Monday, April 25, 2011

TOC hiring logic from Bill Rhind

Bill Rhind (see profile on linkedIn) of P3 Consulting has kindly prepared this overview of utilizing the Theory of Constraints logic in the employee recruitment process. I found it very clear if you think of a constrained resource group, but Bill pointed out to me that this logic stands for any hiring, not just within a constrained group.  In fact, he feels the real value is in the non-constraint since there are many more non-constrained resources than constrained resources and one often doesn't think of “exploiting” a non-constraint. To top it all off he even included a small and very thought provoking case review.

Thanks Bill!

"What intrigues me is that many HR decisions are still made utilizing "local" thinking. Each hiring decision is generally made in isolation… on an individual, functional, or divisional case by case based and on the merit of each request. In addition, the decision to hire (elevating the system) is often done prior to identifying the constraint, to exploiting the constraint or subordinating to the constraint.

Why do I believe this is generally the case within most organizations? Organizations which I have been part of or visited (and have not implemented TOC) have a FULL list of personnel requests with all functional managers stating that theirs is the most important, and the managers do not have a clear way to accept or reject them. Managers don’t have a value based way to determine the priority or explain why one group was able to hire while another may not (or they hire based upon “local” efficiencies and don’t realize they are actually hurting the system’s overall performance).

I would like to inject that hiring must be considered holistically. Looking at all requests in an organization and prioritizing them based on T, I and OE (T, or Throughput, is the money or goal units generated by the system, I, or Inventory, is the money invested in the system in order to generate T and OE, or Operating Expenses, is the money the system is working on in order to transform in to T) from a systems perspective. There truly can only be one (or very few) most important hire.

In order to tackle this question, I suggest breaking the answer into three parts

1. decision on hiring
2. who (which skill) should ultimately be hired
3. the hiring process

Decision on Hiring

One necessary condition in order to know what is the most important hire is the company knows their system’s constraint (the only true way to know the impact on T). If the constraint for a system is not known, the best one can hope for is impacting delta I and delta OE (which are also often from a local perspective). Of course there may be situations where this is not the case (e.g., a key skill is missing or lost, and without it, even if the position is a non-constraint, T goes to “0”).

I think a key faulty assumption made or a missing process step in hiring is the assumption that a company truly needs another person within the constrained resource group to add capacity. A step that I believe is fundamentally missing in most hiring processes is the step to ensure that we have fully exploited the current capacity of the skill prior to moving to the elevate step. I can think of a few observations/checks which can be made to test the current state:

- What is the level of bad multitasking occurring within the group?
- What percentage of the constrained group’s capacity is the constraint (or CCR) performing the task which only they can perform (e.g., have they off loaded Herbie)?
- Are they working on the most valuable work to the business?

Prior to even considering the hiring of any additional personnel (and adding OE), I would want to ensure that we have, at a minimum, fully exploited the current capacity (it is important to make sure that the measure is not activity based but truly value based, focused on measuring only the amount of capacity where the constraint is doing only the specific work that the resource/skill can provide) and subordinated all else to ensure that the company was not wasting any of it. As all of you know, these steps alone can bring significant increase of flow (25%...50%...or more) within an organization while having a very positive impact on all of the people.

Who (Which Skill) Should Ultimately be Hired

If it is determined that the currently available constrained resources have capacity which is being stolen doing “other” work (work which does not add value from the customers perspective), then I would suggest hiring a person to remove this more general work from constrained resources versus hiring another constrained resource. The benefit of this is many fold:

1. The hired person would cost less OE (I know this is an assumption, but I believe a pretty good one)
2. It would have a much bigger impact on T (and, therefore, NP)
3. Constrained resource generally happier and more satisfied in their work

Take for example a sales group. We have seen instances where a company was interested in increasing throughput and was considering adding additional sales people. It was obvious that the constraint was the market. In which I really mean, the company’s ability to sell more to the market (the market by itself was not the constraint since the company only had about 10% of the market). To check whether hiring sales people was the right decision, we analyzed the sales process and were looking for overall effectiveness. The key here is how does one define effectiveness.

