Are there organizations where TOC is not applicable?

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TOC was born in the manufacturing shop-floor. It has expanded into distribution and projects.  It has notable success in healthcare, which is a pretty different environment and some of the basic concepts had to go through “translation” to fit the environment.

The Thinking Processes (TP) were created with the intent to be applicable to any environment. Twenty five years after the definition of the main TP tools we should ask ourselves whether the TP is enough to address environments that are very different than the existing environments TOC is known to have an impact.

The weakness of starting the analysis with the TP is being swamped by huge number of undesired effects (UDEs) that might be irrelevant to pinpoint what makes that environment different than what we already know.  We do need a practical way to cut corners when we look at an unfamiliar environment.  We, of course, need also the opportunity to start working with such an environment. I like to deal right now only with understanding the possible value TOC is able to draw.

If you accept the axiom that every organization is inherently simple then there has to be very few key differences between the environments that truly impact the way to manage them effectively.  Under this assumption we can speculate what those few differences are, and use the cause-and-effect process to derive the core problem(s) of the environment, leading hopefully to identify the critical flawed assumption(s) that could be challenged.

Here is a list of such environments, where TOC currently has, if at all, only minor impact:

  1. Financial institutions, banks, insurance and credit-card companies.
  2. Transportation companies: in the air, sea and land.
  3. Performing arts organizations: theatres, music (opera) and dance groups. You can add TV stations to that list. I like to treat museums also in this group.
  4. Organizations for emergency cases: Army and fire-squads.

Let’s have a quick look at the banks.

What makes a bank strictly different than other organizations?

I’m aware of several TOC implementations in banks that were focused on improving the flow of specific missions within the bank. This is certainly valuable, but I doubt whether it touches the core problem.

All for-profit organizations strive to make more money now and in the future. Banks use money as their key resource for producing more money.  This forces the banks to inquire in depth what “money” means, uncovering the “virtual” part of money – the option to lend more money than they actually have.  This understanding, which is not part of most other businesses, is a key internal recognition that leads to more specific paradigms that are unique for the financial world.

Banks deliver two very different categories of services:

    • The classic services of providing loans
      • Lending money now in order to get more in the future.
      • From the customer perception of value: bridging between the time the customer does not have the required money and times where there is more than enough.
      • A crossover service of providing deposits. The bank needs more money as a resource to use for loans. Customers give a loan to the bank, at times where the customer has enough money, and get back just a little more when they need it.
    • Services of protecting and managing the money of customers, which have nothing to do with loans or interest-rate
      • Keeping the money, recording transactions, transferring money, buying and selling shares (when applicable), dealing with different currencies and more.
      • User applications to manage their bank account through computers and smart phones.

The simplicity is expressed by noting the growing demand for handling money. The older services of loans and deposits are still required, but there is no basic change in the needs and in the offerings.  However the advance of communication technology opens huge opportunities for the other category of bank services.  That technology generates growing expectations of the clients for more sophisticated options and information.

The competition in the banking system is changing towards using the most advanced technology for new services and newer looks. It creates a trend of reducing the number of branches and agents in the banking system, but, it also increases the need for state-of-the-art IT, and the managers and professionals who understand the wishes of the customers and are able to define the requirements to the IT developers.  It generates more and more demand for new offerings, which have to be supported by the IT, while keeping the security high, which adds many more requirements to the IT developers.

This change in the whole environment creates a natural bottleneck in IT projects.  The banking systems used to be in a deadlock, being able to quickly imitate each other.  Now the change is leading to growing competition for the best and wide use of the most advanced technology.  New threats emerge from companies, like PayPal, which offer services that bypass the banking system.  The appearance of Bitcoin is another threat to the banking system.

What value can TOC bring to the banks?

Implementing CCPM in the IT related projects is a partial solution. CCPM does not have a clear mechanism to generate the right priorities between competing projects.  But, the TOC school of thought can handle it better than any other method I can think of.

What should an effective project portfolio look like? What is the balance between big projects and small ones?  How to plan the time horizon of completed projects that together would generate synergy that supports real growth? There is no ready-made TOC methodology for that, but a group of good TOC experts are able to develop a good solution.

The above analysis is based on my observations and assumptions and I’m aware never to say I know. In a real opportunity to look into a specific bank there is a need to validate the assumptions and the focus might shift a little.  It is just an example to the ability to quickly identify the core problem and outline a direction.    A similar approach for the other environments mentioned above could show real value pretty quickly.

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Published by

Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

5 thoughts on “Are there organizations where TOC is not applicable?”

  1. If we have constrain in bank project portfolio, it’ll be for limited time only (until that resource available or until we do ‘step 5’).
    So planing horizont should be not more than that ‘constrain’s life time’. In that limited time our portfolio should generate better ‘result’. The ‘result’ is maximum of (throughput growth minus oe growth). So we should increase priority for that projects, which will give us maximum result on limited lifetime of current constrain (for example: IT engineer). Or it’s not as simple as described?

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    1. It is not as described. Two reasons: In multi-project management if even one resource is loaded to about 85% of its capacity the result is delays the organization cannot tolerate. This was my finding of a simulation I did on multi-projects of the R&D of a major car company. Second reason: the expected T of a project is very uncertain variable. On top of that there is a synergy between different projects that together generate more T than mere summation of every one in isolation – certainly in evaluating the growth due to the general impression of overall great use and power of the internet capabilities of the bank services. On top of that think about quick generated T versus higher T, but it’d take several years to achieve. Think also about the need to establish value in different market segments when the long-term is considered (above the immediate value of that particular project). It is also impossible to ignore the internal conflicts between different functions – management has to resolve those conflicts and it is part of the decision on project portfolio.

      That said, I claim it is a solvable problem for good TOC people TOGETHER with the specific management.

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  2. Very nice post Eli. Are you planning on writing about the three other environments? I recently had a meeting with a transportation company so it would be very helpful to hear your opinion. This specific company owns less than 5% of the trucks. They work as intermediaries between companies that need to transport goods and the truck owners who have the need to get their trucks on the road. Prices are somewhat regulated by the government and most transportation companies offer pretty much the same services regarding the tracking the trucks, insurance, proper handling of the goods, etc.

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  3. I would also like to hear your comments on the other organisations, as I have often thought about fx. the shipping industry and how TOC could be applied there.. I’m guessing it could have something to do with more smaller ships, doing more frequent deliveries of smaller batches..

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  4. Rasmus, using smaller ships/vehicles is a move that requires detailed analysis, considering also the high level of uncertainty versus the required investment and probably higher level of OE.

    I’m going to write about transportation organizations and then we can discuss the TOC insights.

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