Critical Chain: A Business Novel (10 page)

"Interesting," Jim says again. This time Rick is in total agreement.
"Well, it's simpler than expected," Johnny comforts them. "Just think about the chain and the fact that its strength is determined by its weakest link. If you want to strengthen the chain, what must your first step be? No ‘ifs,' no ‘buts,' no ‘we are different.' What must be the first step?"
At this stage everybody has probably figured it out. Johnny gestures to a volunteer in the first row to say it out loud, "First thing is to find the weakest link."
"Correct," says Johnny. And grasping a marker, he comments, "In academia we must use more respectable words. So let me write the first step as: IDENTIFY the system's constraint(s). Don't you agree that ‘identify' sounds much more impressive than a simple ‘find'? Of course these two words mean exactly the same thing. Fine, we identified the constraint. Now what?"
"Strengthen it," the same, first-row person says. "Correct again," Johnny smiles at him. "But wait. We have to be careful with analogies. When we move back to organizations we can easily see that there are two different cases. The first one is the case where we identify the constraint as physical, like a bottleneck, a type of resource that does not have enough capacity to meet the demand. In that case, strengthening the weakest link will mean to help the bottleneck to do more.
"But we shouldn't overlook the other case. The case where it turned out that the constraint we identified is an erroneous policy. In that case, strengthening the weakest link cannot be interpreted as helping the erroneous policy to do more. We have to replace the policy. By the way, this fork of physical constraints and policy constraints caused a lot of confusion about TOC. All the early publications concentrated on physical constraints. It's no wonder that when articles and books first appeared about the applications to policy constraints, it took some time until we, at least in academia, understood the connection."
"I didn't, until now," Rick admits.
"Interesting," is the only word Jim is willing to say.
Johnny waits for the murmur to quiet down. "At this point I'll stick to physical constraints. They are less important but easier to understand. ‘Strengthen the weakest link,' we said. Before I write the second step, I would like to highlight that there are two different ways to strengthen a bottleneck. One is to simply add more capacity, by hiring more people or buying more machines. But there is another way. To squeeze the maximum from the capacity we already have. Make sense?"
When he gets agreement, he continues, "Since TOC accepts ‘controlling cost' as an absolute necessary condition, no wonder that it elects the second step to be: Decide how to EXPLOIT the system's constraint(s).
"What next? Let's not forget that in the throughput world the linkages are as important as the links. Which means that if we decided to do something in one link, we have to examine the ramifications on the other links. Once again, it's quite easy. Our intuition is in the throughput world. Always was. Let me demonstrate it to you."
He points to his "volunteer" and tells him, "You'll be the bottleneck. Do you mind? It means that you are most important, the throughput of the entire company depends on you. It also means that you are in the hot seat."
"I'm used to the hot seat."
"Fine. Now let's suppose that when you try, really try, you can produce ten units an hour. No more. Okay?"
Johnny picks another victim. He picks Pullman. "And suppose that you are a non-bottleneck. You can easily do twenty units an hour. But whatever you do, before we can sell it, it must be further processed by our bottleneck. On an ongoing basis, how many units per hour should you produce?"
"Ten units," Pullman says without hesitation.
Johnny repeats the description of the scenario and asks again, "Everybody tell me. How many units an hour should this gentleman produce? Everybody!"
"Ten," comes the roaring answer.
"What you said is the third step." And while talking, he writes it down. "Step three: SUBORDINATE everything else to the above decision. If we can squeeze only ten units from the bottleneck there is no point in doing more on the non-bottlenecks. Now, if this first gentleman is still a bottleneck and we do want more throughput, we must lift some of the load from his shoulders. Even if it means buying more machines or hiring more people."
When everybody agrees, he writes the fourth step: ELEVATE the systems' constraint(s).
Rick carefully copies the steps. The logic is impeccable. It must be applicable for project management as well. Exactly how? It's not clear. He will have to think about it later.
Johnny puts down the marker and moves to the front of the stage. "This is not the last step. And you all, intuitively, know it. Here is our chain." In the air Johnny stretches an imaginary chain between his hands. "Here is the weakest link. I strengthen this link. The whole chain becomes stronger. I strengthen it again, the chain becomes even stronger. I strengthen it again, Nothing happens. Why?"
Many people answer.
Johnny summarizes, "It's not the constraint anymore. So, I have to avoid inertia and go back to step one. Have you noticed something fascinating?"
He pauses, but nobody volunteers to read his mind.
"We have found the process to focus. This is the focusing process of the throughput world. But at the same time, do you agree with me that these steps are also the ‘process of on-going improvement'?" Fascinating, isn't it? In the throughput world, focusing and process of on-going improvement are not two different things, they are one and the same."
"Interesting," Rick whispers to Jim.
"No, Rick, Johnny is right. It's fascinating."
"Let me remind you," Johnny returns to the podium, "that I still owe you something. I owe you the proof that there is no acceptable compromise between the cost world and the throughput world. Remember? Now it's easy. Really easy."
He turns back to his volunteers. "You are still the bottleneck. You can produce maximum ten units an hour. And you are still the non-bottleneck, you can easily do twenty an hour, but whatever you do must pass through him. Everybody, again, how much should he produce per hour?"
By now everybody likes his dynamic style. "Ten," they all roar.
"Really?" He cocks his head slightly, still looking at them. "Do you really mean it?"
"Yes." Everybody is confident.
"And I thought that you liked this gentleman." He turns directly to Pullman. "Imagine that you are a worker in your own company. And you produce only ten units per hour when you can easily produce twenty. What will be your recorded efficiencies?"
Understanding starts to spread on Pullman's face. "Low," he says. Then, clearing his throat, "My efficiency will be fifty percent."
"And if your efficiencies are only fifty percent, what will happen to your head?" And smiling, he moves his hand across his neck.
When the laughter quiets somewhat, Johnny continues, "And everybody here told you to produce only ten. Your friends probably want to turn you into a kamikaze. Some friends."
Johnny is smiling. The laughter reaches new heights.
He waits patiently. "Do you understand what we have seen here? Your intuition is in the throughput world and in this world the answer is ‘don't dare to produce more than ten.' But your systems are in the cost world. Your systems want him to reach maximum local efficiency; they want him to produce twenty." He pauses.
"And there is no compromise. If this gentleman produces fifteen, both worlds will kill him."
The message is serious, but everybody laughs.
"So what will he do? He will slow down. He will claim that he cannot produce more than, let's say, twelve, which he will. We forced him to lie, because if he doesn't, his job security is threatened."
Slowly Johnny goes back to the podium. He stands there awhile before resuming his lecture. "Everybody knows that the first step in solving a problem is to define it precisely. The strange thing is that in spite of this realization, we didn't bother defining what we mean by ‘defining a problem precisely."'
He notices that not everybody understands, so he clarifies. "When do we know that we have defined a problem precisely? When we have already solved it, and looking back we agree that the stage when we defined the problem precisely was a major step forward. But how do we know that we defined the problem precisely before we solved it?"
"He has a point," Rick says to Jim.
"TOC adopts the definition accepted in the accurate sciences. A problem is not precisely defined until it can be presented as a conflict between two necessary conditions."
He pauses to let his peers digest.
"That's what we have done for the last half an hour." He goes back to the overhead projector and inserts a transparency.