It became quickly apparent that the sales people were always busy (and one might say efficient); many working non-stop for 50-60 hours per week. Their days were filled with meetings (both internal and external), report writing, following up on sales orders, logging their sales calls, obtaining marketing materials, driving between calls, trainings and, of course, sales calls. Since sales generally are going to be made during sales calls, we asked how much of the day is spent with customers. The general answer for this client (and many others) was 25-50%. As we peel back the activities within the call itself, we asked one more question: “how much time are you spending with the decision makers?” The answer was enlightening, only 5-10%.
Would adding another sales person have an impact…of course, but, in this case, adding a person who’s responsibility would be to provide support to the entire sales organization would be much bigger. In this case, adding one support person provided for an absolute increase of 15% to EACH sales person. This is the equivalent to a doubling or tripling of the SALES FORCE. While I know that there are other possible levers for improving the T, no one of them could deliver more impact on T (while minimizing impact on OE) in the time it took to implement this improvement.

The Hiring Process

A key improvement is to consider the multitude of hiring’s as a multi-project environment. Ensuring that the hiring projects are being released in such a way as to ensure bad multitasking is minimized. Ensuring that Full Kit (strong job description is developed, availability of resources, clear end date, etc.) is fully developed prior to starting the recruiting process. Ensure that the hires are prioritized and released into the hiring process based upon their impact on T, I and OE.

I think by breaking the solution down, a company can now focus and improve the process to deliver value to the business at a global versus a local perspective. The organization can now make much better and quicker decisions on hiring and the hiring will happen at a much faster rate."

10 Places to start Your journey

My dearest darling is very supportive, he even visited this blog. Then he told everyone who would listen that it is not in any language known to man.
If you concur, here are some great places to make your first strides:
  1. The book shelf - read "The Goal" and any other business novel or book by Dr. Goldratt (there may be a new one on the way), add "The Choice" after you've read a few of the others; it is a bit harder, even though it is still an easy read.
  2. Join Dr. Goldratt's basic workshop "TOC for the Ever Flourishing Company" at the Goldratt House, even people who have been around Theory of Constraints concepts for years told me they found value in this workshop. This is not overly expensive as the workshop costs about $250 but you do need to pay for travel and accomodations
  3. Attend a TOCICO event in person in a conference (here is some data on the 2010 conference) or through the web in a webinar. You can also commit to a Theory of Constraints certification process and start taking the exams. Costs start as low as $40 for a webinar, through $100 for an exam to about $2,000 for a conference. Note that some activities require you become a member of the TOCICO which costs about $200 (less for people in academia)
  4. Join the Goldratt Schools program. They offer different programs, some are offered only as a whole and in some you can attend only the sessions you are interested in. From what I understood of their web site joining the whole program costs $10,000 up front + another $10,000 success based fee to be paid only if real life results of X10 the basic fee are achieved (meaning you pay $20,000 for real life results of the scale of $100,000, I think that's quite fair, if you can come up with the $10,000 to begin with)
  5. Use the self learning tools put out by Dr. Goldratt's team such as the TOC Insights self learning program ($80 per subject, $800 for all) or TOC.TV (this has some free content but is mostly pay per view and subscription based)
  6. Use this highly recommended site. I've been referred to this site many times and it always came highly recommended, but I still have to give it a deep scan, so I can't chime in with my point of view at this time.
  7. Visit the "Focus and Leverage" blog, written by Bob Sproull. This is a step by step intro into TOC for people and organizations, with a specific focus for those already involved with Lean and 6 Sigma. Bob has reached step 31 by now and hopefully will continue adding steps soon.
  8. Take a class at the university, or even go the whole way and get a certification or degree. For example, Dr. James Holt holds classes and has a full certification program at WSU, that are also available as web courses. There are other US universities with Theory of Constraints focus, such as the University of Tennessee. Internationally you can find programs in Poland, Ukrain, Colombia, Taiwan, South Africa, India and more. Many other Universities offer only single courses on the subject.
  9. Dr. Goldratt's blog is a great place after you've picked up the basics, full of "golden nuggets" and extensions, it is in Theory of Constraints jargon and a novice could easily get lost. Once you're up to speed, though, it is the place to be.
  10. Goal Systems International, a Theory of Constraints consulting firm with some of the biggest names, has very good topic specific articles in the "papers" section of their web site

