‘The future ain’t what it used to be,’ said Yogi Berra. But we can at least think about what we might do to make it turn out more favourably than if we just allowed matters to run their course.
[ Listen to audio version, read by David Hodes]
It reminds me of a war correspondent assigned to Lebanon during their horrific civil war. A journalist, writing an article on the man, asked if he was worried about being shot. His response was that if the bullet had his name on it, then that was that. If, however, it was addressed ‘to whom it may concern’, that was an altogether different matter. In our own less risky world, the future reality tree is a means of addressing the ‘to whom it may concern’ cases. It provides some degree of mitigation to the ones with your name on it.
The ultimate endpoint of the Future Reality Tree (FRT) is the desired effect you want for your organisation. It is the mirror image of the ultimate undesirable effect from the Current Reality Tree (CRT), uses sufficient cause logic and forms a part of the Logical Thinking Process. In our example of the CRT, I stated the ultimate undesired effect as ‘Our return on investment (ROI) fails to satisfy the demands of our shareholders’. Thus, when thinking about the FRT, we would hope to have it end in the positive reflection of that statement, as below.To be able to make that statement true, we would have to reverse the harmful causes of the entity on the left. Thus, we could intuit that the next layers down from the top of the FRT might look as follows:Our logic has now reversed each one of the negative causes currently leading to the dissatisfaction of our shareholders. Reduced margins have become healthier than ever, we have turned inventory into free cash, and we have intelligently reduced fixed costs. Putting up such a vision of a desired future reality might serve a limited purpose of describing to people within the organisation a message of where we would like to go. But it tells us nothing of how to get there, or what we might find along the way.
It pays to reexamine our Evaporating Cloud. Here, we stated the goal as being to ‘Grow competitive returns for our shareholders, now and in the future’. The two necessary conditions for accomplishing this were to ‘safeguard today’s results’ and to ‘live into a bold vision’. The scenario we described was one where we could not meet both of these necessary conditions if their prerequisites were also to hold. There had been a downturn in the market, and if we didn’t immediately cut costs, then we could not safeguard today’s results. But, if we cut costs, we couldn’t make the investments required in future capabilities which would enable us to deliver on our bold vision.
After examining all of the assumptions we surfaced, the conclusion was that the only way of ‘evaporating’ the cloud was to put an injection into the current reality. The injection had to be something which didn’t already exist in the system. It would have to be capable of providing a big enough improvement in productivity to justify the investment required to bring it into being.
Thus, we start our Future Reality Tree at the bottom and put an injection in place to kick off the transition from the negative effects of the CRT to the desired positive effects of the FRT. I usually put the injection in a square box so that it is clear when reading the tree what we have introduced.We then use the logical thinking of cause and effect to figure out what might come next. If [we secure the senior leadership team’s decision to implement TOC] then [the organisation aligns on a strategic direction for operational improvement]. And likewise up the chain of cause and effect.But then you realise a risk. The organisation has very little capability in the use of TOC as an operating philosophy. As a result, there are many different opinions on how to proceed in its adoption. Meantime, most people would be anxious about how the changes will affect their power and prestige. Inevitably, this will lead to jockeying for power. In the language of the Thinking Process, this is called a negative branch of the future reality tree, as drawn below.Clearly, if we leave the negative in place, we will not reach our ultimate destination, because infighting will prevent us from addressing the real problems. Now we’ve made this issue visible we set about trimming the negative branches. In other words, we need a further injection into the future, which can mitigate or eliminate this negative turn. Such an injection might be to embark on a comprehensive learning program which addresses all technical and psychological elements of a change to a TOC-based operating philosophy. The future can then proceed on its way as shown below.In our hypothetical case, I invite you to think about what else might turn negative. Having identified what might transpire, think about what injections you would put in place to eliminate or mitigate the risks.
