ronen boaz-pass shimeon 20
TRANSCRIPT
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1 2009 TOCICO. All rights reserved.
TOCICO 2010 Conference
The Revised Focusing Steps ofTOC: a Value Creation Approach
Presented By: Boaz Ronen1,2 and Shimeon Pass2
1Tel-Aviv University; 2 Focused Management Ltd.
Date: June 2010
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2010 TOCICO. All rights reserved.
TOCICO 2010 ConferenceCase study 1
The Law Courts System
A District CourtA one-year pilot in civil cases
Lead time of the hearing stage reduced by 50%
A Magistrate Court
A one-year pilot in car accidents civil disputes
Throughput increased by 24%
Lead time reduced by 50%
Could we get similar results using the traditional 5-focusing steps?
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2010 TOCICO. All rights reserved.
TOCICO 2010 ConferenceCase study 2
An IT department of a large telecommunicationcompany
Throughput increased by 40% within 6 months
Could we get such results using the traditional 5-focusing steps?
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2010 TOCICO. All rights reserved.
TOCICO 2010 ConferenceCase study 3
A cellular services provider
Company gross profit increased by $40M within oneyear
Could we get similar results using the traditional 5-focusing steps?
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2010 TOCICO. All rights reserved.
TOCICO 2010 ConferenceTOC current components The 5 focusing steps
The thinking processes Critical Chain Project Management (CCPM)
Throughput accounting and measurements
Drum- Buffer-Rope (DBR)
Logistics and distribution
Viable Vision (VV)
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The breakthrough of the 5 focusing
steps of TOC (Goldratt, 1984)
1. Identify
2. Exploit3. Subordinate
4. Elevate
5. Go back
Simple Focusing on the constraints
Global view
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TOCICO 2010 Conference
The breakthrough of the 5 focusing
steps of TOC
Created in the framework of Production Management
Made a significant impact on this area Changed paradigms:
Increasing throughput using the existing resources
Efficiencies syndrome
Measurement
From Cost World to Throughput World
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TOCICO 2010 ConferenceBut it may not be enough
The VFM methodology
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TOCICO 2010 Conference
The Value Focused Management(VFM) Methodology
1. Determine the Goal
2. Define measures of performance
3. Identify the significant Value Drivers
4. Decide how to exploit and improve the ValueDrivers
5. Execute and control
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TOCICO 2010 Conference
The Goal
The goal of a business f irm is to increase itsShareholders Value.
Shareholders Value the Discounted Cash Flow(DCF)
Example:
DCF= $450M
2013201220112010
$70M$55M$50M$40MCash Flow
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2010 TOCICO. All rights reserved.
TOCICO 2010 ConferenceDefine Measures of Performance
The main measure of performance is
Companys Value In addition:
EVA Economic Value Added
Other relevant performance measures
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Identify the significant Value Drivers
A Value Driver: any performance variable that
can significantly increase shareholdersvalue
Financial Value Drivers
Capital structure
Tax considerations
Managerial (non-financial) Value Drivers
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TOCICO 2010 Conference
Managerial (non-financial) ValueDrivers
Organization strategy
Performance measurement Strategic Gating of projects, customers and products
25/25
Increasing Throughput
Increasing sales
Cost Accounting
Pricing
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Strategy as a value driver
Core competences reinforcement strategy
Core problems defense strategy Growth strategy
Organic growth strategy (e.g. pricing, exploitation ofbottlenecks)
Mergers and Acquisit ions (M&A) strategy
Breakthrough strategies
Viable Vision strategies
Blue Ocean strategies
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Decide how to improve ValueDrivers
Throughput (T) enhancement and lead-time (LT)reduction by the revised focusing steps
Improve pricing and decision making using GlobalDecision Making (GDM), for example:
Tender management
Reduction of the Pocket-Price Waterfall (PPW)
Make/buy decisions
Reduce project lead-time using the revised CCPM
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Execute and control
Planned implementation
Management commitment and involvement Value-oriented execution and follow-up
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The revised TOC focusing steps:a tool for T and LT enhancement
The 7 focusing steps:
1. Determine systems goal2. Establish global performance measures
3. Identify systems constraint
4. Decide how to exploit the constraint and breakdummy and policy constraints
5. Subordinate the rest of the system to the above
decision6. Elevate and break the constraint
7. If a constraint was broken, return to step 3. Do not
let inertia become the system constraint
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TOCICO 2010 Conference
Determine systems goal
The goal of a business f irm is to increase itsShareholders Value.
Shareholders Value the Discounted Cash Flow(DCF)
Example:
DCF= $450M
2013201220112010
$70M$55M$50M$40MCash Flow
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TOCICO 2010 Conference
The Goal of a sub-system
The goal of a sub-system should be well-defined by management
What is the goal of a project?
Is the goal of a project to complete the project within thetime frame, within the budget and within the scope ?
The goal of any project should be to increase the value ofthe organization through its life-cycle
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The Goal for non-profitorganizations
The goal of a non-profit organization shouldbe well-defined by the organizations owners
What is the goal of the Law Courts system?
