Dr Eliyahu M Goldratt, 1947 - 2011

Dear TOC Enthusiast,

A litte over 1 month ago Dr Eliyahu M Goldratt (father of Theory of Constraints and one of my mentors) was diagnosed with lung cancer. It quickly spread and Eli passed on June 11, 2011.

I was fortunate to spend time with him in Israel before his passing. His last days were spent transferring knowledge and getting a small team ready to present and facilitate on his behalf at the TOCICO conference.

We completed that mission yesterday. And I believe it was a big success. We focused on tranferring a process to "Stand on the Shoulders of Giants". This process will ensure that the TOC community continues to thrive.

To give you an idea of how to stand of the shoulders of those that came before, check out this article: Standing on the Shoulders of Giants by Dr Eliyahu M Goldratt (big file with some hand written notes, so be patient while it downloads)

Sincerely,
Dr Lisa
President, Science of Business

Overcoming Resistance to Change (BEHIND THE SCENES)

FUNNY "Behind the Scenes" of the Overcoming Resistance to Change video. This was recorded at the TOCICO conference BEFORE the video was released. Watch Eli (Eliyahu M Goldratt) draw the mermaid!

Theory of Constraints Resistance to Change and Isn't It Obvious book are worth investigating.

Theory of Constraints POOGI Part 64 Getting Jobs Through Engineering cont.

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}


Brad: Aren’t customers the real problem? Supplying incomplete information to the engineers, late?
Dr. Lisa: Blaming customers won’t solve the problem, although what you say is often true and they are a large source of variability.

Brad: So what is the real problem, and what is the solution?
Dr. Lisa: The real problem is how engineers do what they do. (It’s typically NOT that we need more engineers.) But it isn’t just the engineers, it is all of us. It is how projects are managed. We allow some bad assumptions about the best way to manage projects significantly deteriorate our project performance. It is true everywhere around the world.

Brad: For example?
Dr. Lisa: For example, the idea that there is good multi-tasking. Multi-tasking has a terrible effect on engineering. Engineers must finish projects, and that means they need to 1) know which projects to focus on and 2) work on finishing those, rather than starting all of them. Projects need to flow quickly through engineering. But that is just one example. I have a white paper on the subject called Information Overload Destroyer that can be downloaded at http://www.informationoverloaddestroyer.com/ for additional examples.
Brad: So what is Project Velocity System, and how does it help?
Dr. Lisa: In Project Velocity System Coaching Program, I will take the people involved with managing and doing projects through 10 sessions followed by 10 coaching sessions aimed at getting immediate improvement in project delivery: On time, in scope, and within budget. In other words, we will focus on getting a job ready for manufacturing BEFORE they need it.
Brad: I thought that in project management, if you’re lucky, you only got to pick two of the three. Of course, with a lot of projects, you get one or none. It’s not unusual for projects to be late, with scope sacrificed, and way over budget.
Dr. Lisa: That’s reality without a process, but with the right process, you can ensure that engineering is not and will not starve manufacturing. And this can be accomplished by the end of the Project Velocity System Coaching Program and most often without hiring a single additional engineer.
-------------------------------
Want to improve your engineering and project management performance? Go to http://www.projectvelocitysystem.com/ to learn more and sign-up for the next available program. Want to talk about it? Just give us a call or send an email.

What are the challenges YOU face getting jobs through engineering? Tell me your 2 biggest challenges in the the comment box!

Here's to maximizing YOUR profits (and selling price of YOUR business)!

Dr Lisa

(c)Copyright 2010, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI - Part 54: Yes, but… The Value of Concerns and Objections cont.

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Brad: You’re making the case for people expressing their concerns whenever a solution is presented? That this is a good thing? Doesn’t this slow down the whole process? If I have a good idea—and as a business owner, it goes without saying that all of my ideas are great ideas—why shouldn’t I just have everyone go implement?

Dr. Lisa: We weren’t taught how to deal with the situation where someone presents an idea, and we have a concern to express about the idea. In Theory of Constraints (TOC), we call the process “Negative Branch Reservations”. It is part of theTheory of Constraints Thinking Processes. There is a straightforward logical process for doing so. And yes, it is an important part of processing each and every solution, and getting your people to buy-in once all the reservations have been raised and dealt with.

Oh, by the way, a lot of your ideas aren’t so hot before we had addressed my negative branch reservations. Don’t you remember…?

Brad: Never mind about that. Explain the process, please.

Dr. Lisa: First, let’s agree on the criteria for a good solution. The presenter should feel good about offering an idea or solution to a problem. If someone responds by saying “let me think about it”, he or she should honor that agreement and does think about it. By thinking through the concern, we get the benefit of the idea and block potential negatives, thereby becoming better managers, and getting better results.

