Sunday, May 19, 2013

Focus and Leverage Part 213

In our last posting we completed the development of our Intermediate Objectives Map, so now it’s time to see how this same map can be used to assess our organization’s status with respect to our goal of becoming a highly profitable company.  But before we do this, I want to relate a question I received from one of our regular readers about the direction of the arrows in my IO Map.  The question and comment are as follows:  "As one of the readers of your blog Focus and Leverage, please allow me to ask you a small question. in your last posting (Part 212; copied below for convenience), which have been your criteria to determine the direction of the arrows in the IO maps?  My reason for asking is that authors like Scheinkopf and Dettmer place the arrows the other way, towards the goal."  The reader is absolutely correct, since the common method is to have the arrows moving in the direction of the Goal.  I have chosen to have them pointing in the direction upon which the entities were added to the map simply because I have found that people new to the IO Map seem to grasp this method much easier.  Please remember that the correct way, or might I say, the way that conforms to what most other TOC practitioners teach, is to have all of the arrows pointing in the direction of the Goal.     

So now that you have your completed IO Map in hand, what’s the next step?  I will warn you in advance that this is where Bruce and I deviate from established guidelines on what to do next.  As per Bill Dettmer’s recommendations you should normally move directly into the creation of a Current Reality Tree (CRT) and/or a Conflict Resolution Diagram as part of a full systems analysis. Both Bruce and I support this approach that is, if you have the time and leadership support to conduct a full TP analysis. But what if available time is a factor and you don’t have full leadership buy-in for a full TP analysis?  Don’t give up because we believe we have a viable alternative that we have both used in numerous companies and organizations.  If time and/or support is/are missing, what we typically recommend is to use your completed IO Map to facilitate a critical discussion on the status or current state of each of the boxed entities, the  Goal, CSFs and NCs.  So how do we recommend doing this?  We use a simple color scheme of Green, Yellow and Red to describe the state of each of the IO Map entities in our current reality.  The figure below is a summary of that exercise for our hypothetical company.

The key on the bottom right hand side of this modified IO Map represents the interpretation of each of the three colors.  If the entity is shaded in green, then the entity is in place and functioning so no changes need to be made.  A yellow box would indicate that although there is something in place, it is not delivering what is needed and requires some tweaking.  A red box represents an entity is either not in place or something is in place, but it isn’t delivering what is needed. The reds and yellows form the basis for your improvement plan.

In our example, because the company is at least minimally profitable, but not highly profitable, the team shaded the Goal in yellow.  The way we recommend using this method is to once again ask a series of questions about how the organization is functioning For example, if you ask, “Are our customers highly satisfied?” you will probably get a variety of responses regarding the level of customer satisfaction.  If you have quantitative evidence, such as a customer satisfaction survey, then you can use it to rate this CSF.  The point is, whenever possible use quantitative data to create the rating for each of the IO Map entities.

If we look at the CSFs, the team decided that four of the five CSFs should be shaded in red meaning that each red CSF is either not in place or simply not functioning well enough to drive higher profitability.  In this hypothetical company it appears as though the only thing this company is doing right is their excellent quality and it’s because they have excellent quality systems in place.  But other than their quality systems, not much else is functioning well.  Let’s look now at several of the NCs that must be worked on to satisfy the CSFs.

For the first CSF, Highly Satisfied Customers, we see that the leadership team believes that three things must be in place to satisfy this CSF:
  1. They must have high on-time delivery rates and because the company tracked this metric, they were able to use this data to rate this box.  Since it’s shaded in red, this means that their on-time delivery was not at an acceptable level to create highly satisfied customers.  The team further stated that in order to have high on-time delivery rates, they must have buffer management in place and functioning.
  2. The team also believed that they must have excellent quality and, once again, because they have records of their outgoing quality that was excellent, the team shaded this entity as green. The team believed that their quality is excellent due to their excellent quality systems, so this entity was also colored as green
  3. Finally, the team believed that they must have a high perceived value by the customer and since it’s shaded in yellow, the team didn’t believe this was the case.  The team believed that this was being driven primarily by the price of their products, but it’s probably also due to their poor on-time delivery rates.
In the second CSF, Throughput High and Growing, the team believed that they had significant room for improvement and shaded it red accordingly.  This company had been through TOC training which included a section on Throughput Accounting and they understood that their throughput is driven by managing the system constraint and by focusing their improvement efforts only on the constraint.  The team believed that in order for constraints management to function well, they must have work synchronized to meet demand.  Similarly, if we look at each of the remaining CSFs and associated NCs we have a much better understanding of what actions need to take place in order to ultimately drive profitability higher.
In our next posting we will complete our series on the IO Map by determining what ideas or injections need to be put in place to change our red and yellow entities into green ones.
Bob Sproull


No comments: