MANAGEMENT:USING GOLDRATT’S THEORY OF CONSTRAINTS
Making sound improvement decisions
If your competitor becomes process disciplined while you continue operating traditionally, odds are they will eventually eat your lunch (shrink your market share and profit). Organizing people for work using industrial-age concepts such as a departmental structure, the traditional chain of command, or relying exclusively on the personal authority of managers, will inhibit productivity, quality, and service. Outdated industrial-age habits and methods reduces the ROI of corporate equity holders and increases the risk of debt funders.
A world-class physicist, Eli Goldratt, used scientific prowess to study a failing manufacturing business owned by his brother. Eli’s findings turned the business around and inspired a best-selling book. The Goal (a novel), introduces Goldratt’s “theory of constraint”. The Baton Management System’s approach to process discipline is designed around this principle.
Businesses use equity and debt provided by funding partners to pay for a series of initiatives that they trust will produce profit. Investment enters a business in support of transformational processes to produce product/services that customers will (hopefully) be willing to pay for. Delighted customers are predisposed to continue buying. If the product/service produces a satisfactory profit, funding partners will be predisposed to continue investing in the business. Profit from value-adding processes is all that keeps the doors to a business open. When customers or the funding partners are not satisfied with output, they will stop buying and investing—and the business will fail.
Every organization experiences constraints in production flow. Ignoring dysfunction inhibits output, but eliminating these roadblocks consumes valuable time and resources—reducing the potential of achieving customer satisfaction and delivering satisfactory profits. Goldratt’s theory of constraint offers a shift-age solution. If time and money is applied to eliminate minor problems while a major constraint goes unresolved, there is no immediate payback. The key constraint is the primary inhibitor of customer and funding partner value. Investing in the resolution of secondary problems is potentially a fatal misallocation of resources. Following Goldratt’s theory of constraint, will improve process flow until a secondary blockage takes over as the primary impediment (key constraint).
In the shift-age, conditions evolve so quickly that companies must be acutely aware of what’s going on—in order to redirect their resource investment. Cash is to business, what oxygen is to human beings. It doesn’t matter how fit you are—without it you’re dead in a just few minutes. To survive, cash must be available at a moment’s notice. That’s why spending decisions must be assessed daily and directed exclusively towards elimination of the key constraint.
During speaking engagements and workshops, I often ask “how many of you would like to improve what you do?” Almost every hand rises to signal the affirmative. People are shocked when I suggest a corporate exorcism is needed, to cast out their industrial age thinking. In the shift-age the question is not “What can we improve?” it’s “What should we stop doing altogether?”.