30 October 2009

Getting more of what you want - Part 6

So, what is this "tool set" that can help the entrepreneur and his management team decode the complexity of the growing enterprise in order to extract simplicity out of its seemingly endless layers of complexity?

The answer is: The TOC (Theory of Constraints) Thinking Processes.

As Victoria Mabin of the School of Business and Public Management of the Victoria University of Wellington states: "[T]he TOC Thinking Processes... are a suite of logical trees that provide a roadmap for change, by addressing the three basic questions of What to change, What to change to, and How to cause the change. They guide the user through the decision making process of problem structuring, problem identification, solution building, identification of barriers to be overcome, and implementation of the solution." [Emphasis added.]

This tool set is not new, as Mabin makes clear: "The TOC has evolved over [more than] 20 years.... [and] is now used worldwide by companies of all sizes.... [M]any managers who routinely use TOC believe they understand their businesses for the first time.... [T]hey gain a sense of control and of being able to act proactively.... TOC empowers managers by providing a consistent framework for diagnosing problems." [Emphasis added.]

Now, even though I'm a consultant and I get paid for helping companies make effective decisions by applying the TOC Thinking Processes, let me say up front: You don't need me to apply the TOC Thinking Processes. You could attend a workshop or do self-study in order to learn how to apply these tools in your business.

The workshops will likely cost you $5,000 to upwards of $10,000. Self-study and trial-and-error might take you some months -- or even years. There are, however, a good number of books available to guide you through this process.

So, while you don't need me to leverage these tools, connecting with me might be the fastest and lowest-cost method of getting to solutions you need in the very near future. If you'd like to connect with me, email me at rcushing(at)ceoexpress(dot)com.

In our next post, we'll talk about what kinds of results are typical with the application of TOC principles.

[To be continued...]

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29 October 2009

Getting more of what you want - Part 5

How many things does an executive or a manager need to know to manage an organization -- a "system" -- effectively?

Answer: Exactly 3 things!

Here they are:
  1. What needs to change

  2. What the change should look like

  3. How to effect the change in the system
This sound easy and hard at the same time, doesn't it?

Well, I am a firm believer in a concept called inherent simplicity, although I cannot take credit for creating the concept. The concept was developed and articulated by Eliyahu Goldratt in his recent book The Choice. The basic thought of inherent simplicity is that underlying all complexity in systems is a concealed simplicity. If that simplicity can be made apparent, then any "problems" within the complex system will require only relatively simple solutions.

Consider a complex manufacturing machine with hundreds of moving and interrelated parts. No one would design such a machine so as to require that one touch every one of the hundreds of parts in order to effect an adjustment in the machine's operations and outcomes. A machine with hundreds -- or even thousands -- of interrelated, interdependent moving parts may often be adjusted to produce different results simply by making changes in a small handful of parts. These simple adjustments are made available because the inter-dependencies between the various moving parts are known and understood -- at least to the persons that designed the machine and wrote the instruction manual.

Similarly, if the entrepreneur can find a tool set that will help him or her decipher, document and understand the inter-dependencies in the organization (i.e., system) as it moves toward enterprise proportions and complexity, then the entrepreneur will also be able to discover the relatively small handful of places he or she needs to "adjust" the "system" in order to produce different results.

Is there such a tool set? Is it readily available? Is it of a nature that the entrepreneur can readily grasp the tools and make use of them effectively?

I firmly believe that there is.

[To be continued...]

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28 October 2009

Getting more of what you want - Part 4

In prior posts in this series, we have talked about why organizations frequently face significant challenges in getting more of what they really want -- to make more money tomorrow than they are making today. We have linked this to what we call "making the leap from entrepreneurial to enterprise."

We have also identified the underlying issue as being the loss of that view once held by the entrepreneurial leadership of the firm -- namely, the view that the whole company is one integrated "system" with one unifying goal. Instead, departments and layers of management erode that thinking away into ultimate oblivion in the minds of the entrepreneur.

The question we are facing now, in this post, is: If executives and managers have recognized the negative symptoms in their organization, and they surely have a desire for improvement, what is actually keeping organizational leadership from clearing away the barriers to making more money?

There are really multiple answers to this question, and the true response will -- naturally -- vary from organization to organization. However, consider these as a small sampling:
  • Firms that are already suffering from poor performance -- or performance below management's expectations, at least -- are often so consumed with trying to meet short-term objectives that they do not have time to back away from the details to even consider the "system" as a whole. All of management's time, energy, and way too much money is being consumed in activities like meeting month-end sales goals, expediting production, tracking down late shipments from vendors, or getting late shipments to customers out the door. There is just no time to step back and figure out why everyone is pulling their hair out but profits keep declining.
  • The organization has grown to be so large so fast (say, from 12 up to 55 employees in one year or so) that the entrepreneurial management just can't figure out which "lever to pull" to get the results it wants. What used to be a simple decision now seems overwhelming in complexity.
  • The entrepreneurial leadership has some ideas that might improve the company, but they can't figure out how to come to final decision because it just seems too hard and too complex to figure out the balance between the risks (investment) involved and the rewards (profits) that any given change might bring to the firm.
Consider this: If a small firm has just 5 people working in it, there are 120 different permutations of interactions between those 5 parties. Add a sixth person into the mix and that number jumps to 720 ways they might interact. If you get to 10 employees, the permutations jump to more than 3,000,000; and with 15 the number is 1,307,674,368,000. Of course, this doesn't even count interactions with customers and vendors.

