Maximizing Profitability Part 18

In my last blog I introduced you to the Intermediate Objectives Map (IO Map) as the first of the TOC Thinking Process Tools (LTP's). Now let’s continue with the second of these tools referred to as the Current Reality Tree (CRT). The CRT is a sufficiency based logic tree and is extremely useful when trying to solve organizational problems.  Sufficiency based logic uses the syntax, "If I have this.....then I have that...."

The Theory of Constraints is systemic in nature and strives to identify those few constraints that limit the organization’s success in terms of moving in the direction of its goal. It’s important to keep in mind that most organizations function as systems rather than as processes. Goldratt introduced his five focusing steps, discussed in earlier blogs, plus what he calls a Logical Thinking Process. Goldratt then teaches us that good managers must answer three important questions in order to be successful:

1. What to change?

2. What to change to?

3. How to make the change happen.

As part of the Logical Thinking Process, Goldratt introduced a set of tools used to identify the root causes of negative symptoms or Undersirable Effects (UDE’s, pronounced oodees) that exist within organizations. Goldratt believes that there are generally only a few core problems that create most of the UDE’s, and if we can identify these core problems (i.e. What to change?) and find their root causes and eliminate them, then most of the UDE’s will disappear. Let’s talk a bit more about these things called Undersirable Effects (UDE’s) and how we can identify and understand them.

In order to understand what UDE’s are, we must first understand that they must be considered in the context of an organization’s Goals, Critical Success Factors, Necessary Conditions and performance metrics. For example, suppose the organization’s Goal is to make money now and in the future, and its Critical Success Factors and Necessary Conditions are things like generating enough revenue with low operating expenses, keeping its employees happy and secure, keeping customer satisfaction high, achieving superior quality and on-time delivery, etc. Further suppose that the organization measures its performance by things like on-time delivery, some kind of productivity measurement, the cost to produce products, a customer satisfaction index, and quality through parts per million defective (ppm). Any organizational effect that moves the organization away from its goal or violates one of the Critical Success Factors or Necessary Conditions or drives a performance metric in a negative direction with respect to its target is considered undesirable. So think for a minute about what UDE’s might exist in your company.

The tool Goldratt developed to expose system type problems or policy constraints is referred to as the Current Reality Tree (CRT). The Current Reality Tree is used to discover organizational problems, or UDE’s, and then work backwards to identify at least one root cause that leads to most of the UDE’s. Dettmer [1] defines a root cause as, “the lowest cause in a chain of cause and effect at which we have some capability to cause the break.” His point being that the cause and effect chain could continue on indefinitely, but unless the cause lies within the span of control of the organization or at least within its sphere of influence, it will not be solved.

Dettmer further explains that two characteristics apply to root causes:

1. It’s the lowest point at which human intervention can change or break the cause.

2. It’s within our capability to unilaterally control, or to influence, changes to the cause.

The CRT begins with identifying undesirable effects (UDEs) or negative symptoms existing within an organization that let us know that a core problem exists. Core problems are unique in that if the root cause or causes can be found, they can usually be traced to an exceptionally large percentage of the undesirable effects. Actually Dettmer [1] suggests that this percentage could be as high as 70 percent and sometimes higher. Dettmer refers to a CRT as a “snapshot of reality as it exists at a particular moment in time.” Dettmer further explains, “As with a photograph, it’s not really reality itself, just a picture of reality, and, like a photo, it encloses only what we choose to aim at through the camera’s viewfinder.”

By aiming our “logical camera” at the undesirable effects and their root causes, we’re essentially eliminating all of the details that don’t relate to them. In other words, the CRT helps us focus in on and pinpoint core problems. There are several different versions of the CRT available in the literature on the subject, but they all provide the same end product, at least one actionable core problem. Some CRT’s are very detailed while some are more general in nature.

The example I will present is a company that was having a problem generating enough Throughput (i.e. capacity constraint). They had plenty of orders, but were unable to produce enough parts to satisfy the market demand. It is clear to me that many of the problems organizations encounter on a daily basis are really interconnected, systems-related problems. It is further clear that by focusing on these core problems, organizations can essentially kill multiple birds with a few stones!

It is not my intention to present an in-depth discussion of Current Reality Trees (CRT’s) or how to construct one in this posting, but I do want you to be aware of their existence. Over the next several blogs I will present a simple example that I developed for a company that produces flexible fuel tanks used to hold and transport volatile organic liquids. This company had serious problems generating enough throughput to satisfy the volume and delivery requirements of their customers. By creating a CRT, this company was able to pinpoint specific system problems that were constraining their throughput and then take actions to alleviate the problem.

In my next several blogs I’ll show you the step-by-step basics of how to create a Current Reality Tree and expand upon how to use one in your company. Because a CRT is fairly detailed, I want to go through it slowly so that you can appreciate its usefulness.

[1] H. William Dettmer, Breaking the Constraints to World Class Performance, (Milwaukee, WI:, Quality Press, 1998)