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Three Things That Do Change Thinking

March 29, 2018
Organisational effectiveness, Psychology
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Three Things That Do Change Thinking

Changing our behaviours is very difficult, particularly if we rely on thinking our way into new ways of behaving. Changing other folks’ behaviours and thinking, even more so.

We do not usually stop to analyse what we do. Instead our past experiences create predetermined neurologic pathways for behaviours that we repeat, even when those behaviours may not be in our best interests, nor effective in getting our needs met. Kahneman has written a whole book on this phenomenon (Thinking, Fast and Slow). Edward de Bono also explains it at length.

If we want to change behaviour, we need more than data, incentives and disincentives, and rational arguments. Our behaviours are driven by our beliefs. To change behaviours, we must first change beliefs. Change our thinking. So what kinds of thing DO change thinking?

  1. Environment
    Specifically, a changing environment. As our environment changes, we may change our behaviours, and this may lead to changes in thinking.
  2. Experiences
    Change is a normative process. Which is to say, we are more likely to change our thinking if we experience things contrary to our current assumptions and beliefs. This is the realm of Cognitive Dissonance. And there’s a sweet spot: too shallow an experience may not trigger an appreciation of any difference, too deep an experience may cause trauma and rejection of the possible new ideas. To change behaviour we can first use experience to change beliefs; we must act. Experience generates feelings that inform future experience. The more positive the feelings and the more direct the link to experience, the more likely beliefs are to change. When beliefs change, behavior changes.
  3. Intentionality
    On rare occasions, we may come to suspect that our current thoughts, assumptions and beliefs are not serving us well, and intentionally decide to do something about that. One avenue for action may be to seek therapy.

There’s a Common Theme Here

Instead of thinking our way into new ways of acting, we must act our way into new ways of thinking. Of course, for most of us, that’s a new way of acting, so thinking ourselves into it isn’t likely to turn out well. How about just giving it a go?

– Bob

Further Reading

The Power of Positive Deviance ~ Jerry Sternin et al.
19 things that don’t change thinking – Rethinking Services blog post
Curiosity – a first step to changing thinking – Rethinking Services blog post

Six FAQs – X or Y?

March 26, 2018
Antimatter principle, Management, Organisational effectiveness
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Six FAQs – X or Y?

One of my most popular posts is “Six FAQs” – six questions I’m frequently asked about software and product development organisations. Let’s take a look at these six FAQs from the perspective of both Theory X and Theory Y, so as to illuminate how fundamentally different these two perspectives are on these topics.

Q1: How can we motivate our workers?

AX1: Use carrots and sticks. Incentives and punishments. Offer people money (raises and bonuses) and other financial rewards, and freebies (such as free lunches, foosball, sofas, working from home, and 20% time) for doing a good job. Bare-faced threats often undermine morale, but implicit threats, such as assignment to unattractive tasks or teams, lack of promotion, withheld raises, etc., can help keep people in line and focussed. We cannot just sit back and let idle people slack on the job.

AY1: You can’t. Oh, you can dream up incentive schemes, bonus packages, and so on, but there’s plenty of research – and experience – to show that such attempts at extrinsic motivation of knowledge workers only make folks’ performance on the job worse. On the other hand, intrinsic motivation is very powerful – but that comes from the workers themselves. The only thing you can do is to work on creating an environment where maybe, just maybe, some folks feel a little better about themselves, their colleagues, and the common purpose. And hope – yes hope – that some intrinsic motivation emerges, here and there. You can’t change someone else’s intrinsic motivation – only they can do that.

Q2: How can we change the organisation’s culture?

AX2: Assign a team to the task of changing the culture. Increase the chances of success by hiring change management consultants to direct that team. Task the team with designing the culture you want to see and then run a project to implement that design. Try a pilot project in one area of the business to work out the wrinkles before committing the whole organisation. Offer incentives for folks who get with the programme. Lay heavy hints (sweetened with humour) that laggards and saboteurs will be let go. Make it clear that the status quo is not an option, and that there will be personal, unpleasant consequences for those who can’t or won’t change their behaviours.

AY2: You can’t. Culture is read-only. A manifestation and a reflection of the underlying, collective assumptions and beliefs of all the folks working in the organisation. To see any cultural changes, you have to work on – by which I mean work towards a wholesale replacement of – this underlying collective memeplex. And that involves working with peoples’ heads, and in particular, collective headspaces. You can’t change other people’s assumptions and beliefs – only they can do that.

Q3: How can we change the mindset of managers?

AX3: Your managers are the shock troops for change. Impress upon them their responsibilities in leading change, and in particular the change to their own behaviours and assumptions. Tie these changes into their individual remuneration packages through targets and KPIs. Provide extensive training in the new mindset, first for the managers and then cascading down to the front line employees. By having managers lead the change, they will develop the insights and skills necessary to bring everyone else along.

AY3: You can’t. Managers – anyone, really – will only change their mindset when they see how their present mindset is ineffective at getting their needs – and the needs of others – met. Change (of mindset) is a normative process – it emerges from direct personal experiences of e.g. the way the work works now – and the problems inherent therein. You can’t change someone else’s mindset – only they can do that.

Q4: How can we get teams to take responsibility?

AX4: Lead, manage, threaten, cajole, plead and bribe folks. Appeal to both their self-interest and loyalty to the company. Whatever means you choose, it’s the outcome that’s most important. People need to take responsibility. You can’t make an omelette without breaking some eggs.

AY4: You can’t. You can threaten, cajole, plead, bribe, appeal to folks’ better nature, etc. But again, research and experience both show these only serve to undermine folks’ goodwill and commitment. If you need folks to take more responsibility, maybe the best way is to just be honest about that, explain your need, and make a refusable request? What would you like the reason to be for them doing as you request? You can’t change someone else’s willingness to take responsibility – only they can do that.

Q5: How can we get managers to trust their teams?

AX5: This is a non-issue. Managers don’t need to trust their teams. Managers must issues clear instructions on what needs doing and the best way to do it. Teams that can’t be trusted to carry out those instructions must be sanctioned or restructured to weed out the weak and feckless.We must have compliance.

AY5: You can’t. Managers will only choose to trust their teams – or anyone else – if they find they have a need to do so. And that need only becomes obvious enough to spur action when managers come to understand just how trust helps them get some of their other needs met better. You can’t change someone else’s willingness to trust others – only they can do that.

Q6: How can we develop people’s competencies?

AX6: Firstly, training. Ensure people get regular training in areas of competency important to the business. Secondly, put people into stressful situations where they’ll have to step up and learn new competencies. Sink or swim. Thirdly, motivate them to become more competent (for which, see Q1).

AY6: You can’t. You can, however, create conditions where those folks who want to develop their own competencies can do so more easily. So the question then becomes, how can we get folks to want to develop their own competencies? Which is Q1 (see above). You can’t change someone else’s willingness to learn – only they can do that.

In a nutshell, the direct answer to all the above questions depends directly on the lens through which you see the world of work: the Theory X answers (AX1-6) are poles apart from the Theory-Y lens answers (AY1-6).

Which lens do you typically reach for when considering these questions?

– Bob

Further Reading

The Art And Science of Changing People Who Don’t Want to Change ~ Reut Schwartz-Hebron
Theories of Motivation – Think Different blog post

Holistic Solutions for Product Development Businesses

March 17, 2018
Culture change, Flow•gnosis, Flowchain, Innovation, Organisational effectiveness, Product development, Rightshifting, Software development
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Holistic Solutions for Product Development Businesses

Several people have been in contact this week to say “It’s all very well talking about holistic solutions for software development, but who really has any notion of what that might even look like?”

Which is a fair question.

Aside: Let’s note that the phrase “holistic solution for software development” is an oxymoron of the first order. By definition, software development is but part (and generally a small part) of any solution that addresses customer or market needs. Even software “pure plays” have a lot of non-software components.

So, I thought I’d describe just one holistic solution for whole organisations that develop new products containing some software. For want of a better name, I’ll call it this example “Flow•gnosis”. With this example, I hope that maybe one or two readers might find a spark of insight or inspiration to broach the question of a True Consensus in their own organisation.

I’ll try to keep this post brief. I’d be happy to come talk with you about holistic product development solutions for organisations, in person, if you have any real interest.

Flow•gnosis?

Flow•gnosis is a hybrid born of FlowChain and Prod•gnosis. FlowChain is not specifically a holistic solution, focussing as it does on improving the flow of knowledge work through a development group or department whilst moving continuous improvement “in-band”. Prod•gnosis is specifically a holistic solution for effective, organisation-wide product development, but says little about how to organise the work for e.g. improved flow or continuous improvement.

Together, they serve as an exemplar of a holistic solution for knowledge-work organisations, such as software product companies, software houses, tech product companies, and organisations of every stripe with in-house product development needs.

Let’s also note that Flow•gnosis is just an example, to illuminate just a few aspects of a holistic solution. Do not under any circumstances consider copying it or cloning it. Aside from the lack of detail presented here, you’d be missing the whole point of the challenge: building a True Consensus, as a group, with your people, in your context.

What’s the Problem?

Before talking more about a solution, what’s the problem we’re trying to solve?

I’ll work through an almost universal problem facing organisations that “do” software development. A problem that some enterprising supplier or management team might choose to address with an “innovative” solution.

Understanding the Problem

Here are some typical Undesirable Effects (UDEs) I hear from many companies involved in software and product development:

UDE: Delivery is not fast enough (long time-to-market)

UDE: New products cost too much to develop (high cost to bring to market)

UDE: We struggle to keep our products at the cutting edge

UDE: We always drop balls in hand-offs of tasks (i.e. between specialists, or business functions)

UDE: Continual contention for in-demand specialists

(For the sake of brevity, I’ll skip the building and analysis of the cause and effect graph. Your analysis will be different, in any case).

Root cause: Developing new software, products and services through a byzantine labyrinth of tasks and hand-offs, between and across dozens of specialisms within the company and its network of suppliers and distributors. This approach causes many delays (waste of time), mistakes (waste of effort, money), contention of resources, etc.

Conflict: A) Specialists must work together in their own specialist groups or silos to maintain their cutting-edge skills and know-how. B) Specialists from across all specialisms must work together as a group else handoffs and queues will cause many delays and mistakes.

Conflict arrow: Specialists cannot work in their own groups advancing their specialist knowledge at the same time as they work together with other kinds of specialist on new product ideas.

Flawed assumption at the root of the conflict: Specialists must work together. What makes this so? Only the old rules of the organisation. That silos (a.k.a. business functions) “own” their clutch of specialists. What if we changed that rule? (Note: this change is one key element of Toyota’s TPDS). And if we changed that rule, what other rules would we need to change too?

A Bird’s Eye View of Flow•gnosis

Prod•gnosis looks at an organisation as a collection of parallel Operational Value Streams, each dedicated to the selling and support of one of the organisations’ (whole) product or service lines. And each with its own team or collection of people doing the daily work of that operational value stream. Further, Prod•gnosis asks “How do these operational value streams come into being?” And answers with “They are made/created/developed by a dedicated Product Development Value Stream.”

FlowChain describes a way of working where a pool of self-organising specialists draws priority work from a backlog, executes the work, and delivers both the requested work item, and posting new work items (for improving the ways the work works) into the backlog. In this way, FlowChain both improves flow of work through the system, and brings continuous improvement “in-band”

By merging Prod•gnosis and FlowChain together into Flow•gnosis, we have an organisation-wide, holistic example which improves organisational effectiveness, reifies Continuous Improvement, speeds flow of new products into the market, provides an operational (value stream based) model for the whole business, and allows specialists from many functions to work together with a minimum of hand-offs, delays, mistakes and other wastes.

The latter point is perhaps the most significant aspect of Flow•gnosis. Having customer, supplier, marketing, sales, finance, logistics, service, billing, support and technical (e.g. software, usability, emotioneering, techops, etc.) specialists all working together (cf. Toyota’s Obeya or “Big Room” concept) enables the evolution of “Mafia Products” and “Mafia Offers” which the more traditional silo-based models of business organisation just can’t address effectively.

Out With the Old Rules, In with the New

Flow•gnosis is an innovation. Irrespective of the promised benefits of Flow•gnosis, we have learnt in recent posts that adopting an innovation ONLY brings benefits when we change the rules.

Let’s apply the four questions to our Flow•gnosis innovation and see what rule changes will be necessary to truly reap the benefits.

Q1: What is the POWER of Flow•gnosis?
A1: Flow•gnosis makes it commercially feasible for a company to repeatably come to market with new “Mafia Products”.

Mafia Product: “A product (or service) so compelling that your customers can’t refuse it and your competition can’t or won’t offer the same.”

Q2: What limitation does Flow•gnosis diminish?
A2:  Serialisation of specialist work (passing things back and forth between various specialist and business functions).