Brad: So the old adage, “an ounce of prevention is worth a pound of cure”.

... to be continued in Part 55.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI - Part 53: Yes, but… The Value of Concerns and Objections

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Brad: Both as a business owner, and back when I worked for large companies, I have found a lot of negative people. Someone has a good idea, and then it seems like everyone has a “yes, but…” It’s irritating.

Dr. Lisa: Particularly if it’s YOUR idea. In Theory of Constraints, we call that a “yes, BUT”; Small yes and a big BUT.

Brad: Why can’t people be more positive and optimistic? It seems like such negativity blocks progress. Perhaps such people are the problem.

Dr. Lisa: Hold on. To voice concerns is part of human nature. When we hear an idea or solution presented, it is natural to think of what negatives might come from it. The presenter is normally very proud of his or her suggestion, and just as often is not fully aware of what negatives might result from implementing it.

Brad: So he or she is expecting praise and to get credit for the idea?

Dr. Lisa: Exactly. Now, depending upon the trust level and power relationships within the group, and whether there have been previous bad experiences from raising concerns, the concern might not be expressed. Instead, you might hear “let me think about it”. However, we don’t think about it. What we think about is our “BUT”, and hope the idea just goes away. So, we don’t benefit from the idea, and we miss the opportunity to improve it by voicing the concern.

... to be continued in Part 54.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI - Part 52: Dr. Goldratt’s book The Choice is better than The Goal

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Most of you have read The Goal. Most of you enjoyed reading it. And most of you have lent or given a copy to someone you think will benefit from reading it. Today, it still sells as many copies a month as it did when it was first published.

Dr. Eli Goldratt’s newish book The Choice (his newest you will also find on this link) is even better than The Goal. It’s about thinking clearly and having a full life.

For those of you that follow Eli and the Theory of Constraints, you may know that when he was about twenty years old he chose as his goal in life “to teach the world to think”. What you may not know is that his daughter, Efrat, now a psychologist, chose as her life goal “to teach people how to be happy”.

Once again, he chose the format of a novel. In this one, Eli and Efrat have an ongoing conversation. Now 63, in this book Eli is summarizing their collective progress toward their respective goals.

In their conversation, Eli and Efrat chart the course for anyone and everyone to think clearly and have a full life. And in doing so, they reveal Eli’s unusual beliefs:

1. People are good. Rather than thinking that people are good, people tend to blame other people, or as Eli says “I want you to realize how careless we are in relating derogatory characteristics and intentions to people”. Once you blame someone, your ability to think clearly is blocked. “Blaming another person is not a solution… Blaming points us in the wrong direction, into a direction where we will not find a good solution. Even if the person is removed, in most cases the problem will stay. You will be able to refrain from blaming people when you are convinced there is no reason to blame them. Harmony exists in any relationship between people.”

2. Every conflict can be removed. “People’s perception is that conflicts are a given and the best we can do is to seek a compromise. When we face a conflict, especially when we cannot easily find an acceptable compromise, let’s do exactly the same thing scientists do when they encounter a contraction; let’s insist that one of the underlying assumptions is faulty. If, or should I say when, we pin down the underlying assumption that can be removed, we will remove the cause of the conflict; we solve the conflict by eliminating it.”

3. Every situation is exceedingly simple. “There is nothing wrong with people’s brainpower; there is something very wrong with people’s perception of reality. People believe that reality is complex, and therefore they are looking for sophisticated explanations for complicated solutions. Do you understand how devastating this is? The key for thinking like a true scientist is the acceptance that any real life situation, no matter how complex it initially looks, is actually, once understood, embarrassingly simple.”

4. Every situation can be substantially improved. “The undesirable effects people complain about are the result of a conflict—a conflict between the parties in cases of relationships, and an internal conflict in cases of individuals. People, and companies, lower expectations when they use protective mechanisms to camouflage from themselves the big chronic problems; the problems that they already gave up on resolving. Those who are not prepared will be blind to the stream of opportunities life presents them.”

5. Every person can reach a full life. “You claim that the only things standing in the way of me thinking clearly are some specific obstacles and practice. Rather than leaving it to chance—what people call good luck—my chances of living a full life will be much greater if I learn to think clearly. I’ll be able to generate, or at least to recognize, the right opportunities for me, and I’ll be better able to have more stamina to persistently follow enough of them to fruition.”