I find the use of traditional risk-analysis frameworks to identify potential negative branches very useful in stimulating thinking about the unfolding future. What could go wrong? What is the severity and likelihood of these risks? What steps do we need to take to manage and mitigate the risks proactively? When would we know that what was considered a risk has transpired and that it requires active attention? Who will we assign what work to keep all of these risks at bay? The FRT can, therefore, act as both an aid to stimulating thinking about what might go wrong as well as a communication tool for showing how we might deal with it.Let’s assume we have addressed everything required to form the base of the tree and have carefully examined and trimmed the negative branches. As we ascend to the top of the tree, we should see it converge on and align with our ultimate desirable effect: ‘Our shareholders are confident in our ability to safeguard today’s results and deliver our grand vision’.
Reading this diagram from the bottom to the top provides the reader with the logical arguments as to why an investment in TOC as an operating philosophy will turn around the organisation’s fortunes. It is worth noting that while I’m using one tool from the TOC toolkit to illustrate how the FRT works, we can still use other TOC tools as the content of the solution. This circumstance is obviously not always the case, but it is worth examining in closer detail to ensure that the claims made stack up—even if this is only a hypothetical organisation.
• We have instituted TOC methods with associated policies and procedures for ‘make to stock’, ‘make to availability’ and ‘make to order’ production. These are standard methods available to anyone trained in the use of Drum Buffer Rope in production scheduling.
• We have been able to define our pricing based on different customer expectations of lead time. We know that different customers have different needs in terms of lead time. We also know that the shorter our lead time, the less ‘just-in-case’ inventory our customer needs to hold. This fact could have a significant impact on their profitability and ROI and hence allow us to market our products and services at a premium.
• We have negotiated innovative sales arrangements with our customers. Airlines charge different prices for the same class of seat on the same flight based on how long before departure the trip is booked. Could we apply some similar innovative thinking to pricing arrangements with your clients? For example, we might charge a premium for a ‘make to stock’ delivery and offer a discount for ‘make to order’.
• Our due date performance has improved by 60% and we now reliably achieve figures above 95%. The more reliable we are, the less just in case inventory there is in the whole value chain. Thus, we can negotiate a premium price with our customers—or, at the very least, avoid non-performance penalties. Furthermore, we get to invoice for all the goods we ship on time and don’t lose sales for backorders rejected by the customer.
• We have slashed the lead time taken to convert raw material into finished goods. There is abundant evidence demonstrating how the application of TOC methods and tools dramatically reduce lead times, making this claim entirely reasonable.
• We have permanently reduced our inventory by 50%. Under Little’s Law, we know there is a direct relationship between lead time and work in process. So if we reduce the lead time, we know we will also reduce the inventory.
• We take the time and effort required to fully understand the demand for and supply of resources required, by type, in time and place. It is very rare to find an organisation which has done the hard work of critically examining the demand for and supply of resources required to complete the work. TOC, if it is nothing else (and it is much else) is founded on the idea of finite scheduling and analysing the supply and demand for resources, by type, in time and place.
• We have much better insight into how to more effectively use our fulltime labour force. Once you have a solid handle on supply and demand, you can be far more effective in the application of your resources. Just think intuitively about how much time you and your workforce spend waiting as a proportion of the total time available to do useful work. Creating positive change in the ratio of ‘waiting’ versus ‘doing’ time will deliver a significant labour productivity boost.
• We are less dependent on contract labour. If you use your resources more productively for the same amount of work, it stands to reason that you will need less contract labour to close the gap between demand and supply.
• Our fixed costs have been intelligently reduced. Using less contract labour and making better use of the fulltime labour force must result in a reduction in fixed costs.
Following through the logic of the Future Reality Tree, we can make a compelling case can for positive change. We can identify obstacles, and we can put plans in place to overcome them. We can also use the FRT to provide a coherent communication tool, describing what we are setting out to do, what injections we need to get it done, and what the result could look like as we use its logic to navigate toward our goal.
This is Part 5 of our series on the Logical Thinking Process.
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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