Peter Drucker quipped, ‘Business has only two functions—marketing and innovation.’ Early in my career, I focused obsessively on innovations in productivity. The really hard part, though, is convincing an organisation that a better way of delivering greater productivity exists. Allow me to try.
[Listen to audio version, read by David Hodes]
Recently, I was talking with a mate who happens to be an old client of mine. I was testing the one-line version of Ensemble’s value proposition on her, as well as sharing our focus of where we think we can create the most value for our clients. Distilling something as potentially big as a transformation down to a few words is hard, but I gave her our promise in these ten words:
‘We help ambitious executives in industrial environments
systemically improve production’
My friend’s reaction was positive, though she viewed ‘production’ in a narrower sense than we’d intended, feeling it referred only to the physical part of the process which handled the production of raw materials into finished goods. Perhaps we’ll have to revisit this statement. My hope, though, is that an executive will see the wider view when they go one level deeper into what it is we actually do. Let me unpack it and go a little further.
The ‘ambitious executives’ part was a no-brainer. If you want to get a result which outperforms, there’s no way to accomplish it without the commitment of an ambitious sponsoring executive. And my friend was certainly that.
Although I’ve done much work over the last twenty years in banking and retail, I’m most at ease in industrial environments—meaning places where you make a product. Those who work in mines, refineries and other plants within the domain of engineering have a deeper understanding of the need for tighter discipline in the planning and performance of work than, say, a relationship manager at a bank, or even a supermarket manager. And besides, by disposition and by training, I think and act like an engineer, so these folk speak my language and share at least a part of my worldview. Again, my friend agrees.
The ‘systemically’ part is because of our ‘systems thinking’ approach. No matter how hard you work the parts, the sum of their output is never what the system produces. And then we had the phrase ‘improve production’. We wanted to evoke the shop floor while still encapsulating the idea of all that the organisation sets out to produce.
To get to the point when you can claim to have ‘systemically improved production’, you’ll have had to develop a strategy, articulate a business case, secure the funding, design a solution, build or improve the product and its associated processes and services, market the offering and sell it to willing buyers—at a profit. All the people and business functions involved in that chain create a system that’s set up to produce something the market will value.
A whole of system change is a big chunk for any consultancy to attempt to bite off. What could Ensemble offer tier-one organisations that has the potential to radically improve their production as quickly as reasonable and possible? The one thing every such organisation shares is an asset.
In our context, an asset is anything capable of contributing a return on the value invested in it—whether at the scale of a business unit or a major piece of equipment. And what is the goal? For any rational investor, you would always be looking to maximise the net present value of your assets. Count all the cash spent on buying maintaining and operating the asset and pit that against the financial contribution the asset makes. Value the net cash outflows and inflows over the asset’s life, and compute that value in today’s money and you have the net present value (NPV) of the asset.
But here’s the rub. No enterprise has pockets so deep that they can invest in anything they want, let alone need. The extent to which funds are limited—and how organisations set rules to govern risk-weighted return on capital invested—creates a constraint.
Theory of Constraints (TOC) has become a significant and rich body of knowledge. I can’t think of an industry in which it hasn’t been applied. A customer, though, is seldom interested in taking a PhD in TOC to understand what it is before deciding to buy. In the first instance, they want to know what category of problem it is you’re going to address, as well as, importantly, what it is not.
Asset constraint management is the application of the full body of knowledge of TOC to the domain of asset management in industrial environments.
Of course, we’re not talking about asset management in the Wall Street sense of managing a portfolio of shares, bonds, cash and the like. But even in engineering, asset management covers topics as diverse as asset plans, asset strategies, reliability engineering, predictive maintenance, digital twinning, artificial intelligence and machine learning. The area of our focus is in the planning and performance of whatever work goes into maximising the asset’s value over its lifetime.
“It’s about choosing to do the right things
—then doing them right”
My friend said that people in her position want to believe there is hope of a better way of doing things. ‘Every executive,’ she said, ‘will tell you we spend money on the wrong projects. And we don’t do the projects we do choose as effectively as we should.’ This is exactly what Peter Drucker was getting at decades ago when he said, ‘Efficiency is doing things right; effectiveness is doing the right things.’
So how does a constraints perspective for asset management offer the hope these executives are seeking? It’s about choosing to do the right things—then also doing them right. We contend that by adopting TOC in the field of asset management, you will achieve business outcomes you otherwise would have thought were neither reasonable or possible.
What you think is ‘reasonable’ is determined by the experience, mental models and biases you bring to the table. When I first came across TOC I had exhausted every other means at my disposal of solving a really tough problem. Too much work, too few people to do it and a client who wasn’t interested in our ‘rock and a hard place’ story. My delight in learning that someone had invented a solution which broke new ground was tempered only by my anxiety as to whether or not we could incorporate the learnings into our ways of working fast enough to avert a catastrophic failure.
This shift in perspective that the solution offers is supported by physics, mathematics and statistics but, at the same time, it’s elementary in its common sense logic. Once you see what this shift enables, you will achieve business outcomes you would otherwise think were unreasonable.
And what do you think is ‘possible’? Possibility is about understanding that the world does not arrive with its challenges in neat straight lines. Even though you have set the strategic direction and studied a range of tactical responses, in order to deliver a result, you still need the energy of motivated people willing to put in the hard yards of engaging themselves and others to turn up consistently as their best selves. The quality and nature of the leadership that is brought to bear is critical, given the outsized outcomes on offer. Such change is definitely possible.
“The world does not arrive with its challenges in neat straight lines”
Many people stumble over the ‘theory’ part in Theory of Constraints. But as someone once told me, theory is the dinner jacket you take off when your car gets a puncture. One of the great joys I have in doing my work is seeing people’s lights turn on when they have the same epiphany as I had, and realise the simple but powerful idea behind TOC that makes it a genuine breakthrough.
There is a degree of comfort in knowing that the theory part of TOC is predicated on a falsifiable hypothesis—that all systems have constraints; otherwise, the output could be infinite. Furthermore, it is for all practical purposes an infinitely scalable solution, applying a single organising principle to the planning and performance of all work: projects, production, maintenance and distribution.
This is the ‘hope of a better way’ my friend was asking about. If you’re open to exploring the possibility, there are riches for the taking. Or as Leonard Cohen sang, ‘There is a crack in everything. That’s how the light gets in.’ You simply need to admit the possibility that your tough problem might have a solution you hadn’t considered. If you haven’t investigated TOC yet, it might be time to let it shine a light on your challenge.
In my next article, we’ll look at the four core domains where TOC and the Ensemble Way can make a difference to your Asset Constraint Management.
The change from standard thinking to Theory of Constraints (TOC) is both profound and exhilarating. To make it both fun and memorable, we use a business simulation we call The Right Stuff Workshop.
We’d love to run it with you. To learn more:
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