Theory of Constraints, Part I
IdeaConnection Interview with Michael A. Dalton, author of Simplifying Innovation
"Traditional improvement efforts work on the premise that strengthening each process step makes the whole process stronger. Unfortunately, in most cases, this dilutes your efforts, which is contrary to your goal."
"To get the maximum leverage from your efforts, you must focus on the area where it will have the most impact: on strengthening the weakest link in your innovation chain."
Vern Burkhardt (VB):
You are Managing Director and Principal Consultant at Guided Innovation Group
. Would you talk about the services you offer?
I like to describe Guided Innovation's services as innovation coaching rather than innovation consulting. Although consulting is certainly part of what we do, it's important to recognize the fact that the client has to implement the change ideas that emerge. They have to understand the idea, buy into it, and know where the issues and challenges are in order to successfully implement change.
We help our clients identify their bottlenecks and find answers to their struggles and challenges. We help them uncover the things that they don't see because they're too close to their own operations.
We offer a couple of different programs for doing this. One is the Diagnostic Track. We can look at either a particular project that a company is struggling with, or at their entire portfolio. Sometimes the reason they're struggling is because of the entire portfolio, and not just because of a single project.
We also have the Planning and Execution Track, which is for companies that want to get started on the right foot with their innovation process. When they're about to embark on a significant project we provide them with a way to step back and ask, "Have we considered everything?" "Do we have the right plan in place?" We facilitate the planning process to help the team put their plan together. Throughout the execution phase we can also provide coaching for either the project or R&D manager, depending who has over-all accountability for the innovation process.
In some cases we find that companies have gotten started, might even be far down the path on a project, and they're struggling. For these circumstances we have the Project Rescue Track, where we help answer some key questions such as, "Why has this project stalled?" "Honestly, is it even worth saving?" In this track we begin with this diagnostic process, and then help the client put together a plan for how to rescue that project if, indeed, it should be rescued. There are times when you just have to face the fact that the only answer for a project is to pull the plug and move on. The project may not have been feasible in the first place.
The final thing we offer is the Mastery Track, which is intended for companies wanting to put in place a continuous improvement approach to innovation to help them with the five-step process, and make continuous improvement for new product development a part of their culture.
(Vern's note: The five focusing steps in the Theory of Constraints are identifying the bottleneck, exploiting the constraint's available capacity, subordinating all activities to the constraint, elevating the capacity of the constraint, and starting again and avoiding the inertia constraint.)
Where do you spend most of your time – in planning and execution, diagnosis of problems with new product development initiatives, or rescuing product development projects?
It is an almost equal balance among all of the programs we offer. I've even provided several of them to the same company. You can be doing a project rescue track to find a problem with a particular project, and as you start to dig into the problem you ask, "Why is this a problem?" "Why are you having this problem?" With further investigation we may find a root cause that goes deeper than just the project itself. For example, it may relate to the way the company is operating, including how it's managing innovation.
For instance, I've worked with companies where they have people doing so many projects there isn't any visibility for any one of the projects, nor a focus on what it takes to be successful. They continue to put more and more projects into the pipeline without ever stepping back and saying, "You know we're not doing any one of these projects justice."
"An important part of what we do is challenge assumptions." What are examples of some types of assumptions you have challenged?
Invention is all about solving contradictions, so this makes "contradictions" a critical element of innovation. For instance, a physical contradiction is we can't make a structure stronger without making it heavier.
There's a saying there are no contradictions, only wrong assumptions. That's a "Goldrattism," I guess you would say, as Goldratt has long looked at contradictions as being a matter of the wrong assumptions.
I don't know if you're familiar with Genrich Altshuller and the theory of inventive problem solving that's known as TRIZ. It is also based on finding patterns to solve contradictions as part of invention – solving problems and generating innovative ideas. (Vern's note: Eliyahu Goldratt was the originator of the Theory of Constraints which Michael Dalton will talk more about later in this article.)
We try to ask the tough questions on projects. Sometimes clients are too close to their projects to get to the root cause – the 'why' – of the situation.