6. There is always a win-win solution. “For every relationship there is a change that will cause the parties to each achieve what they need from the relationship. Compromise is the attempt to share a finite cake. When do we find an acceptable compromise? When the perception is that the cake is not very important, or that it’s not too small to start with. But when the cake seems too small, seeking a compromise is a situation in which the more you win, the more I lose; seeking a compromise is, by definition, a win-lose approach. If we want our win to be bigger we have to ensure that the other side’s win will be bigger.”

To get The Choice at a price even lower than at Amazon, click on the book title. After you read the book, you may be interested in learning the TOC Thinking Processes. These are the tools Eli developed to help the rest of us systematically develop solutions to problems through rigorous cause and effect logic, just like he does in The Choice. The Management Skills Workshop will help your management team to learn and apply the Thinking Processes to your company. We’d be happy to point you in the right direction, so just call, email, or leave a comment below.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

The best Theory of Constraints self learning package ON SALE!

This is the package that I recommend most for people who really want to learn Theory of Constraints. What I like about it is that the tracks of the first 4 self learning videos match the tracks of the 4 Insights. So as your clicking around the Insights you can listen to Dr. Eliyahu Goldratt talking from the video CD.

There are 8 videos CDs (3 hours each) covering 1. Operations, 2. Finance & Measures, 3. Distribution and Supply Chain, 4. Project Management & Engineering, 5. Marketing, 6. Sales and Buy-In, 7. Managing People, and 8. Strategy & Tactics. Eliyahu M. Goldratt is the presenter in all 8 videos.

And there are 4 Insights coving the same first four topics as above. The Insights are like a PowerPoint presentation that you can click through an explore the topics in more detail.

Usually I recommend this package when it's on sale for $741 because it's such a good value. The 2 products sell for over $1400. But for the month of November 2009 you can get it exclusively (right here) for only $499.

A Process Of On-Going Improvement (POOGI) - Part 42

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Maximizing Profits in Uncertain Times with Goldratt Theory of Constraints

Dr. Lisa Lang presented “Maximizing Profits in Uncertain Times” at the recently completed NTMA (National Tool and Machining Association) annual conference in California. (To review the presentation slides and/or view the complete presentation, check the link mentioned below at the end of this article).

Using the famous Theory of Constraints (TOC) analogy of a chain, “Dr. Lisa” described how the weakest link of a chain determined its ability to achieve its goal of holding weight. Any increase in the strength of any link—except the weakest—had no effect on the overall goal.

Similarly, the goal of a company is to make more money now and in the future. The weakest link in our company process—the constraint—determines the performance of the company: how much money it can make. So, we must focus on and leverage the constraint.

In this economy, the constraint your company is dealing with may have shifted. For many companies, the constraint has been in operations. You have been busy, trying to get out as much as possible, and were probably dealing with long quoted lead-times and poor due date performance because of the internal constraint.

Now, in these uncertain times, many companies are faced with not enough sales. In companies used to dealing with an internal constraint, the management team frequently lacks processes and intuition for dealing with lack of sales.

Dr. Lisa presented how to address lack of sales with a “Mafia Offer”, an offer so good your customers can’t refuse it, and your competitors can’t or won’t offer the same.

A Mafia Offer typically requires that you do something different (make operational improvements) to actually deliver something un-refusable to your customers and something that your competition can't or won't do because they are not willing to or don't know how to make the same improvements.

Most companies offer solutions that solve their customers various problems or symptoms. With a Mafia Offer we are addressing our customer’s core problem.

When you have a good Mafia Offer and you deliver it correctly, your close rate can increase to above 80%. If you close 80% or more of your prospects -- you have control over your sales. This control makes it easier grow and invest in your business while maintaining the ability to deliver the offer.

Mafia Offers are developed by analyzing 3 things:
1. What are (or could be) your internal capabilities compared to your competition,
2. How does your industry, you and your competitors sell what you sell, and
3. Understanding how your clients are impacted by your current capabilities (which are usually the same as your competitors) and how you sell.

To protect the confidentiality of machine shops that have already developed their own Mafia Offer, she used an example from the printing industry. Using the TOC scheduling methodology, this printer had reduced their lead-time to two days, relative to two weeks for competition. The printer worked with clients that reordered products infrequently, in order to minimize purchase price, due to the price-quantity curve used by all printers. Because they had to forecast future usage in order to determine the quantities to order, customers invariably had too much inventory of some SKUs while they stocked out of others.

With the caveat that no company that is in the tooling and machining industry should think this Mafia Offer work for them, she told the audience the printer’s Mafia Offer:

“Mister customer, don’t give me orders. Your orders are based on your best guess of what you might need. Instead tell us every day what you used. We will guarantee on the one hand that you will not need to hold more than 2 weeks of inventory so you have more marketing flexibility and less risk for obsolescence, and at the same time we will also guarantee that you will never run out. If we ever stock you out, we will pay you $500 per day per SKU.”

That’s a Mafia Offer – best of all worlds for your customer and the printer will not pay a penalty because it only takes 2 days to replenish. The competition can not offer the same thing because they can not consistently deliver in less than 2 weeks and they could not risk paying the penalty.

The remainder of the presentation was devoted to describing the operational and mind-set changes required to have such a powerful Mafia Offer. Dr. Lisa described how Drum-Buffer-Rope scheduling works, and how “Buffer Statistics” guides ongoing improvement by pointing process weaknesses that Lean and Six Sigma tools can quickly fix.

She also described how the Mafia Offer challenged prevailing assumptions about “set-up cost”. The offer would require many more set-ups, but the printer had significant excess capacity. So, in reality, there was no additional set-up cost. Yes, there was additional set-up time, but all the people were already paid for in that period. And by knowing the importance of set-ups to delivering their Mafia Offer, the printer used Lean tools to dramatically reduce set-up time.

To view Dr. Lisa’s presentation, go to the Velocity Scheduling System page and get on the waiting list -- you'll have instant access. .



...to be continued.



Here's to maximizing YOUR profits!



Brad Stillahn



(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

A Process Of On-Going Improvement (POOGI) - Part 35

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

“A Technology Gap”

At the recent NTMA conference, Professor Paul Zane Pilzer spoke of the importance of technology in wealth creation, and of a “Technology Gap”. Let’s review a few of his concepts, and then relate it to a process of ongoing improvement.

Here are Pilzer’s Principles of Economic Alchemy:

1. Technology is the major determinant of wealth because it determines the nature and supply of physical resources.
2. The advance of technology is determined mainly by our ability to process information.
3. The backlog of unimplemented technological advances (the “technology gap”) is the true predictor of economic growth for both the individual and society.

Pilzer described his Six Laws of Economic Alchemy:

1. By enabling us to make productive use of particular raw materials, technology determines what constitutes a physical resource.
2. Technology determines our supply of existing physical resources by determining both the efficiency with which we use resources and our ability to find, obtain, distribute, and store them.
3. The rate at which a society’s technology advances is determined by the relative level of its ability to process information.
4. By providing us with new products and processes that change the way in which we live, technology determines what constitutes a need, and hence the nature of consumer demand.
5. Technology determines the level of consumer demand by determining the price at which goods can be sold.
6. The immediate economic potential for an individual, an industry, or a society can be explained by examining the technology gap—the best practices possible with current knowledge versus the practices in actual use.

Related to #6, Pilzer defines a “Ready-to-be-Implemented Technological Advance” (R-I-T) as a fully developed better product or method that is ready to be put to use.

We normally think of technology as something physical, like a machine. But Pilzer’s view of technology is liberating. His fourth law includes “processes that change the way we live”.

There is good news and bad news.

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

A Process Of On-Going Improvement (POOGI) - Part 34

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

“Incentives Work, Don’t They?”

Dr. Lisa: “Brad, ever since I’ve known you, you have been interested in the effectiveness of incentives. Tell me why.”

Brad: “It started when I bought my label printing business back in 1991. I wanted to gain the collaboration of my employees. Like many businesses, we had productivity, delivery, and quality issues. Like many owners, I wasn’t at all sure how to manage well enough to get the results I wanted. So, I thought incentives might help motivate employees to do what I didn’t know how to ask them to do. I thought incentives would motivate them to work it through on their own. At the least, I wanted to have employees who wanted what was best for the company. On the other hand, I was very afraid of having unhappy employees.”

Dr. Lisa: “Did it work?”

Brad: “Not so much. Our PDQ (Productivity, Delivery, and Quality incentive) did clarify the company operating goals for our employees. Our incentive plan initially was measured and paid monthly, but that seemed to be too long to affect behavior. When we went to weekly measurement and payouts, we had good weeks that resulted in incentive payments, followed by bad weeks without incentives. Rather than being perceived as a benefit, it seemed that incentives were considered an entitlement. When they weren’t paid, it seemed that some of the employees blamed me.”

Dr. Lisa: “What did you do about that?”

Brad: “The best approach I found was a cumulative year-to-date expectation level compared to year-to-date performance weekly. Any incentive was paid weekly, which was meaningful to employees who told me just to pay them as much as possible every week. I never found that incentives really incented a difference in performance. How we managed the business set up the performance of the company, good or bad. Good employees were good employees whether they were paid an incentive or not.”

