HighX is a job-shop manufacturing company, producing 12 different categories of products, each according to detailed specifications from the client. There is no practical way to make-to-stock/availability; it is a pure MTO environment.
Steve, the CEO, got interested in the Strategy and Tactic (S&T) process in order to achieve a decisive-competitive-edge over his competitors. The idea is to offer high-reliability and also fast-response delivery to clients and by that gain a decisive competitive edge. Clients currently suffer from not-too-good delivery, which characterizes also the performance of the main competitors.
Some clients need, from time to time, much faster delivery. The current order lead-time is four weeks and if that is achieved in high reliability it would relieve much pain from the clients. If it’d be possible also to offer fast response, say delivering a specific order in just one week, then 25% markup on the original price will be considered fair. It is predicted, based on actual queries from clients, that 17% of the orders would be for one-week special delivery at the higher price. TOC operational methodology can achieve the capability of reliable delivery including the faster delivery order.
However, during the initial sessions on the S&T Steve raised the issue of the current improvement initiatives that are already on progress. The R&D department is busy on adding new features to the most lucrative seven categories of products. These features are demanded by the customers and it is reasonable that the competitors are working on them as well.
More, there are two even bigger initiatives, coupling R&D and business development, of entering two promising new market segments with new categories of products. The two market segments offer higher ratio of T/Selling-Price. The two projects have been initiated nine months ago and are expected to be ready to launch between six to twelve months from now.
James, the key TOC expert leading the S&T session, said that all those development projects should be frozen until the basic TOC procedures, including the new TOC performance measurements, would be implemented.
Steve reacted that he cannot afford to freeze those projects as they are critical to maintain the position of HighX in this competitive market. James suggested waiting with the S&T for six months until three most important projects would complete and then start the implementation. He also suggested that while the three most important projects are making progress, the other projects would be frozen until the three are completed and also until the operational part of the TOC methodology is successfully implemented.
What do you suggest Steve should do? How such a decision has to be made?
I call you to write your comments on the above. It is time to discuss this matter.
Eli Schragenheim 
Hi Eli,
I have some additional questions: are people involved in S&T session also the key resourses of those three main projects? In other words, are those development projects and S&T process using the same capacity of managerial attention?
I like your concept of two flows very much and James’s suggestion looks rational IF S&T and existing projects and operational solutions need the same capacity of the same managers.
Even in this case there is possibility which I can not derive from description that all of that projects could be staggered. Usually the choice between NOW and FUTURE depends on how bad/good is current situation
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Dmitry, thank you, these are very useful remarks. We can come up with some broad assumptions that are valuable. For instance, what managerial roles might be exposed to too much load?
Staggering usually yields better total performance in multi-project environment than trying to multi-tasking. But, staggering requires setting the priorities right. One question is: how the appearance of the S&T process competes with the current projects and with what type of managerial capacity? Maybe we need to consider the time period where significant need for specific managerial attention is required?
Another question could be raised: should James also suggest to include CCPM in the S&T offering?
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OK. Let add some assumptions.
From the description we know that there is R&D department. That’s why we can assume that there are departments: Operations, Sales, Marketing, R&D, Finance, Purchase etc. So we can assume that at least there are according managing roles.
As regards projects we have
– implementing TOC operalional solution and measurements
– projects og modifying existing products
– two initiatives of entering to the new marketing segments
– S&T process
First two of them are for the “now” time frame because they are oriented on current customers needs and relieving customers pain of “not-too-good delivery”
Others are for the “future” time frame. It may be shoter if we speak about new market segments or longer if we consider S&T process but it’s future.
I assume that inputs for future time frame decisions are: current capacity profile and it’s possible changes due to our “future” based decisions, current planned load of capacity and it’s possible changes, delta T, delta OE, delta I and customers need/pains we are going to meet and its segments.
If we look at it we can notice that capacity profile, planned load and T, OE, I come out from “now” time frame projects and investigating of custimers need and pains do not depends on resultes of these projects.