Some of the original lean methodology that Taiichi Ohno, and originally Eiiji Toyoda, developed as part of the Toyota lean production system included something they called "simplified why's." It involves asking "Why?" five times to get to the root cause of the situation. For instance, "Why is that happening?" "Why did you do it that way?" Once you've determined what the problem is by continuing until you can't ask "why?" anymore, you should finally get to the cause of the problem.
The methodology aims to make the assumptions underlying the problem explicit, because, typically if you don't, such assumptions become part of the culture of the organization. People forget why they are doing things in a certain way. It may even be because of a previous limitation that is not there anymore, so questioning the assumptions allows you to think quite differently and get to the root causes.
Identify blind spots.
In addition to helping companies plan new innovation projects, you assist organizations to get "struggling product development projects back on track fast…" What is your secret?
Well… there is no secret. The Theory of Constraints provides a solid framework in any situation to look for the leverage point for approval irrespective of what is the root cause. It's looking for where the bottleneck is. It is a straightforward cause and effect framework, which works well to counter the negative impacts when people inside organizations are struggling or are too close to the situation.
Coaching can help, but I'm sorry to say there's no secret sauce. It's a straightforward solid framework that you apply over and over again. Maybe that, in itself, is the secret.
Asking the right questions, or perhaps being willing to ask questions?
Certainly asking high gain questions. These are the questions that get you closer to understanding the root cause as well as understanding potential solutions to get around the root cause. This will enable you to also get around the obstacle the root cause might be creating.
You say that most of your clients are industrial or B2B product companies. Are your approaches also applicable to other sectors, even to services such as banking and consulting firms?
Absolutely. I think that anybody who wants to improve new products or services, or deploy new client offers, could learn something from what I cover in the book.
My particular expertise is in marketing and product development for business-to-business companies although I did spend a lot of years with Johnson Polymer – an SC Johnson Family Company. For many of those years I worked in the industrial side of the business, but consumer marketing culture cuts across the entire company. I understand the consumer marketplace, but I've tended to focus more on the business to business side.
While TOC grew out of manufacturing, this approach applies to innovation for any market – whether consumer or B2B. TOC has even been used in service businesses. John Ricketts at IBM wrote a book called, Reaching the Goal: How Managers Improve a Services Business Using Goldratt's Theory of Constraints
, which is about applying TOC to successfully growing and managing a consulting business.
On your website you say, "What we don't offer are rah! rah! rah! programs that get everyone all hyped-up on innovation: leaving you to deal with the hornet's nest that's been stirred-up." Is that a failing of many other consultants and authors who focus on creativity, lateral thinking, brainstorming and thinking out of the box?
I don't think it's a failing for creativity. Thinking out of the box is necessary but not sufficient to drive innovation. You have to have creative solutions, but it's not the answer in and of itself.
Many companies have great creative solutions and ideas, but they struggle with the execution. That means spending time helping them develop more creative ideas isn't the answer. They need better skills at marketing their solutions and finding opportunities that are driven by unmet customer needs.
There are a lot of folks who preach creativity as the solution, but you have to view this as only a part of the picture. Improvement of any area, other than the bottleneck, is a mirage. It may feel good since you've now got a much more creative group, but, if that wasn't your bottleneck in the first place, spending time improving creativity is not a great use of resources.
'Feel good' doesn't make money.
That's exactly right!
You must be confident in your services as you provide "an unconditional performance promise." Would you talk about this and whether it forces you personally to adopt a process of continuous improvement?
It means that I have a high level of confidence in my methodology. I've used it and seen the benefits time and again.
In terms of improving my own process, it means that I'm careful to assess client situations in terms of their ability to implement and institutionalize the changes that we've made.
If I see that somebody only wants us to come in, take a quick look, and give them the
answer without being willing to take the people in their organization through a proven change process, then I know the changes aren't going to stick. In these cases it's hard to offer a guarantee. It forces us to choose projects where the client will be a partner for success by willingly adopting the methodology and insights we offer.
It's also the reason why several of the tracks we offer build in an ongoing coaching component for a period of six months to a year following the engagement. There's a lot of research that shows that a coach can help you make a change by holding you accountable to yourself for keeping the required changes on course. It requires making the innovation process part of your culture, rather than merely being the improvement project of the month.
