To understand enterprise 2.0 companies should learn from theory of constraints

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It’s funny to see how history seems to be endlessly repeating, how issues that have been fixed years ago are coming back to the surface.

Because the question of productivity, time management, ROI in an enterprise 2.0 or in a Service Oriented Organization remembers me of something that already took place years ago (and was fixed) in manufacturing industry and seems to be breaking out again in the knowledge and services industry.

It’s nothing more than a nth application of theory of constraints (TOC).

I first looked into this case when I was a student and was very interested in optimization issues (finally I didn’t change that much since I’m mainly blogging about optimizing organization in a knowledge economy context). At the end of a manufacturing management class, the outside contributer advised me to read “the goal”, from Eliyahu M. Goldratt.

First surprise, it was a novel. The proof of the power of storytelling because I’m not sure I would have been caught up in this if it had been writen in a more academic manner.

Second surprise : I was really slapped in the face to realize I had to unlearn many thing I thought being unbreakable truth. The young and inexperienced student I was at this time was convinced that everything was about productivity and outputs there was no sheet anchor. I learned, on the contrary, that it was sometimes efficient to have employees that don’t work and machines that don’t produce anything. It was not that idiot : if the final product needs many pieces to be assembled, it’s no use having a huge sock of “A” if “B” needs more time to be produced. Doing this drives stocks that cost lots of money, so it’s sometimes better to slow production down, even interupt it. And the employee that is, as a consequence, not working, helps you to make money because he’s not making you loose money by creating stocks.

The deep cause have something of the nature of a phenomenon that can be observed in many companies, even in service and knowledge industry : people focus on local optima and, doing so, they spoil the reach of a global maximum. It’s one of the main barriers to collaboration and the emergence of an organization model where everyone has to give time to others, working as a support, sharing his knowlegde, making everything in order not to reivent the wheel everyday.

According to Goldratt it implies we forget the “world of costs” which is the very cause of the obsession with local optima and drives global economic nonsenses, to get into the “throughput world” that is defined as the pace at which the system generates money through sales.

Hum…it reminds me of something. The underlying idea in SOO was precisely that there was a huge gap between what people were asked to do and what their daily issues were. It’s those day to day issues, the client, external or internal, that have to drive people’s activity and not what was planned according to uncertain forecasts (knowing a typical knowledgeworker’s job is to deal with exceptions…).

One of my favorite topics is “goal”. TOC leads us to identify the very foal and ask ourselves what has to be done in order to achieve it. One acknowledgement that can be done is that many organization don’t know their real goal and don’t align the way they work with it, focusing on their survival instead of reaching their goal. Hence the success of agile methods,  that link the activity of any project team to their goal, more precisely to satisfying a need. That’s why companies try to put their people into networks, forgetting the goal is to ensure knowledge is reusable. By breaking the link between the action (build a network) and the goal (knowledge reuse in order to create value), nothing is done to achieve either one of the other.

Have a loot at this edifying post from Jay Deragon, telling us his interview with a division director at one “Fortune 500” company. He was asking him if there should be an overall responsible for social media initiatives instead of having it managed locally.

  • My question: Do you think somebody from the executive committee ought to be?
  • Leader of Division A: Not necessarily because then somebody would then be telling me how and what to do with my social media initiative for the benefit of other divisions. Look I understand where you are going and why but it is useless to even try and get us all on the same page. We’re a big company and every division is measured by their own results. Every division leader has their own ideas about how to achieve those results. Our bonuses depend on how well we do in reaching those results. get it?
  • My response: Yes, there isn’t one company yet there is one brand. All the companies serve the customer but never in a coordinated fashion rather a splintered effort. The customer doesn’t know who is in charge of what but when dissatisfied with overall service they simply distrust the company while you say it isn’t your fault.
  • Leader of Division A: In a funny way your right. Now how can you help us with our initiative.
  • My response: I can’t

You may also be interested in what Jay says here.

Behaving like one company and not like many independant groups, isn’t it what Procter&Gamble is trying to do ?

It’s another point I learned from Goldratt : means are too often mistaken for goals. Every project is a mean, not a goal. Job description is a mean, not a goal. Put people at work is not a goal, it’s a mean. It’s better having someone who is useful ten hours a week instead of working forty hours for the only reason the enterprise wants to see him busy. People are used to fill squares, regardless of any consideration of how useful the square is. Companies are becoming their own goal, forgetting what they were created for. It’s like companies only have “half-strategies” : they focus on their survival and how to fulfill their needs in terms or ressources in order to stay alive, and not on achieving their mission.

Well, that’s the reason why we have very busy employees who can’t spend their time on what is important to create value. Of course, taking an active interest in TOC means changing paradigm because it implies we change the way we see enterprises. And it’s obvious that facts impose us to do so.

We have to forget old certainties and accept things like

the cost price per product is a mathematic fantom… less security means less uncertainty….stop sellings products, costs allocation kills productivity

Yes. Costs allocation kills productivity. Goldratt’s idea is that in the world of costs, each element is considered being independant and locally manageable. A lot of energy is wasted in the name of the will to control every detail. In such a context, managers feel condemned to immerse alone thousands of table tennis balls in a swimming pool, which represents many efforts for few results.

We can notice that, since we focus on people, costs are highly related to time. Would that mean that time isn’t a relevant unit anymore ? Once again, this is a key discussions in the “next enterprise” paradigm.

More interdependant than ever, companies should ask themselves this kind of questions since nobody can deny the facts. What used to work in a manufacturing contexte applies, even in a stronger way, to knowledge economy where everyone highly depends on the other.

Any thought ?