Viable Vision

In today’s business world corporate directors and shareholders are escalating their demands for growth and profits, but fewer corporate leaders are able to meet these demands with executable roadmaps to that vision.  This means that their vision for future performance is not viable for their enterprises.

Several years ago, Goldratt made a seemingly outrageous proposal that a viable vision for any company would be, in less than four years, to have net profit equal to its current total sales.  As you might suspect, most executives greeted this postulate with a great deal of skepticism.  But why? 

The answer is that most business people are unaware of the fact that any complex system is based on inherent simplicity.  Capitalizing on the inherent simplicity is what enables incredible improvements within a short timeframe.

To explain the concept of inherent simplicity, one first needs to clarify what is referred to as a complex system.  Quite simply, the more data one has to provide in order to fully describe the system, the more complex the system is.  It is quite obvious that companies, even small ones, are extremely complex.  It is also obvious that it is difficult to manage a complex system. Our tendency to reject the notion of Goldratt’s viable vision has much to do with our experience in managing complex business systems.  What Goldratt has demonstrated in numerous companies, is that achievement of a viable vision is often blocked by the conventional approach executives and managers take to managing complexity.

Conventional approaches to managing complex business systems encourage executives to dissect the system into subsystems where, by definition, each subsystem is less complex than the whole.  But slicing and dicing a system into subsystems has its price.  It leads to miss-synchronization, it leads to harmful local optima, and in many cases it leads to crippling silo mentality.  In such an approach, executives focus their attention on trying to improve synchronization and to foster better collaboration between the subsystems.  In such a framework, it is little wonder that executives see the notion of “net profit equal to current total sales in less than four years” as unrealistic.  In fact, the conventional approach to managing complexity, by design, makes it virtually impossible to achieve any significant jump in profit within a relatively short time span.

To see the true potential inherent in our companies we need to look more closely at the issue of complexity. When we examine the data that typifies an organizational system, we invariably notice that such data does not relate to just one component of the system, but to relationships between two or more components.  In other words, the thing that makes our system difficult to manage is that what is done in one place, has ramifications in other places – these cause-and-effect relationships turn an organizational system into a maze of interrelationships and interdependencies.  But, this is precisely the fact that provides the key for the solution.

Think about the problem in the following way.  Examine a given system and ask “what is the minimum number of points one has to impact in order to impact the whole system”?  Suppose the answer is ten points.  This would represent a difficult system to manage since it has many degrees of freedom – much like herding cats.  But, on the other hand, if the answer is one point, then this system has only one degree of freedom and it is an easy system to manage.  The conclusion to be drawn is that the more interdependencies existing between the various components of the system, the less degrees of freedom the system has.  Considering the enormous complexity of business systems it follows that there must be only a very few elements that govern the entire system.  In other words, the more complex the system is, the more profound is its inherent simplicity. 

To capitalize on the inherent simplicity in complex business systems we must be able to identify those very few elements that govern the system.  Additionally, if we are also fully aware of the cause and effect relationships between these elements and all other elements of the system, then we can manage the system to achieve a much higher level of performance.

These few elements, the ones dictating the level of performance in the system, are the constraints of the system.  These system constraints are also the leverage points of the system.  The process to capitalize on the inherent simplicity becomes straightforward:

1. Identify the systems constraint(s).
2. Decide how to exploit the system’s constraint(s).
3. Subordinate everything else to the above decision.
4. Elevate the system’s constraint(s).
5. If in the previous steps a constraint has been broken, go back to step 1

An early step in the first determinant of performance improvement, therefore, is to create a shared understanding of the concept of inherent simplicity in organizational systems.  Most executives and managers are oblivious to this concept.  As a result, they rely on conventional problem solving which leads to overly sophisticated and complex solutions that actually limit the magnitude of performance gains.   In any system, from an individual to a global enterprise, when you approach complex performance issues through its inherent simplicity, the results are always the same – a remarkable jump in performance.  Shifting the paradigm for understanding and managing complexity is the starting point toward a viable vision…. and, order of magnitude improvements in performance are possible.