The goal of the adjudication system is twofold: to provide amechanism for the settlement or decision in disputes, andto provide information regarding the interpretation of legal
rules This definition dictates short and timely trials with brief
verdicts
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Define Measures of Performance
The main measure of performance is CompanysValue
In addition:
T Throughput (from margins and fees)
OE Operating Expenses
I Inventory
LT Lead Time/Response Time/TTM
Q Quality
DDP Due-Date Performance
EVA Economic Value Added
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Identify the system constraint
5 types of constraints:
Resource constraint Market constraint
Cash constraint
Dummy constraint
Policy constraint
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Resource constraint
Permanent Bottleneck
Bottleneck Capacity-Constrained Resource (CCR)
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IT Developers as PermanentBottlenecks
IT
Regulation
New features
New applications
Modifications
Contracts
Changerequests
Dark R&D
Next Generation
24/7
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Sales/Mkt. as a PermanentBottleneck
Sales / Mkt.
Bids
Newcustomers
Prospects
Currentcustomers
Contracts
New leads,exhibitions
Yellow
pages
24/7
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Market constraint
Defined as excess operations/production capacity
Two main ways to deal with the market constraint:
dealing with the internal Permanent Bottlenecks in IT, R&Dand S&M
Improved pricing
Resource
load
100%
SalesandMarketing
Operations
Logistics
IT
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Cash constraint
Companys health factor
Its either THE CONSTRAINT or a non-issue
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TOCICO 2010 Conference
Dummy constraint
A very, very inexpensive resource
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Policy constraint
Examples:
Cost+ pricing Local measures of performance
D id h t l it th t
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Decide how to exploit the systemconstraint
Efficiency
Reduction of garbage time
Effectiveness
Strategic gating
Especially important in Permanent Bott lenecksmanagement
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Strategic Gating
Permanent Bottlenecks cannot execute all desiredmissions
Use Global Decision Making Methodology (GDM):
1. Make an economic decision from the CEOs perspective
a. The CUT-diagram
b. The measurements profile
c. The Focusing Matrix and the Focusing Table
2. Consider Strategic considerations
3. Change, if necessary, local performance measures
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The CUT diagram
An example CUT diagram of a resource constraint inoperations
Resourceload
100%
SalesandMarketin
g
Operations
Logistics
R&D
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The measurements profile
Alternative # 2Alternative # 1Current situation
T Throughput
OE OperatingExpenses
I Inventory
LT Lead Time
Q Quality
DDP Due DatePerformance
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IT Strategic Gating
1. The focusing table
Ease of implementation
=1/EE (person-years)
Importance
($value)
Project nameProject
no.
2$ 50MApplication for retai ldept.1
6$ 50M Patch for the 460program2
2$ 20MERP implementation inHR3
4$ 30MImproving salesinterface4
6$ 20MCredit scoring5
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The Focusing Matrix
50M 2 1
40M 4
30M 5 3
20M
10M
8 6 4 21/BN-MY
Value ($)
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IT Strategic Gating
2. The focusing matrix
Oysters
WhiteElephants
Pearls
LowHangingFruits
Important
Easy(1/EE)
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Strategic consideration in GDM
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The 25/25 Principle
25% of projects in pipeline should be discontinuedand terminated
25% of the scope of remaining projects should beeliminated:
Over-specification
Over-design
Loss of relevance / need
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The 25/25 Principle
1. The 25/25 principle (part I)
Bid/No-Bid Strategic Gating
Oysters
White
Elephants
Pearls
Low HangingFruits
Important
$
Easy (1/permanent BNs EE)
25%
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The 25/25 Principle
1. The 25/25 principle (part II)
25% of features eliminated due to:
Over-specified
Over-designed
Reduced relevance
Subordinate the rest of the
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Subordinate the rest of thesystem to the above decision
Tactical gating:
The Complete Kit (CK) concept
Drum-Buffer-Rope (DBR)
Small batch concept
Queue/line discipline (SPT, DD)
Conflict: to which Permanent Bottleneck should wesubordinate the system IT/R&D or Sales&Marketing?
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Elevate the systems constraint
Offload
If the constraint was broken
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TOCICO 2010 Conference
If the constraint was brokenreturn to stage 3
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Case study 1
A District Court
Lead time of the hearing stage reduced by 50%
The goal, Continuous Hearing, the small batch concept,Double DBR, offload
Leadership
A Magistrate Court Throughput increased by 24%
Lead time reduced by 50%
The goal, Tactical Gating, measures, the Complete Kit
concept, offload Leadership
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Whats new
Structured value creation approach
Value-Focused Management (VFM) methodology
The 7 focusing steps
Strategic gating
Tactical gating
CUT diagram
Measurements profile
The Focusing Table and the Focusing Matrix
The Complete Kit (CK) concept
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Whats new (2)
Global Decision-Making (GDM) methodology
Applications in business and non-profitorganizations
25/25
The Pocket-Price Waterfall (PPW) Strategy as Value drive
Reinforcement strategies
Defense strategies Growth strategies
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About Boaz Ronen
Professor of BusinessAdministration and ValueCreation, Faculty of Management,
Tel Aviv University
Over 120 successful valuecreation projects
7 books and 100 papers
The book FocusedManagement published lastweek by Wiley
The Focused Management forHealth Services Organizations
book is taught in Harvard andother leading universities
[Color Photo of Presenter]
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About Shimeon Pass
Veteran TOC & FocusedManagement consultant
Over 120 successfulimplementations
M.Sc. in Chemistry, MBA
3 books, numerous papers
The Focused Management forHealth Services Organizationsbook is taught in Harvard andother leading universities
[Color Photo of Presenter]