Q3: What existing rules served to help us accommodate that limitation?
A3: Handoffs. Queues. Batches. Separation of command and control from the work. Process. Process conformance. Local measures. Constant expediting. Critical path planning (Gannt charts, WBS). Local optima. Functional management (discrete management of each separate business function).

Q4: What (new) rules must we use now?
A4: Flow. Value streams. SBCE. Holistic measures. Ubiquitous information radiators. Cost Of Delay prioritisation. Buffer management. Constant collaboration. Dedicated teams of generalising specialists. Self-organisation. In-band continuous improvement. Resource levelling. Limits on WIP.

Summary

This post has been a – necessarily brief – look at one holistic solution to (software) product development. Crucially, we have seen how old rules have to be replaced, and what many of the replacement new rules might look like.

I invite you to remember that Flow•gnosis is just an broad-brush example of a holistic solution. Please don’t consider copying it or cloning it. And remember the real challenge: building, as a management group, a True Consensus.

– Bob

Further Reading

Meeting Folks’ Needs At Scale – Think Different blog post

Obstacles to True Consensus – Summary

March 15, 2018
Culture change, Dialogue, Innovation, Organisational effectiveness, Rightshifting
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Obstacles to True Consensus – Summary

[Tl;Dr: Major improvements in the effectiveness of any organisation go begging, because the skills and experience for reaching the necessary True Consensus are almost always absent.]

This is the final post in my recent mini-series about obstacles to True Consensus.

The Big Picture

Let’s step back and try to take in the big picture for a moment.

I most often label this big picture “Organisational Effectiveness”. You might prefer to call it “improving the bottom-line”, “productivity”, or simply “success”.

Why does this big picture matter to me? Because of the impact ineffective organisations have on the people who work in them, on the people who depend on their products and services, and on society as a whole.

Employees

I’m a software engineer at heart. I have so many times worked with software engineers and other folks wanting to make a difference in the world, and being unable to do so because of the ineffectiveness of the organisations within which they work. Sooner or later, these folks simply give up on their dreams and “check out” (remaining employed but disengaged) or quit. Having been in the same boat myself on any number of occasions, I feel like I can relate. And, BTW, that’s why I now serve organisations in the role of Organisational Psychotherapist, actually doing things – albeit non-software engineering things – to “make a difference”.

Customers

I’m a customer of these organisations, too. We all are. Not out of choice, let me add. I have in mind the various organs of state, in which we have no say regarding the shoddy services and lame products they foist on us. Not that most private corporations are much better.

Society

How do ineffective organisations impact society? Apart from the waste of public money (many are in the public sector) that could be put to better use elsewhere, the sheer number of ineffective organisations lead us all to believe that ineffectiveness is normal and unavoidable. We seem to have lost the belief that we can ever expect to see things become better.

The Key to Improved Effectiveness

It’s pretty much accepted that the ability to transcend paradigms (an organisation’s beliefs, assumptions and rules about work) is the greatest lever to improve effectiveness. And by effectiveness, I mean reducing or eliminating things that should not have been done but nevertheless were done. See my recent post: Reliability and Effectiveness for details and objective measures of this.

In other words, the prevailing paradigm, or mindset or memeplex governing an organisation determines its effectiveness. And so, it’s obvious that to improve effectiveness, we must “shift” this paradigm. This is where most organisations falter and fail. They have no experience or capability in achieving a True Consensus. Such a thing looks like an impossibility.

Aside: Agile

In case you’re wondering if there’s any relevance to tech companies and their employees and customers: All flavours of Agile are essentially forms of local optima. Local optima, in that Agile initiatives are almost always limited to one silo (the “development” or “IT” silo) in the organisation. Most people in organisations doing software development are obliged to place their faith in systems of local optima. This is because the prospect of building a True Consensus across the whole organisation seems so daunting, so impossible, so contrary to prevailing behaviours, as to never receive serious consideration or discussion. And so, systemic ineffectiveness is locked in.

True Consensus

A “True Consensus” is when ALL top managers agree on the exact SAME action plan, with each and every top manager regarding his or her components of the joint action plan as his or her own baby.

Whether in a single organisation, or society as a whole, True Consensus is a prerequisite for concerted action to make things better, to make things more effective. On the path towards effective organisations, progress will only come about if the top teams, and eventually their whole organisations, can agree on their core problems and find coherent, holistic ways forward, together. True Consensus is the necessary prerequisite for Rightshifting any organisation.

This mini-series and its precursors has described one path to arrive at such a True Consensus, including describing the obstacles we can expect to encounter along the way, and ways of overcoming those obstacles.

In brief, the described path consists of repeatedly practicing, as a group and emergent leadership team, these steps:

  • understanding the core conflict in a problem by discovering the inherent flawed assumption
  • agreeing on a direction for a solution
  • elaborating that direction into a full (holistic, company-wide) solution or plan of action
  • agreeing on how to implement that full solution
  • enacting the implementation

You can find more details in the posts of this mini-series:

Obstacles to True Consensus – The Dominant Impatient Visionary

Obstacles to True Consensus – The Smart Conservative

Obstacles to True Consensus – Extrapolating From the Past

Obstacles to True Consensus – Solutioneering

Obstacles to True Consensus – Summary (this post)

and in the four posts prior to the mini-series itself:

Organisational Psychotherapy and the Bottom Line

Pillars

Innovation ALWAYS Demands We Change the Rules

Reliability and Effectiveness

And you can find even more in-depth elaboration of these ideas in e.g. Goldratt’s audiobook “Beyond The Goal”.

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)
Leverage Points: Places to Intervene in a System ~ Donella Meadows
The Asch Conformity Experiment (Video)

Obstacles to True Consensus – Solutioneering

March 14, 2018
Culture change, Dialogue, Innovation, Organisational effectiveness
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Obstacles to True Consensus – Solutioneering

Following on from the third post in this mini-series, today I’ll describe another obstacle to True Consensus. Again, it’s about the behaviour of certain key people. And again, in line with our belief that “People are Good”, the behaviours we’re discussing are not dysfunctional behaviours, but the outstanding, positive behaviours that have brought the company to its present success.

The term “solutioneering” describes our natural tendency to jump to a solution, and elaborating that solution, even implementing something, before we fully understand the problem at hand.

Obstacle: Solutioneering

If we think about solutions while we are analysing a core problem, we will distort reality to fit the solution we have in our mind.

And at the time we’re creating the solution, any time we spend on thinking about how we’ll implement it will distort the solution, too.

In other words, we’ll come up with better solutions, and implement them better, when we tackle any candidate idea in clearly delineated and separated steps:

  1. Analyse the core problem. Simply understand the problem, and the underlying core conflict.
  2. Find the solution
  3. Decide how to implement the solution

You may recognise this approach as the Three Fundamental Questions of Theory of Constraints.

1. What to change?
2. What to change to?
3. How to effect the change?

At each step, we forbid ourselves from considerations better reserved to the other steps. Given the risk of confusion, delusion, distortion, and ineffective conversations, we must maintain the separation between these steps. Absent such separation, the risks of conflating these concerns means we will be that much less likely to achieve our essential True Consensus.

Next time: Summary – Summarising this mini-series.

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)
Theory of Constraints: What to Change ~ Dave Lane (blog post)

Obstacles to True Consensus – Extrapolating From the Past

March 13, 2018
Culture change, Dialogue, Innovation, Organisational effectiveness
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Obstacles to True Consensus – Extrapolating From the Past

Following on from the second post in this mini-series, today I’ll describe another obstacle to True Consensus. Again, it’s about the behaviour of certain key people. And again, in line with our belief that “People are Good”, the behaviours we’re discussing are not dysfunctional behaviours, but the outstanding, positive behaviours that have brought the company to its present success.

Extrapolating from the past is not something negative, it’s something positive. If we don’t extrapolate from the past, if we start every time from a clean slate, what are the chances we’ll do anything sensible? Pretty close to zero. Experienced people are, by definition, people that extrapolate from the past. Otherwise we have no intuition, no insights into a subject.

Here, we’re going to look at two different aspects of this obstacle.

Obstacle: Extrapolating From the Past Into What We Might Do In the Future

This is the first aspect of extrapolating from the past. Extrapolating from the past works in our favour. So what’s the problem with it? When we come to build the change, to build the new strategy based on our new rules, to really embrace the power of the synergistic approach, our past contains what? Yup. The old rules. And if we extrapolate from the old rules, what do we get? We get the same strategy we already have – maybe in slightly different words only – and nothing happens.

Remediation: Exclude the old rules

So, how can we make sure we extrapolate from the past, building everything on past experience, except for the old rules. How can we exclude these old rules? By examining each conflict, by identifying our flawed assumptions- rooted in the old rules – and removing these flawed assumption. In this way, we make our past experience more homogeneous, and everything makes much more sense. We’re not abandoning the past. We’re not erasing our past experience. Exactly the opposite. We’ve removed the one thing that causes our experience to be inconsistent. And we’re reshaping our past experience. Making it much clearer and more palatable. Folks love this.

So what we have to do is take a number of key ideas in turn, and apply the same process:

  • Do the analysis
  • Discover the conflict via the flawed assumption
  • Remove the conflict

By doing this, we reshape our past experience. And the minute we do this, we still extrapolate from our past experience, but based on the new rules, rather than the old rules.

And by the way, did you notice how, for this aspect of the obstacle, remediation is much the same approach as we take with the Dominant Impatient Visionary and the Smart Conservative obstacles?

Obstacle: Extrapolating From Past Experience of Each Other

This is the second aspect of extrapolating from the past. Given our experience of the folks we work with, will they collaborate now? Do they really mean yes when they say yes? Can we rely on them? In most companies, extrapolating from the past in this context leads to less than positive feelings, because what we extrapolate from the past is not exactly flattering.

Remediation: Explore, Reflect and Change as a Group

How to remediate? We have to ensure that we reflect on the past, on our past interactions, on our extrapolations of folks’ behaviours, as a group, rather than in one-to-one conversations. In this way, each person will see how everyone else is also going through the same kind of change. This means, by the way, that all the previous remediations we have mentioned in this series also have to be done in a group, not one-to-one.

Aside: This excludes people learning this stuff from books. People have lost the art of reading together in groups.

Next time: Solutioneering – the final obstacle to True Consensus, explored.

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)

Obstacles to True Consensus – The Smart Conservative

March 12, 2018
Culture change, Dialogue, Innovation, Organisational effectiveness
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Obstacles to True Consensus – The Smart Conservative

Following on from the first post in this mini-series, today I’ll describe another obstacle to True Consensus. Again, it’s about the behaviour of certain key people.  And again, in line with our belief that “People are Good”, the behaviours we’re discussing are not dysfunctional behaviours, but the outstanding, positive behaviours, the virtues, that have taken the company to its present success.

Obstacle: The (Smart) Conservative

Usually, these are people with an enormous amount of experience, very well respected. But somehow, given any suggestion of what to improve, they immediately find ways to prove to you it should not be done. It’s as if they’re going out of their way to maintain the status quo. Do you know anyone like this? What can we do?

As long as these people are in the crowd – and they’re always in the management crowd – what chance do we have of reaching a true consensus on some idea, or way forward, that is beyond the expectation of almost anyone in the group? It’s not that these conservative people are stupid. Definitely not. Do you think that they’re out of touch with reality? That they don’t know the situation of the company? Of course they know. And very well.

And now if we talk with them and ask them “What do you think? Do you think that if the company fails to embark on a process of ongoing improvement, it will survive in the future? What do you think their answer might be? They thoroughly believe that if we DON’T improve, we’re going to be out of business. So how come that these people – with so much experience, with such strong convictions that the company must improve – block any suggestion for improvement? What are they, imbeciles? How it is that this happens?

Here’s the explanation: These smart conservative people have the gift of being able to see both sides of a conflict. Very clearly. As a matter of fact, when we, through analysis, cause them at last to see the core problem, they will tell us “We already know that. We have already spoken out about it, more than once.” And they really believe the problem exists, and the analysis is correct. They have seen both sides of the conflict. They are keenly aware of both sides of the conflict. But do you see what’s happening? Most suggestions for improvement that they have seen in their careers, the vast majority, anyway, are not solutions or improvements that remove the conflict, they are solutions based on movement on the conflict arrow. To give an example of what we mean by “movement on the conflict arrow” consider the bi-annual flip-flop in many companies; from centralisation, to decentralisation, and back again to centralisation. Each time this movement was presented as “THE thing that will save the company” So many huge and expensive reorganisations. Each time, these smart conservative people oppose such initiatives.

Why? They’ve already seen solutions based on movement on the conflict arrow. They have learned from experience that the ONLY thing that will happen in such cases is the substituting one set of undesirable effects for another set of equally undesirable effects. And if that’s what people want to do, better not to do anything. ”Thank you – we have seen it before, we’ve been there already, why should we try the same thing again?”