I assume that implementing TOC operational solutions, measurements and adaptation of products will not require much capacity of Marketing and Steve (CEO). So they can work on developing first stages decisive competitive edge and segmentation based on customers needs.
More success of entering new segments depends on TOC implementation results.
You know Eli that I claim that for any social organization the ultimate constraint is time. If we have endless time we have unlimited capacity and possibilities. So company have not to waste any single hour from the point of view of maximising results.
That’s why I assume that implementing TOC operational solutions and S&T process could be taken in paralell. Integration point (“virtual drum”) here is a point when Operations will be needed in S&T process in high amount of time.
And – yes, CCPM could be usefull for R&D department to accelerate teir projects but I’m afraid that here we have problems with consultants capasity :))) There also could be constraimt :))))
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Dmitry, I like your thoughts. Most important observation, to my mind, is distinguishing between the load on Operations and the load on Marketing. You have separated the implementation of the TOC for operations from the S&T process. Well, actually the “Build” part of improving the flow of products definitely belong to the S&T, but that par of the overall implementation comes first: establishing faster and more stable flow of delivery to customer orders in good quality. This part does not seem to compete on the same management attention given to the R&D. When the developed features would need to go to Production there would be a certain clash when the people in Production are still in learning the process of choke the release and following buffer management. Question is whether adding the new features to the engineering and production of customer orders is too much. Maybe the addition of new features should be carefully staggered not to overload Production.
I do not treat Time as a constraint, but I don’t think the definition is important. Capacity is defined by time: how much you can do in a given time frame. But, let’s not go too much into philosophy whether time is the ultimate constraint, it is clear it is a basic part of any thinking about what’s constraining us.
How do you go on after the short-term load on Operations is being handled?
Let me remind you that the definition of a decisive-competitive-edge includes the following element: “In all other aspects the performance of the organization is on par with the competition.”
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Well, I’m a little bit confused. Let me clarify what is confusing me.
In description you are talking about S&T process and I used not consider implementation of standard TOC solution (S&T template) as a whole S&T process. In a case of stanard solution there is no need to create S&T – there is a need to check wether assumptions fit the reality. So, there is standard TOC solution for MTO environment (no matter short or long touch time we have) which according to description relieves much of customers pain. And its implementation will give advanages in competition (it’s said that no competitor provides good enough on time delivery).
So, when I think on S&T process in this particular company I consider more far future DCE not based only on simple rapid reliable responce. It was the main reason why I put on distinguishing between Operations and Marketing plus R&D.
After implementing short-term solution Steve will have parameters of capacity profile, planned load, current comstraint(s) and CCRs, T&OE. I hope there would be capacity buffers. And all this datas are the input for decision making on evaluation of new stratigic initiatives. Another very important input is a forecast of new marketing segments demand (I hope not in one figure). And investigating for this forecast does not depend on current capacity and load situation.
Having all that inputs Steve will have good enough basis for evaluating investments which are needed and areas which have to by elevated and impact of this decisions on the bottom line both in short- and long time frame.
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The S&T templates require a fully detailed S&T! Actually I have not seen a case where the S&T template could be implemented as is. Modifications are always required. More, the “template S&T” requires going through it with all the management and then implement first the Build part, and then go to Capitalize, which is marketing and sales very specific efforts, and it requires training and tuning the way offers are put to the market. Then the Sustain part brings the efforts back to what you also mention Capacity Profile etc.
The conflicts about focusing are for the relatively short-term: about six months. Should all the other projects be frozen and only the Build part of the S&T be implemented? Or, we can go with the Operational part of the S&T, which might take that time, and at the same time some, or all, of the other projects. For me this is the question of the case.
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Steve needs to seek to understand why there is a benefit to his business by waiting on those latter 3 products. In a quick turn world it is hard to slow down. But sometimes when you don’t slow down you miss the real opportunities.