"The objective of managers is to manage well. In order to manage well, one of the necessary conditions is to control cost and the other is to protect throughput. But in order to control cost, managers must manage according to the cost world, while in order to protect throughput they must manage according to the throughput world, and as we saw, these two are in conflict.

"What do we do? We try to find a compromise. And if there isn't one? Life is a bitch.
"Is there any other way? Do they do anything differently in the accurate sciences?"
Everybody waits for Johnny to supply the answer.
"For example," Johnny tries to clarify his point, "suppose that they try to measure the height of a building. Using one method they find that the height is ten yards, and using another the answer comes out to be twenty yards. A conflict. Do you think that they will try to compromise? That they will say that the height of that building is fifteen yards?"
Everybody is grinning.
"In the accurate sciences, what do they do when they face a conflict? Their reaction is very different than ours. We try to find an acceptable compromise. This thought never crosses their minds. Their starting point will never allow it; they don't accept that conflicts exist in reality.
"No matter how well the two methods are accepted, a scientist's instinctive conclusion will be that there is a faulty assumption underlying one of the methods used to measure the height of the building. All their energy will be focused on finding that faulty assumption and correcting it.
"Should we do the same?"
He pauses, and then asks, "Can we do the same?"
As he returns to the podium he keeps on asking, "Can we, who deal with human-based systems, believe that conflicts cannot exist?
"How can we? Conflicts are all around us."
In a conversational tone he continues, "This is probably the most daring assumption of TOC. One of its foundations is that whenever we witness a conflict, it is a clear indication that someone has made a faulty assumption, a faulty assumption that can be corrected, and by doing so the conflict removed. What do you think about it?"
"I don't buy it," Rick whispers to himself.
"Do you believe in win-win solutions?" Jim asks him.
"I guess so."
"So you do accept what Johnny just said."
Rick doesn't see the connection clearly, but now Johnny continues.
"Let's use our conflict to demonstrate how powerful this approach, called ‘evaporating cloud,' is." And he moves back to the overhead projector.
"Let's expose some hidden assumptions," he says. "We claim that in order to control cost, managers must try to manage according to the cost world. Why? Because we assume that the only way to achieve good cost performance is through good local performance everywhere." As he speaks he adds the assumption to his diagram.
"And why do we claim that in order to protect throughput managers must try to manage according to the throughput world? Because we assume that there is no way to achieve good throughput performance through good local performance everywhere." When he finishes adding it to the diagram, he pauses to give everyone time to digest.