Remediation: Block Movement on the Conflict Arrow, Identify and Remove the Flawed Assumption

How then do we cause these conservative folks to move towards our true consensus? Let’s present some new ideas, and for each one show the core problem, the conflict. To begin with they will not be surprised. They know the problems already. But then we show them that we have no intention whatsoever to move on the conflict arrow. More than that, we show that we propose blocking any movement on the conflict arrow, because it would be just substituting one set of undesirable effects with another.

Instead, we highlight the flawed assumption within the conflict. We don’t say ”we have a solution”, but rather “we have a direction for a solution”. In other words, our direction is based on the knowledge that we have found one (or more) flawed assumptions. So now we proceed to the next step: creating the full solution. In Theory of Constraints, the full solution emerges from the creation of a Future Reality Tree.

Yes, But

The Future Reality Tree leverages the remarkable ability of people, especial smart, conservative people, to say “Yes, but…”. Usually, a small yes, and a big BUT…

So, rather than attacking these “yes, but” reservations, we embrace the gift within every “yes, but”: “Yes, I understand the solution, yes, it will remove the conflict, BUT it will create another issue…”.

We help as much as we can to meticulously document the cause and effect of the “but”. We go out of our way to do this, to clarify their reservation. Once we have articulated really clearly what’s bothering someone, their reservation will augment our solution by removing the “but”. In this way we arrive at a full solution. With each reservation making that solution simpler, more powerful, and more intense.

And we ourselves learn the value of taking the time to listen to and clarify folks’ reservations.

Repeating this approach three or four time with a smart conservative person, they begin to realise that we are even more paranoid than they are. In a good way.

As soon as these folks understand our intentions, our rigour in dealing with risks, they become our champions and biggest supporters. In most cases the biggest supporter of True Consensus and all the changes it implies is the CFO.

This is how to remediate the obstacle of the smart conservative.

And by the way, did you notice how it’s much the same approach as we take with the Dominant Impatient Visionary?

Next time: Extrapolating From the Past – another obstacle to True Consensus explored.

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)

 

Obstacles to True Consensus – The Dominant Impatient Visionary

March 11, 2018
Culture change, Dialogue, Innovation, Organisational effectiveness
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Obstacles to True Consensus – The Dominant Impatient Visionary

In my previous post I describes the necessary condition for successfully approaching a shift away from a company based on local optima (a.k.a. the Analytic-minded organisation) to one based on a holistic view of business (a.k.a. the Synergistic-minded organisation). Goldratt refers to this necessary condition as a “True Consensus” at the top of the company (along with a subsequent smooth spread of that holistic top-level consensus, without resistance and without fighting).

But how to reach such a true consensus? It can look like an impossibility, due to a very common set of obstacles.

In a series of posts I’ll run through describing these obstacles, along with some options for minimising or even removing each of them in turn. In a nutshell, the real obstacles to True Consensus are the behaviours of key people.

In line with our belief that “People are Good”, we might choose to note that the behaviours we’re discussing are NOT dysfunctional behaviours, but the outstanding, positive behaviours, the virtues, that have taken the company to the successful place it occupies today.

The First of Five

So, what are the real obstacles (barriers) preventing a True Consensus? And how to overcome them, systematically, in a way that’s widely applicable across many companies, and minimising the risk of running into brick walls along the way?

There are five obstacles I’d like to explore. This post begins with just one; the Dominant Impatient Visionary.

Obstacle: The Dominant Impatient Visionary

This kind of person drives their company forward to success. They have been, and remain, the engine of the company. Explaining an idea to this kind of person, though, we generally get just a minute or two of their attention before they start to chew us up, to attack or dismiss our idea. Even though this kind of person is so important for the progress of the company, they are also deadly poison for consensus. Their use of positional power and charisma kills any chance of consensus. And god forbid we try to get rid of people like this. On the other hand, these folks are very smart. They do realise that the biggest stumbling block in moving the company forward is their own impatience. Nevertheless they look like they can’t control their toxic behaviour. How is this?

Here’s what happening: their impatience is probably imbedded in the fact that this person has the stamina to shoot for a very high vision for the company. At the bottom of any idea there is a core problem, and the core problem is based in some kind of conflict. This person has unconsciously conditioned himself to look at just one side of any core conflict. Because he’s trying to avoid taking the “hit” to his stamina that will inevitable arise if he spends any time looking at the other side of the core conflict. He has unconsciously blinded himself to the other side of any core conflict.

As soon as anyone presenting a new idea mentions the other side of a core conflict, his impatience kicks in, and this nice pussycat becomes a tiger. This is what always happens.

But there is a way to channel this person’s phenomenal vision, ability and stamina into a direction that helps consensus:

Remediation: Focus on the Benefits of Identifying and Removing the Flawed Assumption

For any idea, we analyse it and show the core conflict explicitly. We show both sides of the core conflict. And then we say that despite the conflict, we’re NOT going to lower our expectations, or lower the vision. We’re not going to compromise. What we ARE going to do is find and remove the flawed assumption.

And when the flawed assumption is found and removed, we’re shooting even HIGHER than before. Amazingly, we can show how the side of the conflict he habitually ignores – where he intuitively avoids looking – contains the flawed assumption.

The minute we find and remove the flawed assumption, then everybody can get behind the idea. The smart person can soon spot this pattern, in maybe as little as three or four instances of highlighting the flawed assumption. And the pattern is: “I’m not afraid any more that by looking on the other side I will reduce my ambitions, or that I will lose my stamina. I’m looking on the other side for only one purpose: to find and remove the flawed assumption.”

Next time: The Smart Conservative – another obstacle to True Consensus explored.

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)

Organisational Psychotherapy and the Bottom Line

March 9, 2018
Culture change, Management, Organisational effectiveness, Organisational Therapy, Rightshifting
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Organisational Psychotherapy and the Bottom Line

The core of the Rightshifting message is:

For those interested in bottom-line results, the results of the holistic (Synergistic) approach always dwarfs the results of the Analytic approach.

A system of local optimums is not an optimum system at all; it is a very inefficient and ineffective system.

Because of interdependence and variation, the optimum performance of a system as a whole is not the same as the sum of all the local optima.

If all the components of a business system [i.e. the organisation’s silos] are performing at their maximum levels, the system as a whole will not be performing at its best (or anywhere near its best!).

And that’s why, if we’re truly driven by bottom-line results, we might consider doing everything we can to move to a holistic (a.k.a. Synergistic) approach.