It's no wonder that entrepreneurs with great ideas and great companies can readily be overwhelmed by apparent complexity as their organizations grow. No wonder the once confident entrepreneur-executive can no longer which "lever to pull" to get the result he or she desires.

Fortunately, the number of things that any executive or manager needs to know in order to manage effectively is a very small number. I'll tell you just how small in the next post.

[To be continued...]

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27 October 2009

Getting more of what you want - Part 3

Last time we talked about how a growing and expanding entrepreneurial organization can all too easily lose sight of a singular goal -- making more money tomorrow than its making today. When they do so, they also lose sight of the fact that, in serving its customers, the organization is a "system" -- not a collection of loosely connected departments or functions.

So, what are the symptoms exhibited by an organization that is not being measured and managed as a "system"?
  • Lower than desired overall performance
  • Challenges in achieving or maintaining a strategic advantage in the marketplace
  • Ongoing or recurring financial difficulties
  • Almost constant "fire-fighting"
  • Frequent failure to meet customers' expectations
  • "Bottlenecks" in the organization that move frequently from function to function or department to department
  • An ongoing state of conflict between parties representing various functions or departments within the organization
If you can nod your head "Yes" to three or more of these symptoms being present in your firm, then chances are you need help getting a handle on once again seeing your organization as a "system" and turning the corner to measure and manage it in a proper way.

But what really keeps owners, executives and managers from tearing down these roadblocks to success? They aren't stupid. They've known for (perhaps) years about the constant "fire-fighting," the company politics, and conflicts between departments or functions.

What is blocking executives and owners from taking effective action against those things, of which they are well aware, that are keeping their firm from making more money tomorrow than they are making today?

[To be continued...]

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26 October 2009

Getting more of what you want - Part 2

So, what is happening when successful entrepreneurial organizations find increasing challenges in what used to be intuitively easy for them -- namely, making more money tomorrow than they are making today?

Consider this: When the organization was purely entrepreneurial, likely it was small, had few employees, and operated in a relatively simple (unsophisticated) way. There were fewer things to touch and change -- fewer levers to push or pull -- to reach the desired result. Whatever management did produced nearly immediate reactions -- either good or bad. Feedback was frequently direct to the entrepreneurial leadership -- few or no layers of management or complexity, and fewer "dependencies" in the customer-to-cash stream.

In short, the entrepreneurial leadership was managing the organization as a single integrated "system" with a single goal -- to make more money tomorrow than it is making today!

However, with growth and (possibly) geographical expansion, the organization evolved from being integrated and homogeneous to being composed of departments -- the accounts payable department, the accounts receivable department, the production department, the shipping department, the receiving department, the sales department, ad infinitum. Of course, with departments came also department managers and maybe even layers of middle management.

More significantly, however, came a creeping mindset -- a mindset in executives and other managers that the sensible way to manage this growing organization is "by department." Instead of continuing to see the whole organization as one integrated "system" with a singular goal -- i.e., making more money tomorrow than it made today -- management began to set differing goals for different parts of the organization.

The production department's goals were all about quantities and quality; the sales department's goals were all about prospects, customers and orders; the accounting department's goals were tied to profits and cash flow; and so forth. Everyone was concentrating on managing their individual functions, but the "system" view that had brought early entrepreneurial success had almost entirely vanished from sight and memory.

Management had come to the (wrong) conclusion: That the way to optimize the "system" is to make sure the each individual part (department or function) is optimized. Unfortunately, without seeing this in the context of the "system" as a whole, this conclusion led to spending precious time, energy, and money on portions of the enterprise that did not add new profits and, in many cases, add operating expenses rather than decreasing them.

[To be continued...]

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23 October 2009

Getting more of what you want - Part 1

Most of my clients are small to mid-sized businesses when I meet them. Many of them have already achieved a significant level of success. These firms have proven themselves and grown -- many of them have grown rapidly -- and frequently they are on the precipice of making the leap from entrepreneurial to enterprise.

Generally, what makes an entrepreneur successful is something of a sixth sense that communicates to them an almost instinctive connection between opportunities (or revenues) and truly variable costs (TVC).

Entrepreneurs thrive and grow on this instinct and worry about the "cost accounting details" later. However, two things begin to change as their organization begins to grow:
  1. The entrepreneurial individuals in the firm -- the founder and his or her closest associates -- may become less connected to each opportunity the firm may encounter and similarly disconnected from a sense of the TVC involved.

  2. The more disconnected these, now, executives become from the details surrounding opportunities and TVCs, the more they begin to rely on standard "cost accounting methods" to guide their organization's decision-making.
Interestingly, the more "sophisticated" the decision-making process becomes in their organization, the more profits and profitability growth may tend to decline. The entrepreneurs find it increasingly difficult to make that leap from entrepreneural to enterprise capabilities.

What's keeping entrepreneurs and firms in this position from getting more of what they want? What's stopping them from making more money tomorrow than they are making today?

[To be continued...]

Contact me.