A Process Of On-Going Improvement (POOGI) - Part 31

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.}

Dr. Goldratt proposed that there are just two categories of things that can go wrong. One he calls unreliability and the other ineffectiveness. These two things account for everything, and have no overlap.

Unreliability is not doing things that need to be done. Ineffectiveness is doing things that did not need to be done, but were nevertheless. Stop and think about it, and you’ll realize that ineffectiveness is the major cause of unreliability.

Unreliability is not meeting promises. It is often currently verbalized and measured as “due date performance”. In TOC, in order to measure the duration of lateness as well as the dollar magnitude, we multiply the days an order is late by dollar value of an order (and sum for all orders) to get total “Sales Dollar Days”. A lower number is better, with the objective of achieving and maintaining zero sales dollar days every day.

Ineffectiveness is doing things too early, or that didn’t need to be done. In physical terms, it is work-in-process, or inventory. In TOC, in order to measure the duration of time inventory has accumulated as well as the dollar magnitude, we multiply the days inventory of a part has existed times the dollar value for each part (and sum for all parts) to get total “Inventory Dollar Days”. Again, a lower number is better, but zero is not attainable, so the objective is to continuously improve.

Many of the current measurements used in organizations have the intent of controlling costs. In previous articles, we’ve proposed Throughput Accounting as the preferred alternative to Cost Accounting.

...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 30

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

Measurements (Not Incentives)

“Tell me how you measure me, and I will tell you how I will behave. If you measure me in an illogical way…do not complain about illogical behavior”.

This quote by Dr. Eli Goldratt, the father of the Theory of Constraints (TOC), speaks directly to the cause and effect power of measurements, and to the general misuse of measurements.

We business managers often struggle to determine what to measure and control, and how to motivate employees. Some of us measure many, many things, while others of us don’t measure much at all.

Think about these questions:
· What problems are we trying to solve by using measurements?
· What and how are we measuring now?
· What problems do we cause by the way we measure now?
· Is there a better way? That is, what should we be measuring and how?

First, let’s set a context for our discussion of measurements by agreeing on the overall objectives of our organization:

1. Make more money now as well as in the future,
2. Provide a secure and satisfying environment for employees now as well as in the future, and
3. Provide satisfaction to the market now as well as in the future.

The challenge is to accomplish all three objectives simultaneously.

One approach to doing so is called “balanced scorecard”. This proposed solution falls into the trap of trying to measure many, many things. It violates the second objective above in that when we measure many things, there will be some things that will look good and others that look bad. Depending upon the management style of the people involved, management can always find something to find fault with employees.

With TOC, we’re interested in ongoing improvement. We aren’t interested in measuring what is going well as much as we are interested in measuring what can be improved.

...to be continued.

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

Next Maximizing Profitability Events:

• January 20, 2009 from 1 pm to 5 pm
• February 3, 2009 from 1 pm to 5 pm

We now have 2 viewing options:

1. On-site in Denver
2. Live streaming video -- watch from you desk

Are you a Vistage/TEC member who would like your team to hear my Maximizing Profitability speech? You and/or you empolyees can attend in Denver at no charge or the LIVE STREAMING VIDEO is only $147 per company. More information at http://theoryofconstraints.eventbrite.com/

First GROUP Boot Camp of the year: February 4, 5, 6, 2009 in Denver. More information at www.MafiaOffers.com. Limited to the first 5 companies!

PRIVATE and On-line Mafia Offer Boot Camps are also available. On-line boot camps are done at YOUR time schedule and PRIVATEs are scheduled at a mutally agreed time.

Interview Tom Foster (Management Skills Blog) – Part 6 of 6

Q6 Dr Lisa: Are there some basic questions our clients can use to assess the “time span of discretion” for an individual?

Tom: In his Time Span Handbook, Elliott Jaques outlines ten questions for a diagnostic interview. While most diagnostics, related to employment, center around psychological or "behavioral" metrics, the Time Span interview measures the Time Span of the individual.

These questions ask the subject to describe the manner and frequency they are given task assignments, the manner and frequency their work is reviewed, and whether they work on multiple assignments at the same time.

While most psychometric assessments require psychological interpretation, the responses to the Time Span diagnostic can be easily understood by any competent manager.

That completes our interview of Tom Foster. If you have questions or comments, please enter them below by clicking on the Comments hot link.

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

My reknown and praised Goldratt Theory of Constraints overview, Maximizing Profitability, is now available through live streaming video. Watch from your desk!

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): January 20, 2009 in Denver from 1:00 to 5:00 pm at the Science of Business Training Center. More information at http://www.scienceofbusiness.com/events/viable-vision-maximizing-profitability-events.aspx. You can register by fax or on-line.

Interview Tom Foster (Management Skills Blog) – Part 5 of 6

Q5 Dr Lisa: Could you explain about the “felt fair pay” curve for the time span of discretion that is universal across cultures, currencies and continents?

Tom: Felt-Fair-Pay is probably the most controversial, yet scientifically documented finding in the research of Elliott Jaques. Here's the way it works.

Ask someone what they feel is Fair Pay for the work they perform. This question is a little tricky, because, as you might imagine, there are many influences on this response. First, you have to discuss the work. Next, you have to get the person away from their co-workers, away from their spouse and then ask, "What do you feel is Fair Pay for the work you perform?"

When Jaques plotted the points based on Time Span and Fair Pay, they produced a curve that was reproduced in study after study over a period of 12 years in multiple countries under different currencies. Uncanny.

The implication for this finding? If I can determine the Time Span of the role, I can calculate the Felt-Fair-Pay.

..to be continued.

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

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): December 1, 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.

Interview Tom Foster (Management Skills Blog) – Part 4 of 6

Q4 Dr Lisa: We find that incentives or bonus programs only useful in a small number of cases. Are management incentives or bonus compensations schemes ever appropriate in your opinion?

Tom: I hear managers, especially in the sales arena decry that their best salespeople are only motivated by money and the best system is straight commission.

Okay. Let's say, I buy that. Let's say there are people who are only motivated, or mostly motivated by money. And what's more, let's say I need that kind of person on my sales force. I want someone who is willing to work three extra hours every day, make that extra sales call, do that last pitch.

Have you ever met a salesperson like that? I have. And what impact do they have on the rest of the organization? My experience is that they are prima donnas and wreak havoc on the rest of my people and my company culture.

BUT I NEED THEM.

Okay, I need them. But they are not an employee. They are not a team player. They are self-employed. Willing to put their compensation at risk, eat what they kill. So pay them like they are self-employed, on a 1099. And keep them the hell away from the rest of my people..

..to be continued.

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

Are you a Vistage/TEC member who would like your team to hear my speech? Here it is: NEXT Maximizing Profitability Event (no charge): December 1, 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.

Next Mafia Offer Boot Camp -- is December 2, 3, 4 2008 in Denver.