misunderstandings companies experience is that the sum of all localized improvements results in improvements to the total system and this is simply not true. The only true and lasting pathway to continuous improvement is by first identifying the system’s constraint and then determine the best way to exploit it.
Many times I have gone into companies who have tried to implement their own version of a continuous improvement initiative, but what I see time and again is that the basis for improvement is based upon cost savings. The problem with this approach is that cost reductions have a distinct lower limit and when this limit is reached, the improvement efforts grind to a halt. So if cost savings is not the best approach, then what is?
In the Theory of Constraints (TOC) world, we teach companies a different version of accounting referred to as Throughput Accounting (TA). TA teaches us that the correct pathway to increased profitability is not through how much money can be saved, but rather how much money can be made and these two approaches are dramatically different. In TA we calculate something called Throughput which is revenue minus totally variable costs (T = R – TVC). The good news is, as long as you have the sales, there is no limit on how much Throughput you can generate. So with this in mind, let’s continue our discussion on what we should be changing to.
If we have holistically determined what to change in our system (i.e. the constraint), then we should also determine the tactics that will move our organization to one that reacts to satisfying the needs of our market. That is, we should make every effort to become the supplier of choice. So how do we do this?
The first thing we must do is to focus on our own internal performance by using the Five Focusing Steps. That is, we must identify our internal system’s constraint and then exploit it to the fullest. We continue on until the constraint shifts to new internal location and repeat the steps. At some point in time, as our internal capacity increases, the constraint will shift to the market, meaning that your company has more capacity than orders for their product.
If your company understands the market it serves, it can segment and price those markets based upon the inherent value it can deliver. And when this new level of performance is reached, the value to its current and new customers will be apparent resulting in a flood of new orders. It’s important to remember that this phase is only possible when companies truly apply a continuous improvement mentality. Let’s now look at our final question, “How to make the changes happen?”
Once we have effectively developed our strategy of continuous improvement, it’s now just a matter of communication and execution of the strategy. The first step in this process is to communicate the strategic plan to all levels of the organization in convincing fashion. I am a huge advocate of total and active involvement of your true subject matter experts (SMEs), your front line workers. Active involvement of the people who make your products is paramount to the success of your improvement initiative. I recommend that leadership abandon the “command and control” leadership style that permeates many companies and replace it with leadership that listens to and then applies the ideas and solutions of your true SMEs. If you want true and lasting ownership of your improvement initiative, then implement their ideas, providing their ideas don’t violate safety regulations, contractual obligations or company policy.
The leadership team of your company can no longer engage in the “flavor of the month” mentality like it has in the past. Everyone, especially leadership, must understand that there will be resistance to this change in the way the new business is executed. TOC has identified what is referred to as the six layers of resistance. I have added a seventh layer as follows:
- Agreement that there is a problem.
- Agreement on what the real problem is.
- Agreement on what the direction of the solution should be.
- Agreement on the value of the solution.
- Agreement that the solution won’t cause new problems.
- Agreement on the strategic plan.
- Agreement that you should proceed with the plan
It’s important that each of these layers of resistance are dealt with in the order listed because each of them could be show-stoppers. So if you want lasting teamwork, support and ownership, don’t skip this step. These layers of resistance tie directly into the three original questions of what to change, to what to change to and how to cause the change to happen.
In my next post, we will complete our discussion on the third question of how to make the change happen and then tie all three questions into a nice, neat package. 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.
Don't miss out!
Stay on top of the latest business acumen by subscribing to the Manufacturing Breakthrough blog.