The Main Blocker

But what’s the main blocker to our moving in that direction? All senior executives in a company may agree in principle that a holistic approach is desirable. And yet, so infrequently do companies actually take concerted action to make this happen. Why is this?

True Consensus

Absent a “True Consensus”, action will be unlikely.

What is a “True Consensus”?

A “True Consensus” is when ALL top managers agree on the exact SAME action plan, with each and every top manager regarding his or her components of the joint action plan as his or her own baby.

So, how to reach such a true consensus? It can, so often, look like an impossibility.

What are the real obstacles (barriers) to a “True Consensus”?

For the most part, the real obstacles are the behaviours of key people. Not dysfunctional behaviours, though, but the outstanding, positive behaviours that have got the company to the successful place it occupies today.

These key people include: the Dominant Impatient Visionary (a.k.a. the engine of the company),  the Smart Conservative, and others who extrapolate from past experience.

Note: for expanded definitions of these character types, see later posts in this series, including:

Obstacles to True Consensus – The Dominant Impatient Visionary

Obstacles to True Consensus – The Smart Conservative

Obstacles to True Consensus – Extrapolating From the Past

Obstacles to True Consensus – Solutioneering

Facilitating a True Consensus

How, then, to bring these key people closer together in such a way that they can arrive at the necessary True Consensus? And at the shared Action Plan? And keep them aligned and on course as that shared Action Plan unfolds?

Here’s where Organisational Psychotherapy can help. Organisational Psychotherapy increases the quality and effectiveness of the dialogues between a company’s key people. Dialogues without which the building of a True Consensus will most likely fail to get off the ground, stall or dissipate.

Over To You

How will you and your peers go about building the True Consensus necessary to unlock the power of the holistic approach in your company? Could you use those hugely improved bottom-line results? Or is your current self-image, and set of assumptions, beliefs and tropes, more important to you than bottom-line results?

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)

Pillars

March 8, 2018
Antimatter principle, Engineering, Organisational effectiveness
1 Comment

Pillars

I was about to name this post “Pillars of TOC”, but after second thoughts I believe these pillars are equally useful outside of their immediate Theory of Constraints context.

Do you need to be able to think more clearly? Or maybe you know someone who would benefit from clearer thinking?

Goldratt asserts the pillars described below as foundational to “clear thinking”:

  • Inherent Simplicity
  • Every Conflict Can Be Removed
  • People Are Good
  • Never Say I Know

Pillar: Inherent Simplicity

This first pillar is a choice. An intention to look at situations as if they were always inherently simple. As if the nature of reality itself is simple (and harmonious).

“Reality is simple and harmonious.”

If we choose to proceed as if this were true, then we will be less likely to get trapped in looking for sophisticated explanations and complicated solutions. We will be less likely to channel our attention towards just those things we allow ourselves to see.

“The first and most profound obstacle is that people believe that reality is complex, and therefore they are looking for sophisticated explanations for complicated solutions. Do you understand how devastating this is?”

~ Goldratt, Eliyahu M.. The Choice, Revised Edition (Kindle Locations 213-215).

For clear thinking, we must choose to proceed as if we accept the idea of Inherent Simplicity, as a practical way of viewing reality, any reality. We may even go so far as to choose this as our approach to life in general.

“The biggest obstacle is that people grasp reality as complex when actually it is surprisingly simple.”

~ Goldratt, Eliyahu M.. The Choice, Revised Edition (Kindle Locations 219-220).

So what exactly do we mean by Inherent Simplicity? In a nutshell, Inherent Simplicity is the cornerstone of all modern science, as stated by Newton: “Natura valde simplex est et sibi consona.” We may translate this as “nature is exceedingly simple and harmonious with itself”.

Note: Goldratt states that with the Theory of Constraints, he takes a “Hard Science” perspective in all situations.

In practice, this means examining the cause-effect relationships within a given situation. And, contrary to our intuition, where we would expect some form of combinatorial explosion of complexity to result, Inherent Simplicity (and Newton) tells us that the system will converge, and common causes will inevitably appear as we drill down. If we drill down deep enough, we’ll find just a very few, or maybe even just one, root cause. So the result of systematically examining the cause-effect relationships in a situation leads us not to enormous complexity, but to wonderful simplicity.

If you doubt this, take a look at this article explaining the relative simplicity of two systems.

Hint: If I’m a scientist or a manager, I’m not so much interested in how difficult the system is to describe, but more in the difficulty of controlling and predicting its behaviour, especially when changes are introduced. The scientist or manager’s definition of complexity is: “the more degrees of freedom the system has the more complex it is.”

We’re not claiming that reality is not overwhelmingly complex; we acknowledge it in full. But what we are claiming that we can see things more clearly, think more clearly, when we choose to proceed on the basis that reality is exceedingly simple.

Note: We may begin to see how this perspective renders the idea of “complex adaptive systems” irrelevant.

Pillar: Every Conflict Can Be Removed

Let’s come back to the earlier proposition about Inherent Simplicity, that “Reality is simple and harmonious (with itself).”

We may choose to interpret “harmonious with itself” to mean that there are no contradictions in nature. In the material world. In “reality”.

“There are no conflicts in reality.”

For example, if we measure the length of a rod, by two different methods, and get two different answers, we don’t compromise. We don’t say “let’s split the difference and use the average between the two methods”. The contradiction between the two methods signals us that somewhere along the line we have made an erroneous assumption of some kind. And so we’ll go looking for that flawed assumption, and never accept a compromise. Such is the strength of our belief that there can be no contradictions in nature.

But this pillar is about conflicts, not contradictions. A conflict can occur any time we have opposing requirements, such as the need for an aircraft wing to be both strong and light. All undesirable effects (in the cause-effect relationships within a given situation) stem from such conflicts.

So this pillar is about choosing to proceed such that we treat every conflict like a scientist treats a contradiction. Which means, examining the conflict to uncover the inherent erroneous assumption(s), and refusing compromise as a way out.

“Don’t accept conflict as a given.”

Note: All forms of optimising and optimisation fall into the category of “compromising”. Such a waste of everyone’s time and talents.

Pillar: People Are Good

With this pillar, we come back again to the idea of harmony. This time we’re interested in another obstacle to thinking clearly: blaming others.

“Blaming another person is not a solution.”

In fact, in many cases, blaming others points us in the wrong direction, away from a solution. Even if the person we blame were to be fired, in most cases the problem will remain. Blaming is a sure-fire way to undermine the harmony in our personal relationships.

