By Rudolf Burkhard; winner of the 1999 PricewaterhouseCoopers award for the best article on shareholder value add
Summary:
Executives are under too much pressure to spend time looking for and developing new and better solutions to running their business. They are aware of the need to manage their business as a system but on the whole do not do so, because they are lacking the tools to do so. Goldratt’s five focusing steps are a way to solve this missing capability by focusing on the very few constraints any (business) system can have. Policies (the way things are done) are key constraints to better profits and improved SVA and many need to be changed. Some examples show how policies from the past are blocking businesses from earning much better SVAs.
Examples of Policies that Damage Profitability
2. Total Quality Management (or 6-Sigma) Everywhere
TQM is a great tool for improvement, but what happens when a business tries to implement such a programme everywhere? Will it achieve a major improvement to the bottom line quickly? In the current revival of TQM there is a recognition that results must come quickly. Management will not wait years to see bottom line results; they want them now. For this reason consultants selling TQM insist on gathering ‘the low hanging fruit – to show early success. Focus is on demonstrating early success.
The problem with most TQM programmes is that they are not focused on the constraints of the business. Improvements will be made, but either they will be small or their impact will not translate into bottom line results. Only those companies that are lucky enough to attack the right problem will see big improvements. Usually the rest will give up on their TQM programme – as happened in the past.
What sort of a quality improvement do we really want? Of course, those bringing breakthrough results to the bottom-line. Improvements with no impact to the bottom line are valueless. In fact they probably cost us SVA by causing delays (resource availability) in those projects that do bring money to the bottom line. So where do we focus our efforts? Of course, we focus on the constraint(s). TQM must be subordinated to the constraints just like all other functions.
Technorati Tags: Continual Improvement, Goldratt, Risk Management, Shareholder Value Add, SVA, Theory of Constraints, TOC, Shanghai, Quality, TQM, 6-Sigma
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