Dr. Lisa: “Aubrey Daniels claimed, in his book Bringing Out the Best in People, that most incentive systems are considered by employees as Negative, and based on Future results that are inherently Uncertain. Rather, effective incentives must be Positive, Immediate, and Certain. And they rarely are. At the big companies I’ve work for, the annual bonus seemed very detached from my work.”

Brad: “When I asked him back in 1998, Dr. Eli Goldratt, father of the Theory of Constraints, suggested an annual incentive paid equally to all employees. The pot would be the annual increase in total net profit. Each year the baseline would reset. The reward could be substantial for everyone and anyone that collaborated to achieve the improvement. He referred to a chair manufacturer in Texas as a big success story.”

Dr. Lisa: “Yes, BUT. That doesn’t meet the test for being Immediate and Certain.”

Dr. Lisa: “Eli’s suggested approach has been further developed into what is referred to as the ‘POOGI Bonus’ in a TOC book called Management Dynamics by John Caspari. POOGI stands for Process of Ongoing Improvement. Basically a pot is built up over time and dispensed over time. So that makes it a little more immediate, and if a positive pot is built up, more certain.”

Brad: “When I joined a Vistage (TEC International back then) CEO group in 2003, I immediately put the question of incentives to the other business owners in my group. None had found a really effective plan. I was particularly troubled then because I had just read a book Punished By Rewards that claimed incentives were in fact detrimental. That challenged me because it called into question the very concept of incentives. The author, Alfie Kohn, claimed that the evidence confirmed that people’s interest in what they are doing declines when they are rewarded for doing it. He said Gold Stars, Incentive Plans, A’s, and even praise are ‘Bribes’.”

Dr. Lisa: “How about Open Book Management? That’s been popular.”

Brad: “Yeah, I tried that for a few years, too. My experience is that owners are owners and employees are employees, and education added to incentives still leaves a gap. I call Open Book Management a solution looking for a problem. I was the only one left to dig deep whenever I had a problem meeting payroll. By the way, do you know how difficult it is to transition away from incentive plans? It’s almost as bad as stopping a culture addicted to overtime.”

Dr. Lisa: “So, what do you think, are incentives effective or ineffective?”

Brad: “Ineffective, because finally I found someone that had thought the problem through. Elliott Jacques spent his life researching organizations. He found that the key to determining a person’s performance potential actually is his or her ‘time span of discretion’. That is, how far ahead does someone think? 80% of the population is under a month, and half of those under a week. Only 7% of the population was over a month, and 13% are unemployable, institutionalized, or incarcerated. The correlation between time span and what a person expects as ‘fair felt pay’ was over 90%, and the curve was stable across currencies, cultures, continents, and time.”

Dr. Lisa: “In Requisite Organization, Elliott claims that the basic contract between an employer and employee is for their ‘Best Work’. He further claims that an incentive undermines that. It causes confusion. If instead of the employer expecting and the employee providing Best Work, the employee now is supposed to provide less than best work without an incentive and best work for an incentive.”

Brad: “Jacques did say the exception was some select individuals in sales. The solution was to make them 1099 independent contractors rather than W2 employees.”

Dr. Lisa: “With TOC, we concentrate on measures, not incentives. Policies, Procedures, and Measures drive behavior.”

Brad: “Yes, and I’ve found measures to be much simpler to implement and manage with. Measures are effective and incentives have too many negative side effects. Having a few measures is also consistent with the goal of having secure and satisfied employees. Pay them well, and expect reliable and effective performance. Measures are an immediate feedback mechanism.”

...to be continued.



Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

A Process Of On-Going Improvement (POOGI) - Part 26

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

Whether you’re selling stuff or just trying to get the collaboration of other people, you need buy-in. Do you follow a buy-in process?

As W. Edward Deming, father of the Quality Management revolution said, “If you can't describe what you are doing as a process, you don't know what you're doing.”

So let’s describe the buy-in process that was developed by Dr. Eli Goldratt, father of the Theory of Constraints (TOC). Big picture, the steps are:

• What to Change?
• To What to Change?
• How to Cause the Change? more information on the TOC Thinking Processes

You use a buy-in process to accomplish business objectives. For a profit-seeking company, the overall company objectives can be generalized as:

• “Make more money, now as well as in the future”, and
• “Provide a secure and satisfying environment for employees now as well as in the future”, and
• “Provide satisfaction to the market now as well as in the future”.

Usually though, buy-in is sought related to a more specific objective and you should verbalize what that is. This more specific objective should make sense in relation to the overall business objectives of the company.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.


NEXT Group Mafia Offer Boot Camp: September 24, 25, 26 2008 in Denver. More information at http://www.mafiaoffers.com/. There are also PRIVATE and On-line Mafia Offer Boot Camps. The July boot camp SOLD OUT and there is no group boot camp in August. Don't miss September!