And we need that harmony, so that we can collaborate effectively with other people (our peers, our suppliers, our customers) in finding the solutions we seek.

So, we choose to proceed with the deep conviction that harmony exists in any relationship between people (even though in most cases, by default, we don’t bother to find and implement it). We choose to proceed on the basis that

“Win-Win is always possible.”

This perspective allows us to think more clearly, and find solutions that work for all parties involved, not just one side. Yes, it’s more work, but it gives our solutions much more stickability.

And, incidentally, for effective harmonious relationships, we have to care about the people involved. We have to invest the time and effort into knowing them and their true needs (cf. The Antimatter Principle).

Pillar: Never Say I Know

When we choose to proceed on the basis that we know about a situation, we’re unlikely to seek improvements, to check for holes in our logic or understanding, or to believe that the situation can be improved.

So, let’s always proceed as if we DON’T know. This choice can help us think more clearly, examine the situation afresh, and discover different, more effective ways of doing the things that need doing.

“Every situation can be substantially improved.”

Summary

You may see the above pillars as largely philosophical, as a way of looking at the world. Personally, I choose to see them as pragmatic, as a way of interacting with the world. And, returning to the notion of harmony, we may begin to see how all these pillars complement each other, harmoniously.

Harmony: “the quality of forming a pleasing and consistent whole.”

– Bob

Further Reading

The Choice ~ Eliyahu M. Goldratt and Efrat Goldratt-Ashlag

 

Innovation ALWAYS Demands We Change the Rules

March 7, 2018
Agile, Culture change, Innovation, Software development
9 Comments

Innovation ALWAYS Demands We Change the Rules

How do you feel about the proposition:

“Innovation can bring benefits if and ONLY if it diminishes a limitation”

Let’s examine this proposition. Do you agree with it? Don’t be too hasty in coming to agree with it. Once we agree, you’re hooked! So, let me explain a little more, starting with some definitions:

Innovations

We’re talking here about all kinds of innovations. Not just tech innovations (new materials, new languages and tools, new industrial processes, new scientific discoveries) but other innovations too (new ways of doing things, new ways of structuring and managing organisations, new ways of developing products and software, plus many others).

Limitations

What do we mean by “limitation”? A limitation here is anything that restricts us from getting our needs met to the maximum possible extent. (And btw that maximum is, itself, a limitation).

Limitations can be “recognised” (for example, a speed limit on a motorway) or unrecognised (for example the physical speed limit for a given curve, with a given vehicle, in specific road conditions).

Examining the Proposition

So, back to the proposition: “Innovation can bring benefits if and ONLY if it diminishes a limitation.”

Do you agree?

We were alive and functioning even before the innovation became available. Correct? It must be, then, that long before the new innovation, we developed modes of operation, modes of behaviour, policies, rules, to accommodate the limitation. I’ll refer to all these as simply “rules”.

We were able to operate. Rather than run smack into the limitation and die. That’s obvious.

Before the innovation, we created certain rules to cope with the limitation (recognised or unrecognised, known to us or unknown).

Suppose, then that we make a very good job of implementing an innovation, and thereby diminish the associated limitation totally. Still, the question is:

What benefits will any innovation bring, if we neglect to change the rules? The rules that helped us to accommodate the limitation, before the innovation was available? What benefits will we see if we neglect to change the rules?

Do you start to see the answer?

The Old Rules Block Any Benefits

What benefits will we see if we neglect to change the rules? Basically, no benefits. None. Why? Because as long as we obey the old rules – the rules that were there to bypass the limitation – for as long as we obey these rules, for all practical purposes we will continue to behave as if the limitation is still there.

Can it be that we’re so stupid that we continue to adhere to our old rules, the rules we originally invented to bypass or cope with the limitation? You know the answer.

This is what is happening every day, for the vast majority of organisations, and for the vast majority of innovations they adopt. For a long time after adopting the innovation we still obey the old rules. And because of this, for a long time we don’t get any of the real benefits from our investment in the innovation.

Four Not So Frequently Asked Question

So, how might we proceed if we need to ensure that innovations really do bring us the promised bottom-line benefits? We might choose to ask ourselves the following sequence of four questions:

Q1: What is the POWER of the innovation? (Just ask the inventors, they’ll be more than glad to explain, and explain, and explain…).

Q2: What limitation does this innovation diminish? (We must find a specific and precise answer, here).

Q3: What existing rules served to help us accommodate that limitation (i.e. what obsoleted rules must we get rid of)? Here we can for the first time evaluate the tangible bottom-line benefits from removing those old rules. Note: As long as the old rules remain in force, we will never see the promised benefits from the innovation.

Q4: What (new) rules must we use now, in place of the old rules which the innovation has obsoleted?

Let me give you an example. Let’s take Agile Software Development as our innovation.

Q1: What is the POWER of Agile Software Development?
A1: Agile Software Development increases the likelihood that we’re developing software that meets our customers’ real needs.

Q2: What limitation does Agile Software Development diminish?
A2:  Risk of misunderstanding customers’ real needs, both now and as they evolve.

Q3: What existing rules served to help us accommodate that limitation?
A3: Contractual terms. Big up-front specifications. Rigorous plan-driven project management. Change control. Specific duration projects. Formal V&V.  One-off or infrequent release into production.

Q4: What (new) rules must we use now?
A4: Development and delivery as experiments. Short, tight feedback loops. Constant collaboration between customers and developers. Constantly evolving specifications and solutions. Multiple “stop/continue” checkpoints. Incremental and frequent release into production.

Try It For Yourself

Here’s some other innovations we see introduced in e.g. software development organisations. May I invite you to run through the above four questions for one or more items on this list?:

  • Teams / team-based development.
  • Obeya (big-room).
  • TPDS (Toyota Product Development System).
  • Lean Product Development.
  • Cost of Delay.
  • Flow.
  • Python, ELM, or some other new language or tool you may be considering adopting.
  • Self-organisation / self-management.
  • Servant Leadership.
  • Holacracy.
  • Serious Play.
  • Continuous Improvement.
  • [Your own favourite innovation].

We Must Change the Rules

“Human beings cannot progress unless somehow they do things differently today from the way they did them yesterday.”

~ Shigeo Shingo

So now we can see that the real effort we must make is NOT in adopting new innovations, but in changing the rules. And these rules are manifest in the assumptions-in-action, the collective mindset, the culture, of an organisation. This, btw, is the central message of Rightshifting and the Marshall Model.