Friday, April 22, 2011

Great learning source for Thinking Process

I've just found this great tutorial of TP. It's great because it uses real examples along the technical and theoretical material. This is great to make the learning process accessible for both the "learn then do" crowd and the "learn by doing" crowd. I've only skeemed this one, as I'm BMT as it is (taking time off from other tasks because I've run out of concentration), but I'm certain it's a keeper.

The source is I am not really sure who wrote the tutorial, but looking for the right name to thank, I also found this terrific EC presentation which added to my understanding of conflicts - did you know there are 3 types of conflicts? 

Anyways, I'm naming a gold-digger's paradise – lot's of treasures, not to clear at first sight. Happy digging!

Saturday, April 16, 2011

what are people looking for?

According to Google's "Insights for Search" tool the interest in TOC is diminishing, whereas the Lean Six Sigma combination is gaining popularity, see graph. I wonder why that is. Considering the fact Dr. Goldratt was quoted saying he would like to make TOC a commonly used tool, I would say something is very wrong with this picture.

Monday, April 4, 2011

Flow to the extreme

A simulation clip for a train designed to never stop I fisrt saw over at the Goldratt House.
First off, I think it is important to think about the paradingm shift this represents. All the trains I have ever encountered work on the same paradigm - the train waits for people to board/unboard. This is, to the best of my knowledge, a main reason for train schedule flactuations. A Londoner once told me that he could catch the underground  at 7:45 and be at work within 10 minutes, or he could be a bit late and catch it at 8:00 and then be at work within 30 minutes. So it is pretty clear what is the power of this new technology and it is probably good practice to try and work through the other questions of new technology. But what keeps troubling me is - how does this thing turn around to start the trip back if it never stops?

In manufacturing we seek flow because it means inventories are moving and as inventories move in one direction they create a move of income (or rather Throughput) in the other direction.Jusr remember flow is only a means to a goal and must be viewed from the greater perspective of the entire system (here's why)

Sunday, April 3, 2011

Using TOC while seeking a new job (part 2)

(Part 1)
When a system goes through a TOC process it defines its goal (what it wants more of) and the necessary conditions (what can't be done in order to get more of the goal units). Once this is in place every part of the system can be graded as supporting the effort to reach the goal, not supporting the effort to reach the goal or limiting the effort to reach the goal. If one was part of such a system – which type of position (regardless of performance in said position) would one want?
This is a point to contemplate as we move through the process of finding and getting a new job, in my opinion. At each step of the hiring process it is a good idea to stop and review the possible grade this position has in the organization.
Admittedly, most systems now days have yet to define their goal the TOC way.  When the hiring organization is a for profit company, this is not a major issue as we know the goal. If the organization is not for profit, it is a bit trickier but I suspect most people will have the necessary intuition to run the analysis even without a clearly defined goal and measuring system.
Instinctively, one would probably consider a position with a "limiting the effort" grade a bad choice, but I think this deserves a second thought. If the insight gained shows one can help turn around this position to make it "support the effort" one can create value to the organization, maybe even major value which will, probably, lead to positive results for the individual as well. Tread with caution, though, and make as sure as possible the chance does exist at the position level (the position can be turned around), at the environment level (peers and managers will support and can be moved to support the change) and at the personal level (the effort needed is within one's current capabilities or within reach).

Here is an idea for creating a URO for employers....