Too often it is the project of the month?
Oh yes. As a manager I can remember when corporate would give us a new program to institute. Many times some of the more experienced people in the organization would just smile and say, "Well, you know, I give it a 25% chance of lasting, and a 75% chance that two months from now nobody will be talking about it anymore." So all they had to do was nod their heads and a few months later they'd know whether to take it seriously, or whether it was just another distraction – another bright and shiny object. In many cases they could ignore the distraction, not worry about it, and just attend to their job.
Appear to be positive but don't get behind it.
That's right, so called passive aggressive resistance. Some people will sit on their hands, not get involved, and instead after the fact say, "I told you so." The key is to not let them sit on their hands.
"The goal of any company is to make more money now and in the future." Do you find that this core goal is sometimes forgotten in the innovation process?
Not just in the innovation process. Because of the way organizations are structured, each group tends to sub-optimize to look after its own needs.
An organization's actions can be dominated by the legal department, Human Resources, or Finance, for example, and each of those groups can try to sub-optimize from their perspective. They'll put policies in place with good intentions that are meant to protect the company but they're generated through the filter of what's best for the people in that part of the organization rather than the whole organization. This is often a big part of the "why" some companies forget that the goal is to make money.
In a survey of business leaders the Boston Consulting Group found that about half were dissatisfied with the return on innovation spending in their organizations. Do you have any thoughts about why so many companies continue to tolerate high costs of R&D compared to the time it takes to get products to the marketplace?
It truly is a tragic thing when you look at that number – 50% of company CEO's are dissatisfied with their return on innovation investment. For the U.S. manufacturing sector alone that's $75 billion in R&D costs that are getting a failing grade from their own leaders! When I look at it that way it is a stunning number – it's shocking.
Why people are willing to put up with this situation is a great question. Perhaps part of the explanation is that when innovation does work, it can have a very high rate of return. Why don't they take the time and devote the effort to make the investment in continuous improvement?"
Can you imagine a company today that would have a manufacturing operation without a continuous improvement process? Not many manufacturing managers trying to operate that way would survive very long, that's for sure. But companies don't have the expectations on the innovation side of the business.
It's a world of quick fixes and, in a way, innovation has almost taken on a pop-culture stigma where simply using the word 'innovation' is becoming a substitute for real innovation – marketing hype instead of real improvement. Look at some of the companies that talk about their innovation. If you read the Wall Street Journal, Business Week, or most of the business press, innovation is just used as a buzz word. It's used to death.
It's time for innovators to use the word 'innovation' for what it really means in terms of the goal of making more money in the future by solving unmet customer needs. It's important to bring 'innovation' back to its true meaning, rather than the marketing hype that has diluted its value.
As you say, "Like manufacturing, innovation is a process with inputs, steps, and outputs." We shouldn't forget that, should we?
That's right, which is why the idea of continuous improvement applies so well to innovation.
If, as you say, the generic stage-gate approach slows the innovation process, wastes resources, and de-motivates technical development teams, why do so many companies still adhere to this "innovation bottleneck" methodology for developing new products and services?
There's nothing wrong with stage-gate processes per se, which simply recognizes that there are specific steps in the innovation process that need to be repeatedly followed. But I find that in most organizations people don't follow the steps. They spend more time trying to get around the stage gate process rather than working within it.
You have to ask yourself, 'Why is that?' Is it that they just don't want to follow rules? Or is it that it makes the innovation process harder? Within most organizations the constant starting and stopping, and doing the gate reviews adds complexity and doesn't necessarily add value.
One of the things we implemented when I worked at SC Johnson was the beginnings of what I now call the Speed-Pass™ Process. The idea is to let teams move through the process, and as long as they're meeting their goals and objectives they don't have to stop and do a gate review.
A review is required if they aren't meeting their targets, a major risk emerges, or something has changed such as the market or the assessment of the business opportunity. In these cases, management needs to be made aware, and may need to put the project on hold while things are evaluated.