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.viable-vision.com/. You can register by fax or on-line.

A Process Of On-Going Improvement (POOGI) - Part 22

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints.

You will possess a sustainable competitive advantage when you have value-creating products, processes, and services for your customers that cannot be duplicated or imitated by your competitors.

Having a competitive advantage, even a sustainable one, does not necessarily mean that you or your customers and prospects are aware of it. So, there is a need to create an Offer or positioning in the market that clearly states your competitive advantage. We call this an un-refusable market offer or a “Mafia Offer” (this term was originally coined by Dr. Goldratt). A Mafia Offer is an offer so good that (1) your customers can’t refuse it and (2) your competition can’t or won’t match it.

A Mafia Offer is NOT a list of strengths, a cliché, subjective, or offered by competition. In addition, it is sold differently. When you have a Mafia Offer, you are making a business proposal. A business proposal promises substantial improvements for your prospect, and it is appropriate to present at the highest levels of your prospects organization. A Mafia Offer addresses a significant need of your prospect in a way that your competition can’t or won’t.

Developing a Mafia Offer is not trivial, but having one improves closing rates from less than 5% to as much as 80%. Typically, additional sales people aren’t required, but sales funnel management is.

If you are interested in more information about developing a Mafia Offer, and the significant increase in sales and profits it can bring, we recommend you read “It’s Not Luck” by Dr. Goldratt. This book is the sequel to The Goal. It also is an easy to read novel that provides a story for the development of three Mafia Offers. Also, check out our website http://www.mafiaoffers.com/ to hear an example, find out how you can develop a Mafia Offer for your company, and learn about our Mafia Offer Boot Camp.

Next time, we will address managing the sales funnel once you have that compelling Offer.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

NEXT Group Mafia Offer Boot Camp: September 24, 25, 26 2008 in Denver. More information at http://www.mafiaoffers.com/. There are also PRIVATE and On-line Mafia Offer Boot Camps. The July boot camp SOLD OUT and there is no group boot camp in August. Don't miss September!

NEXT Maximizing Profitability Event (no charge): September 23, 2008 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.viable-vision.com/

FREE Marketing & Sales Constraint Assessment Webinar July 28 from 2 to 3 pm Denver time. To register, just drop me an email with which date works best for you. We have expanded our seat limitation to 50 for each Webinar. Seats are filled on a first come first served basis and both sessions are already more than half filled.

A Process Of On-Going Improvement (POOGI) - Part 19

We are continuing our series based on The Goal by Eliyahu M Goldratt.

Up to this point, we have discussed how Drum-Buffer-Rope scheduling has the potential to double your capacity with little or no investment or expense. And Throughput Accounting has provided you visibility on the rate at which you make money.

Both of these “technologies” are part of the Theory of Constraints (TOC), a holistic business process improvement body of knowledge developed by Dr. Goldratt, author of The Goal. TOC is especially effective in job shops. In fact, The Goal was about a turnaround of a job shop.

However, if you can’t sell more with your newly available capacity, there won’t be a bottom-line effect. And we find cutting the people—to save a little cost—who collaborated to increase the productivity of your organization unconscionable. It is management’s responsibility to have the marketing and sales processes in place to increase sales, utilize the capacity, and dramatically improve the bottom-line.

Unfortunately, the marketing and sales processes of most organizations are already getting the results they are designed to get. To get more, something has to change.

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

Next GROUP Mafia Offer Boot Camp is July 30, 31, Aug 1 2008!

Also check out our FREE Theory of Constraints videos. New videos added weekly! http://www.scienceofbusiness.com/free-stuff/free-videos-audios.aspx

About the co-authors:

“Dr. Lisa” Lang is President of the Science of Business. Her TOC speech “Maximizing Profitability” is popular with Vistage/TEC groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement their own Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

Brad Stillahn is a business owner that has successfully implemented TOC methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals, is a new NTMA member. TOC Professionals works with companies implementing all aspects of TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

A Process Of On-Going Improvement (POOGI) - Part 15

We are continuing our series based on The Goal by Eliyahu M Goldratt.

We have discussed some of the problems with Cost Accounting, yet only touched on the alternative, “Throughput Accounting”. We promised to explore Throughput Accounting in more depth, and explain how implementing its concepts will help you understand the rate at which your company makes money. We also promised to discuss how Throughput Accounting can influence pricing decisions.

We are discussing Throughput Accounting from the perspective of the Theory of Constraints (TOC), a body of knowledge developed by Dr. Eliyahu M Goldratt and others over the last thirty years to support a process of ongoing improvement.