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Don, yes Steve needs to understand the possibility that by staggering the projects might finish earlier. This assuming the current projects create significant number of multi-projects is already causing a lot of multi-tasking. Probably is.
How does it impacts the S&T process? Should he wait for six months?
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Since the Company is in the business of designing, manufacturing and selling its products, so, to the customer, what matters is what is on offer from this company any time that meets or exceeds customers expectations w.r.t. its competitors.
Inwardly, the Company has two environments – Projects and Operations where projects are input to operations.
So, the Company needs to define its overall strategy – be it for short-term DCE or for long-term New offerings to the market w.r.t. its goal by clearly articulating the expected benefits from DCE and from New offerings over time.
Consequently, within the company, multi-project environment shall implement SandT of CCPM. This needs to be dovetailed by SandT of Operations/SDBR for current operations plus as new projects / products get completed within the company.
Measurements and other basics of TOC will get implemented as we go along.
So, the direction is to implement TOC right away in a holistic manner keeping all the requirements of the company in mind.
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HighX perceives conflicts that ought not to exist. The resources, efforts and changes required to serve customers with reliable delivery, including faster (one-week) delivery are (should be) largely independent of the engineering and product development activities required to add features to existing product categories and create new product categories for new markets. Steve should focus first on achieving reliable delivery in a way that enables faster delivery at a premium price, as this would increase forward throughput by more than 4% (0.25 x 0.17), while increasing customer delight. Separately, the product development activities/objectives should be prioritized and organized (CCPM) to accelerate and secure even more forward Throughput via sales increases under anticipated improved reliable/faster delivery conditions, subject to the primary constraint of available engineering talent resources.
S&T Tree implementations need not suffer from template-based (e.g. MTO) presumptions about CSFs. There is still only ONE Goal: “Accelerate purposeful value creation and capture.” Steve will gain a clearer strategic perspective, if he starts his S&T thinking with “Why HighX exists? … i.e. articulating its business Purpose, which in turn makes the ONE Goal purpose-serving for HighX.
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Richard, why do you think Steve is not aware to the goal? It is James, the TOC expert, who requires that when the S&T operational practices are implemented all the management will be focused on it, and thus all other projects be stopped for that period of time. Is this absolutely necessary?
You have rightfully observed that there is no direct clash between R&D of new features and new products and that part of the S&T.
However, After the first phase of the S&T there might be serious conflicts that need to be resolved. Do you, and all others, see them?
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Madan, I’m not sure whether producing to specifications requires a project environment, like very extensive engineering part that designs every customer order. Most cases I have seen that involved engineering of every order as an input to production could be handled by SDBR, because the engineering part was based on very short tasks of one, maybe two engineers checking the specifications.
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Within the holistic approach the current projects need to be carefully evaluated, and even more carefully checked not to create overload on management. So, the question is how much can be done at the same time, and what dictates the actual sequence / staggering?
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Hello, Eli! Let me try to pass the exam 🙂 As your and Mr. Goldratt student I personally believe just in simplest things/solutions. For me it’s not operational but pure PM case. So I would start from basic ccpm rules and would make prioritizing of projects according to their T/time on major limited resources (if it’s not clear then any reasonable assumption is ok, better not to think too much procrastinating with decisions) strongly watching/choking work/project release especially on constraints. If the new initiative adding mark-up on fast delivery is expected to be more lucrative than the others so let it be the first in line. If all initiatives are more or less similarly T/time promising- then any sequence is ok, not so important. The key is prioritization – by avoiding multitasking the gain from the first finished project will be obtained much faster and all other projects (while frozen at very beginning) will be usually finished overall faster one by one than all at a time (if to be done by the same resources). People usually get scared by perspective to freeze “strategic projects” thinking that the earlier we start the sooner we finish – this is so common mistake in multi project environment and a manager is to have enough guts to work against “common sense”. Does it make any sense?