But if things are going well, let the team keep rolling. We found that the delay added by trying to get the management or leadership team together at the same time often forces companies to implement regularly scheduled meetings to do stage reviews – perhaps every month or every six weeks whether or not the meetings are required. This scheduling rigidity forces the team to either present at a time earlier than they are ready, or they have to wait weeks and sometimes months for the next scheduled meeting. Better to let them keep rolling! The clock's ticking anyway; the meter's running in terms of the expenses of the team members. I find it's a much more effective approach to let them keep rolling with their innovation project until they identify the need for a review.
In the stage-gate time gets spent organizing meetings, preparing for and writing reports, you get delays, as you said, due to the required reviews by management, which all adds time to the process.
That's right. I don't want to give the impression that there's no value in project reviews. In fact, it's important to make sure the reports at each stage are written and structured to force the team to answer the critical questions. These are what I call the hinge assumptions – they're the assumptions that the success of the project hinges around. Those are the questions you want to make sure are answered at each and every step in the innovation process.
It's important to answer the salient hinge assumptions at the beginning of each stage of the process before putting a lot of resources into the rest of the project.
Is your five-step Speed-Pass™ process almost guaranteed to produce superior results?
Well there are no magic bullets. It's a part of the puzzle but, for some companies, changing the innovation process is one of the last things I would do. It really depends on where the bottleneck in the company is to begin with.
I try to avoid the cookie-cutter approach – that's one of the issues I have with a generic stage-gate implementation. It's important to look at the improvement framework and identify where the bottleneck is.
If the problem is that every project is run differently, or the critical elements that should be contained in upfront feasibility and assessment aren't included, then there's going to be an almost certain improvement if you correct these parts of the process. But if that's not the bottleneck the company is dealing with, it's probably better to focus improvement efforts elsewhere.
How does Simplifying Innovation
differ from other books that deal with the Theory of Constraints?
The Theory of Constraints has been focused on manufacturing. It has tended to view competitive advantage as service and manufacturing capabilities.
For some reason new product development has never been an area where the Theory of Constraints has been focused. In all the research I've done, this is the first book that's broadened this theory's application to new product development.
It is the first book on innovation and new product development that has used the Theory of Constraints as its guideline.
Exactly, but as you'll see in the book, I try to borrow from the best thinkers about innovation. There are a lot of great thinkers related to the topic of innovation.
My frustration was always that innovation writers provide mini-prescriptions. The question is when do you use them? Are they the right prescription for your particular situation? You need a framework for knowing which is most appropriate.
With Simplifying Innovation
, I've tried to synthesize a framework for taking some of the best thinking on innovation together with the power and leverage of Theory of Constraints to help companies improve speed to market and increase new product profits.
What observations and influences contributed to the development of your Theory of Constraints approach to rapid innovation improvement?
My first experience with Theory of Constraints was in about 2001 when SC Johnson's industrial polymer business began using the Theory of Constraints for manufacturing. It was a vanilla application of the theory.
I was GM for the Americas business at the time. What got me interested in Theory of Constraints was that by using this approach within about a year we added nearly two reactors worth of production capacity without adding a single reactor or additional staff. We identified what our bottleneck was in the manufacturing process, and structured production around getting the most possible output. The result was so phenomenal that I became passionately interested in learning what the theory was all about. I hadn't had any experience with it prior to that time, so I spent some time with the "Jonah" who was working for our company.
A Jonah is a Theory of Constraints expert. It's a term that comes from Eli Goldratt's book, The Goal
. Jonah was the name of the consultant who helped the organization in that business novel resolve its problems and issues. It's become the term for any TOC consultant, but it's not an acronym of any sort.
Anyway, I spent some time with our Jonah, got some books to read, and immersed myself in the subject. Then the fellow who managed our stage-gate process, Dr. Paul Gloor, who's now with BASF Chemical, turned me on to the idea of using it for new product innovation.
We began using it in a small part of the business within SC Johnson with good success. Later, in about 2006 when I started my own consulting company, I began using the Theory of Constraints to assist my clients improve their innovation results. Since then it has developed into the full-blown methodology that is found in Simplifying Innovation
(Vern's note: The TOC Lean Institute website describes the Jonah Practitioner
You mentioned Eliyahu Goldratt's The Goal
published in 1984, in which he wrote about the Theory of Constraints as a philosophy of management and improvement. Have you met Goldratt?