The fundamental concept in TOC is that every real system, such as your for-profit business, must have at least one constraint. If it were not true, your business would produce an infinite amount of net profit. Because a constraint limits your business system from getting more net profit, then if you want more net profit you must manage constraints. These constraints will determine the net profit of your business whether they are acknowledged and managed or not.

TOC and Throughput Accounting introduce three measurements for increasing net profit:
1. increase Throughput (Sales minus truly variable costs such as raw materials),
2. decrease Investment, particularly in inventories,
3. decrease Operating Expenses (that is, fixed costs).

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

A Process Of On-Going Improvement (POOGI) - Part 12

What is the effect on the monthly Profit and Loss statement from this?

Because cost accounting (and GAAP) requires that inventory absorb allocated costs, the effect is that all of the cost allocations from prior months that are attached to the inventory will be recognized in the month of the inventory reduction, causing a significant “loss” from this change in inventory.

If your management is aware of this, it may block the implementation of DBR in order to avoid the perceived negative impact. If no one blocks the implementation of DBR, the result will be recognized when the P&L is compiled. At that time, management will be “surprised”. So will be the bank and any other outside entity that has interest in your company’s financials.

Efficiency measurements typically evaluate the effectiveness of labor and equipment utilization. The goal is to strive for as high of efficiency as possible for all resources. However, DBR strives to have high utilization on only one resource: the system’s constraint. As a result, all other labor and equipment resources will have lower efficiencies. Again, if management perceives this as a negative outcome, it may block the implementation. Or, if DBR is implemented, when the efficiency reports are generated, management will be “surprised” by the lower efficiencies on most resources. So will anyone else that has interest in your company’s efficiencies.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.
_____________________________________________
About the authors:Brad Stillahn is a business owner that has successfully implemented Eliyahu M Goldratt's Theory of Constraints (TOC) methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals engages in long-term relationships with companies implementing TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

“Dr. Lisa” Lang is President of the Science of Business. Her speech “Maximizing Profitability” is popular with Vistage groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement a Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

A Process Of On-Going Improvement (POOGI) - Part 10

“Cost Accounting: Public Enemy #1 of Productivity”

Way back in 1983, prior to writing his popular business novel “The Goal”, Dr. Eliyahu M Goldratt gave a speech by this controversial and confrontational title at a conference of Management Accountants. However, it was well received because the problems with cost accounting are well known to knowledgeable management accounting professionals. For them, agreeing that there are problems with cost accounting was not the issue. The question was “what is the alternative?”

That is where we left our discussion last month. We had provided an overview of Drum-Buffer-Rope (DBR) scheduling. We warned that cost accounting assumptions may block you from implementing this powerful scheduling methodology and promised to discuss both the issues with cost accounting and introduce the solution: Throughput Accounting.

Management Accounting’s objective is to make the connection between managers’ local actions and the company’s profitability so managers can know if their actions are leading the company toward its goal.

The problem with cost accounting is the focus on cost.

...to be continued.

Here's to maximizing YOUR profits!
Dr Lisa Lang
(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

___________________________________________________________
About the authors:

Brad Stillahn is a business owner that has successfully implemented TOC methods in his own business and is now helping other business owners do the same. His consulting company, TOC Professionals engages in long-term relationships with companies implementing TOC. His business and personal partner is Dr. Lisa Lang. Brad can be reached at Brad@ScienceofBusiness.com or 303-886-9939.

“Dr. Lisa” Lang is President of the Science of Business. Her speech “Maximizing Profitability” is popular with Vistage groups and as a keynote speech. Recently Dr. Goldratt’s Global Marketing Director, she offers the “Mafia Offer Boot Camp” for companies wanting to develop and implement a Mafia Offer. She can be reached at DrLisa@ScienceofBusiness.com or 303-909-3343.

A Process Of On-Going Improvement (POOGI) - Part 5

Up to this point, we provided an overview of Goldratt's TOC (Theory of Constraints), the business improvement process methodology described in the popular business novel “The Goal”. Perhaps you’ve had the opportunity to take our recommendation from last month and read or re-read it.

“The Goal” refers to the goal of most for-profit organizations, which is to make more money now and in the future. If an organization is not making an infinite net profit, and of course no organization does, then something is limiting the system. TOC calls this the “system constraint”. If the constraint is external, the company does not have enough sales to fully utilize its available resources. If the constraint is internal, the company cannot sell all that is demanded from the company. Let’s consider the case when the constraint is internal.

We claimed that if a company implemented the scheduling methodology described in The Goal, that it just might be possible to double available capacity with little or no investment or added expense. The scheduling methodology is known as “Drum-Buffer-Rope” and we will discuss it in more detail this month.

