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."
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