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Konstantin, this is not an exam! I do NOT determine what is right. I truly accept “Never Say I Know”. I try to provoke thought, bet eventually each one of us decides what seems to be right.
Is it pure PM case? There is an operational/production activities that are at the core of HighX business. Most PM is about developing features and products, and also the marketing and sales procedures.
When it comes to projects the criterion of T/time on major resources is just a part of the considerations. The time-to-market of the project is very important, and also keep in mind that the T is a very uncertain variable.
I agree that staggering projects is a must to get an overall faster flow. Still, the question of how many can we do at the about the same time has to get a practical answer. And also the priority between the projects.
What is the damage that three projects of adding features to projects would be delayed, say by a whole year until the launching of the fast delivery is completed?
What is the damage that opening two additional market segments would be delayed until the delivery advantage of HighX is well established in the current markets?
Just to remind you of an important insight of Goldratt:
Offering significant added value to the market does not mean the market fully understand the new value. There is a need to buy-in the market to the new value!
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Following please find my thoughts and humble comments.
The proposed changes as proposed by James (TOCE) are:
1. “James suggested waiting with the S&T for six months until three most important projects would complete and then start the implementation”.
2. “While the three most important projects are making progress, the other projects would be frozen until the three are completed, and also until the operational part of the TOC methodology is successfully implemented”.
Knowing that one if not the most important key responsibility of any CEO, is to FOCUS, meaning to pursue the most promising improvements efforts, now as well as in the future. This might put the CEO into a conflict whether to accept the TOCE suggestion to postpone the TOC implementation for six months, or to implement TOC, freezing all R&D ongoing initiatives. His main questioning might be around what is best for the company now as in the future?
Now, the suggestion of the TOCE seems to be derived, from his engraved need to have a focused implementation, meaning that all resource attention must be mainly dedicated to the TOC implementation process, eliminating the bad multitasking that may arise, due to several initiatives being enforced to progress at the same time will most probably make all initiatives to go astray and be late, or very late.
The above, also implies that the resources that implement both initiatives (R&D and TOC) are almost about the same, which doesn´t sound much to me, because initially the implementation of TOC will be focused on the production team developing the internal changes “setting the clock” and afterwards training the sales and marketing teams to capitalize on the new production capabilities. if this weren´t the case, then I perceive no need to postpone the TOC implementation; nevertheless, coming from a TOCE, it might sound obvious, that he has checked this issue. Any how this line of thought points out a possible way out to be able to implement both TOC and R&D initiatives as the CEO will be in favor to proceed.
In my head I continue to question, what will be different from today’s situation, as of six months from now?
Of course, no wonder that the R&D initiatives, should have made some progress, but most probably will continue to be under development as the forecasted original time estimates were from six to twelve months, meaning a major uncertainty going on, as it´s usual in most project environments. But this doesn´t offer any meaningful line of challenging such reality.
The other line of thought that sounds more promising at least in my view. This will be to try to convince the CEO that the expected outcome of the TOC Implementation greatly surpasses the impact as compared with the other R&D initiatives, that roughly speaking, in most cases, they turn to be basically some forecasted results, based on some basic assumptions made out of reality, or as Dr Eli Goldratt pointed out several times they are some good educated guesses (forecasts), and thus any strategy based on such might be called at best risky.
Hopefully this will drive the CEO to take the decision to develop the Decisive Competitive Edge (DCE) as of the implementation of the TOC proposed S&T, and thus freeze all other initiatives. Placing a great effort to make him realize that having a DCE will not only take care of current situation, but also will buy enough time to develop all promising initiatives that come forward, including actual R&D initiatives if they now make real sense, or even develop new DCE´s.
Most probable, both the R&D and TOC initiatives, at least in the eyes of the CEO are aligned with the very important objective to achieve a Decisive Competitive Edge (DCE), as mentioned in the narrative.