I've read, almost everything the man has published but I've yet to meet him. I am getting more involved with the Theory of Constraints International Certification Organization so who knows? I might meet him at an event in the future, but no, I haven't had the pleasure.
It would be instructive to meet the TOC guru.
Definitely. It is supposed to be an interesting experience. I hear he is a pretty intense person. But I have gotten to know some of the best TOC minds while working on this project so it's been great.
Could the Theory of Constraints be described as a better mouse trap for project management, or is it much more than that?
The Theory of Constraints approach to project management is what's called "critical chain." But I would say that for critical chain to be called a better mousetrap would imply that the current one works. The facts and the data indicate that's not the case.
One of the most widespread frustrations relates to the low percentage of projects that finish on time. On time and on budget projects are pretty rare occurrences in most companies. Less than 50% is not an unusual number to see for the proportion of projects that finish both on time and on budget.
Critical chain applies Theory of Constraints to fix the problem of projects persistently finishing late. For companies that implement critical chain projects that number jumps up into the 90's. It is a pretty dramatic difference – much more than just a better mousetrap. It looks at the fundamental differences, the core causes of that poor performance.
As with every process every project has a constraint. The critical chain is the longest sequence of tasks required to reach the completion date taking into consideration the constrained resources. The critical chain is the leverage point for any improvement because it is the constraint. You can shorten the cycle time for the project by shortening the critical chain.
It's shocking that people continue to put up with projects not finishing on time. Perhaps companies can afford it during affluent times, but when we have financial constraints like the present, you would think there would be increasing intolerance for that level of overrun on projects.
Well, you would think so.
Perhaps it's become a culture of lowered expectations.
And I think it's why critical chain and Theory of Constraints continue to grow and gain in popularity. But it continues to surprise me that they're not more widely used.
You quote Peter Drucker as saying, "Most of what we call management consists of making it difficult for people to get their work done." If true, how did we evolve to such a state in the corporate world?
I think it's due to what I mentioned earlier – local optimization. It's not that managers mean to make it hard for people to get their work done, but often managers don't think about the unintended consequences of the policies they put in place to run operations. If you don't spend the time to learn and understand what Theory of Constraints calls "UDE," undesirable effects, and then analyze the potential undesirable effects of your policies, you can run into quite a few problems.
In addition to undesirable effects, there is the desire of managers to optimize locally rather than globally. Globally means optimizing the output of your company, rather than the operation of each and every department. When we optimize locally, we almost guarantee sub-optimization at a global level. But that's the way managers are taught and often financially rewarded.
This may sound strange but, to me, it's almost an unintended consequence of the "P.C." or politically correct way companies try to operate today. The leaders say, "We don't want to focus only on the bottleneck because everybody in the company is important. We should pay attention to every part of the company, and everybody should be involved in the improvement."
And I agree – everybody should be involved in improving the output of the company! But not in improving their department. It may not be important to improve their department, particularly if it's not a bottleneck. What's important is improving the overall output of the company.
Are large companies compared to small often more likely to evolve policies that may have unintended consequences?
I don't think small companies are immune at all. I hear stories from people inside small companies who have as many or more complaints about the way things are done.
I was recently talking with people working in a small company who were complaining that when a new idea comes into the company everybody shifts over and starts working on it without going through any assessment. They're making up the rules on the fly, and they do it because the CEO says, "Wow this is great! We should work on this!" So everyone changes gears midstream and goes in that direction.
Then later on when it turns out to be a blind alley the CEO asks, "Why did you do that? I just thought it was a neat idea." He didn't understand the consequence or powerful impact of his words, and the fact that it would pull everybody off the other things they were working on. So small companies are not immune.
Small companies could experience even more chaos?
They can, yes. Either that or in small companies the chaos isn't attenuated; it tends to have more of an impact. In a large company it might take a while to ripple out of the group that has the issue. But, clearly, the policies in large companies can have a big effect, too.
As Drucker pointed out, marketing and innovation are the two basic activities in a business enterprise that produce results – all others are costs. Is aligning all other functions with marketing and innovation activities a key differentiator for highly successful companies?