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)

Reliability and Effectiveness

March 6, 2018
Marshall Model, Metrics, Organisational effectiveness, Rightshifting
1 Comment

Reliability and Effectiveness

Many times when presenting either the Rightshifting curve:

or the Marshall Model:

I have been asked to define “Effectiveness” (i.e. the horizontal axis for both of these charts). I have never been entirely happy with my various answers. But I have recently discovered a definition for effectiveness, including a means to measure it, which I shall be using from now on. This definition is by Goldratt, as part of Theory of Constraints, and appears in his audiobook “Beyond the Goal”.

Measurements

Measurements serve us in two ways:

  1. As indicators of where we are, so we know where to go. For example, the dials and gauges on a car’s dashboard.
  2. As means to induce positive behaviours.

We must always remember, though, that we are dealing with humans and human-based organisations:

“Tell me how you measure me and I’ll tell you how I behave.” ~ Goldratt

We must choose measurements to induce the parts to do what’s better for the company as a whole. If a measurement jeopardises the performance of the system as a whole, the measurement is wrong.

Companies already have one set of measurements which measure their performance as a whole: their Financial measurements: e.g. Net profit (P&L) and investment (Balance Sheet)

What about when we dive inside the company as a whole, though? We then have two areas in which we have to conduct measurements:

  1. Support for and evaluation of management decisions
  2. Oversight on execution (how well are we executing on the decisions we’ve made?)

We generally don’t have good measurements in terms of decisions, nor good measurements in terms of execution.

We have to remember we’re dealing with human beings. And as long as we’re dealing with human beings, we have to realise that by judging any person on more than five measure, we’re creating anarchy. Simply because, with more than five measurements, people can basically do whatever they like, and likely still score high on one of them. And their bosses can nail them on some measurement they fail to deliver against. More than five measurements is conceptually wrong.

Categories of Measurement

So, how to categorise thing so that human beings can grasp the situation? Can we do better than we do now? Theory of Constraints suggests we can.

What resources do we have to help us formulate measurements in each of the above two areas; management decision-making, and execution of those decisions?

  • For decision-related measurements – there are lots of resources available to help e.g. books on Throughput Accounting.
  • For execution-related measurements – there is next to nothing published anywhere.

Continuous Improvement

I’ll not make the case for continuous improvement here. But if we wish to induce people to continuously improve, where should we focus our measurements? On things that are done properly, or on things that are not done properly? Which of these two foci better drives action? Focussing on the things we’re doing properly tends not to drive improvement. So we must concentrate on things that are not done properly.

How many things are not done properly? Kaplan suggests that in most businesses, there are more than twenty categories of things that are not done properly. But for humans to grasp our measures, we have already decided we need at most five categories, categories that completely cover everything that is not done properly, with zero overlap or duplication. Finding a way to categorise things that meets our criteria here is a nontrivial challenge.

Goldratt says there are only two categories:

  1. Things that should have been done but were not.
  2. Things that should not have been done but nevertheless were done.

Just two categories, with zero overlap. Beautifully simple.

And each of the above two categories already have a word defining them:

  1. Things that should have been done but were not – unreliability.
  2. Things that should not have been done but nevertheless were done – ineffectiveness.

Let’s swap these around into positive terms: Reliability, and Effectiveness.

Lovely.

Reliability and Effectiveness

Can we find measures to quantify Reliability and Effectiveness? How can we put numbers on our reliability? How can we put numbers on our effectiveness? Because, without numbers, we’re not measuring.

Let’s consider what is the end result of being reliable, in terms of the system as a whole. And what is the end result of being effective, in terms of the system as a whole? Not in financial terms though, as reliability and effectiveness are not financial things. We know this intuitively.

Reliability

Things that should have been done but were not.

The end result of being unreliable, in terms of the system as a whole, is that the company fails to fulfil its commitments to the external world. In other words, the company fails to ship on time. Do we already measure on-time shipment? Yes. We call it Due Date Performance. That’s a measure of how much we ship on time. “Our company Due Date Performance is 90%”. The unit of measure is almost always “percent”. What behaviour does this unit of measure trigger? Does it trigger behaviour that is good for the company? No. It encourages us to sacrifice on-time shipment of difficult, larger shipments in favour of smaller, easier shipments. So the dollar value of the sale must be part of any reliability measurement. We cannot ignore the dollar value. And neither is time is a factor in percent units. How late is each late shipment? We must include time, too. So, let’s change our “Reliability” units from “percent” to “Throughput dollar days” – the sales dollar value of each orders that is late, multiplied by the number of days it is late, summed across all late orders. The sum total is the measurement of our (un)reliability.

This is of course  a new unit of measure: Throughput-dollar-days. To infer trends, or to compare the performance of e.g. groups or companies, we will need time to train our intuition in the significance of this new unit of measure. As we begin to get to grips with this new unit of measure, it can help to present it as an indicator (a number in some fixed range, say 1-10, or as we use in Rightshifting, and the Marshall Model, 0-5) until we have adjusted to the Throughput-dollar-days measure.

Effectiveness

Things that should not have been done but nevertheless were done.

If we do things that we should NOT have been doing, what is the end result? Inventory. Do we already measure inventory? Of course we do. But how do we presently measure inventory? Either in terms of a dollar value, for example “$6 million of finished good inventory”, or in terms of a number of days, for example “60 days of finished goods inventory”. But both dollars AND time are important. Existing units of measurement for inventory drive unhelpful local behaviours like over-production and poor flow. So, how to measure to induce helpful behaviours? For each item of inventory, let’s use the dollar value of the inventory multiplied by the number of days that we’re holding that inventory under our local authority. We’ll call this unit of measure “Inventory-dollar-days”.

And one more measure of effectiveness: local operating expense. (For example, scrap, or salaries – with a given subunit of the company).

Note: We can fold quality into these measures simply by not recognising a sale, or a reduction in inventory, until the customer accepts the items (i.e. until the items meet the customer’s quality standards).

Summary

Now we have means for defining effectiveness, (and reliability) in a way in which we can also measure it. I feel very comfortable with that.

– Bob

Further Reading

Beyond the Goal ~ Eliyahu M. Goldratt (Audiobook only)

Relevance Lost: Rise and Fall of Management Accounting ~ Kaplan & Johnson

The Goal ~ Eliyahu M. Goldratt

Throughput Accounting ~ Thomas Corbett

The Balanced Scorecard: Translating Strategy into Action ~ Kaplan & Norton