Having said so, analyzing the possible expected impact of the TOC S&T in HighX environment could be as follows:
What is it the main result expected from the TOC implementation, is it the Reliable Rapid Response (RRR) impact? NO, this is just an upside of the new capabilities, nevertheless as time passes this alternative may become a main line of business, but you never know upfront.
The first expected jump in performance should come from the increase of sales volume, due to a significant improved, sustained and recognized reliability on due dates committed with customers. Recognized means, making the current market aware of such performance, and this of course will take some time.
This may generate a jump of total sales, ranging 10% to 35% or 50%, or even greater, who knows for sure? It all depends on the bad performance of the competition and the available protective capacity of HighX, to continue to grow at such steep slopes.
Anyhow, let’s assume a jump of 10% in sales, and that T= 50% which seems about right for this type of business. So, for every 10% increase in sales volume the impact on NP will be around 5%, assuming the Delta OE = ZERO (new sales can be made without a significant increase in the OE).
This, is a total new perspective or understanding, if you will, of the expected impact of the TOC implementation. Needless to say, this these is a relevant and significant increase in the current NP, and may be as big as twofold to whatever some-fold increase, now the real question starts to be: can any of the other R&D initiatives may bring such benefits? Probably not, but who knows?
After having checked this reality with the real HighX numbers, then some relevant questions need to be answered:
• What´s the expected impact of the new R&D initiatives on the NP (as of the T analysis) as compared with the TOC implementation?
• Could both initiatives (TOC and R&D) be done without relevant interference one another?
• What is the realistic period to obtain initial significant results from TOC Implementation?
This may lead to a more secure way to solving the CEOs concerns.
Enough feed for though, your comments will be mostly appreciated.
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Jorge, you have some good thoughts. but, you made some mistakes in the financials. When Sales go up by 10%, Throughput will also up by 10%, unless the increase in sales is due to higher price. But an increase of 10% on the Throughput, assuming no increase in OE, would increase NP much more than 10%, certainly more than 5%.
Simple example: Sales = $1m, T=$500K, OE=$400, NP = $100K. Sales goes up to $1.1m without increase of OE (TVC goes up, but it is included in the T), then T is now $550. NP is now $150 (OE is still $400K). This is 50% increase!
I’ll soon come back with mu thoughts on the way in a special post.
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Eli, you are right in the calculation. thanks for bringing this up.
Somehow I misswrote, forgot the Zero behind the 5, sorry.
It´s clear the great jump as i mention it in the narrative, a paragraph below the calculations “This is a relevant and significant increase in the current NP, and may be as big as twofold to whatever some-fold increase.”
Regards dear Master
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Eli et al:
I think all should be frozen at certain point, or limited, and TOC implemented. Why? Our experience tells: in 6 months the situation will be the same as now, or worse. The projects planned for 6 months will be delayed. Additional burden will come from past projects not perfectly completted, and requesting some improvements. New projects ideas will come, which absolutely must be done because competitors work on them as well. There will come new deadlines and challenges. Believing that in 6 months from now, uff, finaly we will have some resources to implement better management, is an illusion.
This is why I started to learn project management and my friend Marek brought my attention to TOC. I imagined an infinite cue of problems. What changes if from an infinite rpoy you cut a piece? Nothing. The infinite rope is as was, infinitely long. The only thing that can be changed is the throughput. And to change throughput one needs to find the constrains.
At what moment to stop and reorganise? A) After accomplishing some projects that can really be quickly accomplished or urgent and important B) immediately. A or B? I would say, A, after accomplishing projects with short deadline or which are contracted. But not wait long. Why? Subconsciously during this time we will prepare ourselves for the change, and one stress will be relieved by accomplishing projects with close deadline.
What is the barrier to do as above described?
Lack of confidence a solution will be found and TOC sucesfuly implemented. In such a case one may prefer to continue as is, unless the situation bacame so critical that changes must by made absolutely.
Best, Witold
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