eli schragenheim [email protected] supporting toc

Eli [email protected] Supporting TOC implementations worldwide

Eli Schragenheim - Supporting TOC implementations worldwide

My conclusion from the last webinar

Improving the flow-of-initiatives should become the key for

advancing the TOC knowledge!

The topic was: Re-evaluation of the five focusing steps


Strategy – a question of definition

Strategy, with a capital S, is the overall plan to achieve more of the Goal Not necessarily it is in the S&T format

Strategy is a set of ideas, objectives and mainly new initiatives that would shape the organization in the future

Goldratt has defined ‘strategy’, as an intermediate objective, a state to be achieved in the future

○ Which is an entry, along its tactic (actions to achieve the strategy), in the ‘Strategy and Tactic Tree’ (S&T)

Thus, our strategy for this session: “We know the direction and the required tools for developing a superior Strategy”


The importance of establishing the TOC tools and knowledge for developing Strategy

It is impossible to lead a significant change in an organization without having an impact on the overall Strategy of that organization Implementing CCPM or SDBR have various ramifications on the

performance of the organization○ But, without a clear match between these implementations and the other

processes and initiatives the impact could be very small

TOC as a holistic methodology should impact all the initiatives to design the future of the organization Guide towards effective ideas and challenge flawed assumptions Exploit management attention and subordinate everything else to it Get the right and effective focus


When tomorrow is exactly like today

Too many organizations are in stagnation No efforts are done to expand the market, get new clients or deliver

significantly higher value to existing client

○ The organization sells a well-defined set of products to the same clients

Most organizations strive to survive rather than grow

○ Growth itself seems to be risky

Many business areas are stuck in a deadlock○ Banks, airlines and hotels, imitate each other and by that keep their own

place in the competition

Unless, someone rebels and comes up with something truly new

Like the cheap and simple airlines going from one location to another


Designing the future of the organization

Strategy consists of high level initiatives that aim at significantly higher level of performance in the future Reaching much more of the goal High level initiatives require lower level of initiatives

Different types of initiatives Market expansion as the typical high level initiative

○ New products and services, new market segments / export, delivery, pricing, business relations and distribution channels

Infrastructure○ Capabilities and technology, management, facilities, POOGI and

organizational culture Control mechanisms against risks and threats

○ Including tight control of I and OE


The TOC general direction for Strategy

First define what you seriously strive to be in the future It is the state in reality NOT the actions required to bring us there!

It is NOT where we are now: we should always strive to be higher

Once we decide what we like to be – this is our top strategy!

Then we need to evaluate the sufficient conditions that would bring us to the top strategy Every necessary condition that is not already valid is a future state

of reality that we need to achieve

At the same time, we need to keep the necessary conditions that are already in place

And we need to deal with all the risks and uncertainty on the way


SWOT Analysis and TOC

SWOT is: Strengths, Weaknesses, Opportunities & Threats SWOT is known especially as a marketing tool for analysis

TOC provides a wider perspective and use of SWOT

Strengths: The potential unique capabilities the organization has or is able to get fast This is the TOC perspective – more than just the current strengths

of our products relative to the competitors

The capability to learn new capabilities is absolutely necessary

○ It has to be clearly appreciated in the organization

We like to find out how our unique capabilities can be used to create value to potential clients and by that create value to ourselves


TOC view of SWOT

While in the marketing a weakness means a competitor has an advantage, the TOC holistic angle looks for what limits the organization from achieving more

The marketing definition of strengths and weaknesses helps to clearly define the relevant market segments For which segment the strengths are truly valuable

Opportunities are created by the integration of internal capabilities and a specific need in the market that is not answered enough

We currently do not have in TOC a structured process for analyzing the full economic impact of initiatives


Threats and the TOC point of view

Threats are potentially developing situations that could create significant new undesired-effects (UDEs) Currently their impact is low, but it could grow to a destroying degree

The challenge is to develop a control mechanism to warn from a developing threat We can do it when we predict the possibility of that threat to emerge

○ Any high level initiative brings new potential threat to be careful of

With all the rest we have to rely on management identifying a surprising signal and be able to inquire its cause

TOC looks on Strategy as a portfolio of initiatives Based on very few big opportunities, built upon strengths and

unfulfilled needs, while exploiting weaknesses and controlling threats


The critical need to achieve a decisive competitive edge

The core cause behind stagnation is embedded in a universal conflict between security and high achievement