In my experience it is because those are the two key functions, and by functions I don't necessarily mean functional groups. They're the two activities that have to occur on an ongoing basis for a company to make more money now and in the future. You have to bring in new product ideas and find new unmet needs. You have to develop new products successfully, and then market them successfully in order to be financially viable for the long term.
Through Maggie, the heroine in your book, you explain why focusing on the bottleneck is the key to process improvement in an organization. Are Maggie and her employer, Dynamic Fluid Technologies, based on actual situations you have witnessed?
The book is a synthesis of some real life situations, and obviously there's a lot of made up drama included to keep readers engaged and the story moving along.
This not the story of one company but rather a lot of different experiences that have been brought together to try to provide what is called the didactic approach teaching through a story.
Most of the different stories, issues, and problems that Maggie runs into as described in the book are based on little bits of real life situations and problems I've seen over the years. I've also seen examples similar to the ways problems and issues are resolved in the book.
As readers will learn when they read your book, Maggie becomes the chair of Continuous Improvement and Innovation Studies at a college, and adds a class in innovation leadership. What key points do you think should be covered in such a class?
The first thing we have to consider when answering that question is, "What's the definition of innovation?" "What's the most beneficial definition of innovation to help a company focus its innovation efforts?" For me it's all about companies asking the question of what's in it for 'them,' and by 'them' I mean their customers. What's in it for customers should be the center piece of innovation.
I define innovation as an organization-wide process of finding unmet and unexpressed customer market needs. It's the starting place for any kind of a syllabus or a program is that has to deal with the touchstone you come back to when we're involved in innovation.
The Theory of Constraints would definitely be included in any syllabus – the TOC approach applied to innovation is a critical aspect. Critical chain for project management is another.
I'd also include Clayton Christensen's writings on disruptive innovation, particularly The Innovator's Dilemma
and The Innovator's Solution
. They are absolutely spot-on. What's important to me about those books is that Christensen was one of the first in the innovation literature to look at cause and effect for understanding what drives customer buying motivations.
I'm not a big fan of the voice of the customer methodology, which is primarily a market research approach that produces a detailed set of customers' requirements. This approach uses qualitative and quantitative data collection tools. The specific methodology of voice of the customer is far too complicated with lots of structured interviews. You end up with your new product requirements expressed in the customer's voice, and these have to be translated into the particular language of your industry. This should be included so students learn about the pitfalls of this market research approach.
As an alternative, Anthony Ulwick's outcome-based approach to innovation does a great job of simplifying the process of gathering customer requirements. A critical element of understanding innovation is in knowing how to do customer visits well by asking open-ended questions to obtain information about unmet customer needs. These visits are not sales calls. The focus is to ask customers what they want to maximize and minimize. This approach moves the customer away from talking about the design of your product and encourages them to talk about their needs. Most importantly, it does so in a language that your engineers and designers will understand. So that would be part of the course.
Invention and problem solving are critical as well. Lateral thinking, theory of inventive problem-solving called 'TRIZ, design of experiments, and statistical methods for running experiments would also be very important elements of an innovation curriculum.
It would be a long course.
It would, probably a degree in itself.
We will continue our interview with Michael Dalton in next week's issue of the IdeaConnection newsletter. We will explore much further the concept of the bottleneck in the innovation process, the negative effects of multitasking, the "Customer Value Lens", what it's like to write a business novel, and much more.
Michael Dalton's Bio:
Michael ("Mike") Dalton is Managing Director and Principal Consultant at Guided Innovation Group. He works with companies that are struggling with new products and helps them create more innovation impact in less time. He also consults on open innovation and alliances as a member of the Alliance Management Group, Inc., and serves as an advisor at the Center for Advanced Technology & Innovation – a Southeastern Wisconsin based non-profit organization focused on regional economic development through technology & innovation.
Previously Mike Dalton had 24 years experience at Johnson Polymer (An SC Johnson Family Company), as Global Director of Strategic Business Development, and Regional Business Director – Americas.
Mike Dalton holds an MBA in marketing & finance from the University of Chicago, and a chemical engineering, gas, and energy technology degree from the Illinois Institute of Technology.
He is the author of Simplifying Innovation