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

A Process Of On-Going Improvement (POOGI) - Part 3

TOC is holistic, meaning that there is a complete set of tools available to support “A Process of Ongoing Improvement”:

· For operations, there is Drum-Buffer-Rope scheduling
· For projects, there is Critical Chain Project Management
· For finance and measures, there is Throughput Accounting
· For marketing, there is the compelling, un-refusable “Mafia Offer”
· For sales, there is the Buy-In Process
· For people, there are Management Skills
· For distribution and supply chain, there is Replenishment
· For anything else, there are the Thinking Processes.

Drum-Buffer-Rope (DBR) scheduling embraces the concept that there is one constraint for the entire organization. If the constraint is internal, the company cannot sell all that is demanded from the company. Due-date performance is probably less than 99%, and lead-times may be longer than desired. On the other hand if the constraint is external, the company does not have enough sales to fully utilize its available resources. More sales are desired. Implementing DBR brings a company to 99+% due-date performance (DDP) and maintains that level even with rapid sales growth. It can be implemented in a very short time. Typically, 50% capacity can be freed up to sell with little or no investment or added expense.

Check out the results from one of our clients in this video: http://www.scienceofbusiness.com/tmi-on-time-video.aspx

and here's more results: http://www.scienceofbusiness.com/Portals/0/Richard%20Pettibone%20DREWCO%20testimonial.pdf

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

The Best Business Books of All Time

The Goal is currently at the top of "The Best Business Books of All Time" list, but voting is underway. To cast your vote go to: http://800ceoread.com/bookvote/

Cast your vote for The Goal and help us to get the word out about Theory of Constraints!

Here's to maximizing YOUR profits!
Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

Book Review: Blue Ocean Strategy

Blue Ocean Strategy: How to Create Uncontested Market Space and Make the
Competition Irrelevant by W. Chan Kim and Renee Mauborgne.

This review will focus on pointing out those things that are consistent with Theory of Constraints (TOC) and my opinions from those things that are not.

The authors have done a nice job of explaining the problems with current strategy and market development techniques. Specifically, I agree that:

• "... with supply exceeding demand in more industries, competing for a share of contracting markets while necessary, will not be sufficient to sustain high performance." pg 5
• "The result has been accelerated commoditization of products and services, increasing prices wars, and shrinking profit margins." pg 8
• "In overcrowded industries, differentiating brands becomes harder in both economic upturns and downturns." pg 8
• "The trend toward globalization has compounds the situation." pg 8

No question. There is a problem. We can't continue to do things in the same way and expect different results. However, I believe that a couple key assumptions have lead the authors astray.

Here is what I don't agree with:

• "To seize new profit and growth opportunities, they need to create blue oceans." pg 5

Blue oceans are new products in new markets/industries and I believe that in many cases this is an invalid assumption -- that you MUST create new products and/or new markets/industries to substantially grow profits. I believe that this is invalid because we have experience in creating irresistible market offers that we call Mafia Offers. These Mafia Offers are typically for existing products in existing markets. The reason we focus our Mafia Offers develop on existing products in existing markets can be traced back to the 5 Focusing Steps that were discussed in The Goal by Eliyahu M Goldratt:

1. IDENTIFY the system's constraint.
2. Decide how to EXPLOIT the system's constraint.
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system's constraint.
5. If in the previous step the constraint has been broken, go back to Step 1.

If your system's constraint is the market, then new products or new markets/industries is an ELEVATION step. I believe that before we elevate we should first try to get more (EXPLOIT and SUBORDINATE) out of what we already have.

The authors then address the risk associated with new products in new markets/industries:

• A systematic process will minimize risk to expanding into new products and/or new markets/industries. I agree with this, but then they go on to imply that it would be no more than the risk of strategies around existing products/markets/industries.

I think the business owner who was investing in the new development would disagree.

In contrast, a good Theory of Constraints Mafia Offer will achieve all the positives of a blue ocean strategy without the risk. Because mafia offers are developed on existing products/markets/industries and with little or no investment, it is an EXPLOIT and SUBORDINATION step.

Okay, now back to more about what I liked:

• If and when you need to develop new products/markets/industries then I think the process outlined by the authors is very good.

Almost everyone at some point WILL need to develop new products/markets/industries and I liked this approach. I do think it would be difficult to implement the approach just based on what's in the book. But the framework is there.

Here's to maximizing YOUR profits!

"Dr Lisa" Lang

(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

Need an example of a Mafia Offer? http://www.podcasternews.com/programs/87/better-process-podcast/3574/?A=1