Gaining a decisive competitive edge (DCE) for wide enough market segment(s) resolves the conflict Offering value to the client that is perceived as vastly superior to

any other competitor

And this superiority can be kept for a significant amount of time

Organizations that have established a clear DCE for long time:

○ Apple , Toyota, SAP, Lonely Planet

○ Others had and lost their decisive competitive edge: Kodak, Nokia, CNN


The necessary conditions for a DCE

Delivering critical value to the client in a way that other competitors are not able to The DCE could be a feature in the products, a related service, a

specific business relation or even a necessary image/reputation

Offering unique products is not enough! The value to the clients must be both significant and unique The client has to recognize and appreciate the value

Every DCE is actually a mafia-offer to a large market-segment, plus ensuring the ability to deliver as promised

Another condition: in all other aspects the company are in par with the competition in the relevant markets


The ramifications of NOT having a DCE

The feeling of security / stability could be false! Because, any competitor who would embark on a DCE would shake

the whole industry and will break the deadlock when it exists

There is a lot of pressure on all managers to keep the current market share The pressure on price is enormous

Lost of clear focus Without clear emphasis on what makes the value to the clients

superior then everything else impact the bottom-line


A generic direction to gain a DCE

Identify just one feature in a product, service, common business rule or the way of delivery, which could add value to many potential clients, and improve it significantly The feature has to be something that competitors currently neglect

Ideas could be learned from another business area

○ For instance, using the idea of “frequent fliers” in retail

So far, not too successful in the “translation”

The focus has to be on being unique, create value to the client and with small risk!

Warning: Do not develop many DCEs at the same time It is bad exploitation of the Management Attention constraint!


The TOC emphasis on a DCE based on superior operations

Goldratt has carefully chosen a suite of potential DCEs, based on superior logistics, for the Viable-Vision offers TOC already had the methods to back up those offers

○ The capability is already there! Reliable delivery, on time and in full, is an asset that could be a

valid DCE when the competitors are not reliable and significant damage is caused by the unreliable supply

Rapid response: Not just being reliable, but when needed the client can get it faster - for a price

Commitment for perfect availability○ Letting the relevant client know that they would find those products at

the promised warehouse whenever they need○ It is a DCE only when the client truly suffers from shortages of

your products, without having obvious replacements!


Understanding the perspective of the clients

Without unique and significant value to the client, relative to all alternatives, there is no DCE We need to refer to both the immediate clients and the consumers

Good understanding of the client is absolutely required Understanding the value and use of the product

Cause and effect trees, certainly FRT, could be used to analyze the value to the client

○ Including the negative branches


Understanding B2B vs. B2C

There are huge differences between selling to organizations and selling to consumers

There are obvious problems in understanding the business of another organization The value for an organization is letting it generate more of the goal

○ It can be roughly assessed by T, I and OE

However, the individuals within the organization do not always act according to the goal of the organization○ So, the role, and interests, of the person you talk to have an effect

Understanding the consumer needs considering different aspects of “value” and the subjective way value is judged


The Categories of Value

1. Answering a practical need “Eliminate or reduce a current limitation”, Eli Goldratt The value is relative to other available products/services B2B is mainly built on practical needs

2. Value created by the perception of “status” Gaining the appreciation of others of what I have

3. Whatever gives us, human beings, pleasure Art, jewelry, TV, sex, esthetics, vacations etc This is a very subjective part of value The most important characteristic of this value category is:It is not important how many similar products you already have –

purchasing more creates additional value!


The translation of value into money is problematic We do not really know how to assess the value

The practical value seems easier to determine

We often determine the worthy price for us through a “reference” A “similar” product that has its own price

References are frequently confusing

○ We might refuse to pay for something that gives us huge value just because the referenced products are relatively cheap

Considering and even manipulating the reference is an important part in establishing the DCE and its financial impact

Problematic assessment of value


The DCE and the right market segments

Any DCE should define the segments for which it is truly a decisive competitive edge These market segments have to be large enough to base the future

growth of the organization on that DCE

When the value lies on a practical need then the limitation, eliminated by the DCE, is currently causing a severe UDE to the client

When the DCE generates “status” or “pleasure” value then the risk has to be carefully evaluated

Any definition of a DCE should include good description of the target market segments


More TOC considerations regarding the DCE

Goldratt’s six questions on assessing the value of new technology are excellent guidance to analyze DCE ideas I use the six questions to analyze the value of any new product

You can watch my past webinar on the TOCICO site

Any DCE is a cluster of initiatives and thus when it fails it causes considerable damage I have seen many failures in providing availability as a DCE where

for the clients it was not more than “nice to have”