"Where do we stand? We now have three alternatives. We can challenge the upper assumption, we can challenge the lower one, or we can continue to look for a compromise. What do you think we should do?"

Probably Johnny regards his question as rhetorical, because he continues to ask, "Who thinks that the upper assumption is wrong? That the assumption that the only way to achieve good cost performance is through good local performance everywhere, is wrong? Please raise your hands."

About five people raise their hands. After a moment, a dozen or so join them.
"Don't be too hasty," Johnny warns them. "Those who think this assumption is wrong, do you know what you're claiming? You are actually claiming that most organizations, since the industrial revolution, were wrong. Do you still want to raise your hand?"
Almost everyone who raised their hand before defiantly raises it again.
"Your prerogative," Johnny smiles. And then he continues, "Who thinks that the lower assumption is wrong? That the assumption that there is no way to achieve good throughput performance through good local performance everywhere, is wrong? Please raise your hands."
To Rick's astonishment, nobody does.
"The vote is clear," Johnny announces. "Unfortunately, such questions are not resolved by a democratic vote. We have to prove what we claim. How can we prove that the upper assumption is wrong?"
"And now we are going to see some fancy mathematical model," Rick sighs. "Wake me when it's over."
But Johnny doesn't use any mathematics. "You are still the bottleneck and you are the non-bottleneck." He points to his two volunteers. "The same scenario as before. We all agreed that the non-bottleneck should produce only ten units an hour. Why? Is it because we want to protect the throughput? Think about it.
"If the non-bottleneck will produce fifteen or even twenty, will it prevent the bottleneck from producing his ten?
"So why are we so adamant about restricting the non-bottleneck to only ten units an hour? Maybe the non-bottleneck is willing to answer?"
"Because if I produce more," Pullman confidently says, "the only result will be the accumulation of unneeded inventory." "And if inventory goes up, what happens to cost?" "Goes up."
"You see," Johnny addresses the audience, "we all asked the non-bottleneck to produce much less than he can, not in order to protect throughput, but in order to control cost. We instructed the non-bottleneck to restrict its local efficiency to only fifty percent, when it could achieve one hundred, for only one reason. To control cost. What does that tell us about our upper assumption?
"The only way to achieve good cost performance is through good local performance everywhere. Baloney!
Speaking slowly, stressing each word, he concludes, "We are chasing compromises, degrading our performance, making our life miserable, because of an assumption that is apparently wrong."
After a short while he repeats, "The only way to achieve good cost performance is through good local performance everywhere. The fact that so many managers and almost all our systems are based on this assumption is regarded by TOC as the current core problem of our organizations."
"I have to think about it," Rick promises himself. "All the new management philosophies," Johnny is now on a roll, "implicitly recognized it. They all try to stress the importance of protecting throughput, they all try to shy away from local optimums.
"TQM and JIT are adamant about throughput even though they haven't realized that it mandates a much sharper focusing. Reengineering puts the emphasis on reexamining basic assumptions. A cornerstone of the learning organization is to replace unsatisfactory compromises with win-win solutions. Using the clarity provided by TOC and systematically using its analytical methods, all these philosophies, at last, merged into a coherent whole.
"But you didn't come here for a theoretical lecture. You want to see what can be done with it. In reality. What results can be achieved? In what time frame? And above all, how?
"What I'm going to do now is to share with you one of the most fascinating experiences I had last year. How, in UniCo, they turned around a losing company they bought. Turned it into a gold mine in just a little over three months. But my first hour is over and I was told to break for coffee. If you are still interested, be back in twenty minutes."