The logical analysis is of paramount importance


Beyond the DCE

Being ready for the change Becoming ready is the first gross initiative

○ Reasonably stable current operations, good enough financial state and good management who truly desire to improve are necessary conditions

Setting control mechanisms to spot any “surprise”, then having a procedure to quickly analyze the cause, draw the conclusions and execute the required actions There is a structured process for “Learning from One Event” It is especially important during the change period

There is a past webinar on that topic

It should be used also to spot unanticipated threats


More beyond the DCE

A big risk is to overload the managers Both in the capacity of management attention and on their

capabilities and knowledge○ Like, dealing with issues that are new to them

○ Or having to manage might larger areas of responsibility

So, be aware of the potential need to increase the management layers, creating new roles and finding the right people

The financial state is always a potential threat!

The ability to note the decline in the effectiveness of the current DCE and coming up with new DCE is a capability that needs to be learned and nurtured


Dealing with risk and uncertainty

I define Risk as a reasonable probability for a disaster A very high potential damage we are not ready to suffer from

○ Which means that we do our best NOT to take such a risk

○ We need to clearly define the line between ‘tolerable damage’ and ‘intolerable damage’ that requires prevention at all cost

Any Strategy, no matter how well the cause and effects are defined, is subject to high uncertainty

TOC teaches us to include buffers in the planning


Strategy, uncertainty and buffers

Some buffers are used to ensure achieving the objective Like the buffers used in SDBR and CCPM

Other buffers are used to protect from a probable damage Insurance is such a buffer!

What buffers could we use to ensure achieving the expected impact of the DCE? Pilots or careful tests of the core idea can be used to reduce the

risk of failure of the idea to be a DCE

PLAN B is a buffer against the damage of a failing DCE Idea for an alternative move, less spectacular, but more certain, to

keep the momentum for growth and stability


The S&T as a tool for Strategy planning

The objective is to create an overall plan outlining the objectives and initiatives required to achieve the goal

At the top we have the definition of the GOAL

Immediately below it are the gross objectives required to move the organization towards the goal Together with the planned actions to achieve the objectives

Below it – the necessary intermediate objectives Again together with the required detailed actions required

Eventually we get a MAP of what every one in the organization has to contribute and the logic why it is needed


Understanding the definition of strategy and tactic in the TOC way

Definition: a strategy is a future state that we like to achieve

Definition: the tactic is the mean, the actions or the specific initiative that would bring us to the strategy

What we actually get is a tree of strategies and their related tactics Each strategy / tactic might require lower level strategies and tactics

to materialize the higher level tactic

Insight: The effective thinking should always start with the objective in mind and only then identify the actions to achieve it


The essence of the strategy tree

The three entities of level 3 are required to achieve entity 2.1.

The top strategy as an example

Level 1 defines the goal

Level 2 defines the

generic direction


The structure of an entry in the S&T

Every entry consists of two main entities and three types of assumptions

The two main entities: The strategy: The future state we need to achieve Tactic: The means/actions/initiatives we need to take to

accomplish the strategy

The three types of assumptions Necessary assumption(s): Why the strategy is required? Parallel assumptions: How come the tactic would achieve the

strategy Sufficiency assumption(s): How come this level is cannot be

executed as is, so there is a need to detail the lower strategies and tactics?


Three necessary elements for any gross initiative

Build When certain capabilities, mainly in Operations, are missing – we

need to build them When processes are not well-defined – build them properly When we do not have the manpower or the motivation – bring the

manpower and create the right motivation

Capitalize Be able to capitalize on the capabilities to deliver value to the client

by making the potential client understand the full value○ For this we need to know how to radiate and sell the added value

Sustain Be ready for growth without tampering with the performance to the

client


Final conclusion and warning

The S&T is a tool to organize your Strategy planning It is NOT the tool to generate ideas!

You need to come up with ideas regarding the DCE first and then find out how to make it happen Including excellent understanding of the clients and what value they

current miss that you is able to provide You have the core capabilities or you know how to acquire them You have the full backup of management You can afford the move and you cannot afford not to move!

And all of the above should be done before using the S&T to get the detailed Strategy plan!


About Eli Schragenheim

Eli Schragenheim is keen to support TOC implementations worldwide, bygiving guidance to whoever wishing it

Eli latest developments are in the area of expanding throughput accounting to make product-mix and capacity decisions and in learning from one event

Eli blog: elischragenheim.comEli email: [email protected]

eli schragenheim [email protected] supporting toc

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