You Can’t Spot Serious Shareholder Value? … Check Your Paradigms - VII

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.

Conclusion

To find serious shareholder-value-add executives are faced with the difficulty of finding the time to concentrate on this problem. The direction of the solution that is proposed here is that since a business is a system they need only focus on the very few things that are blocking making more and more money. {Clearly buying businesses in markets that are much more attractive is also a route to SVA, but both these acquisitions and the businesses being shed will benefit from focusing on the business constraint}.

Once an executive has found the way to delegate most of his work to focus on the constraint of his business he needs to start thinking about the policies and paradigms driving the behaviour of his organisation. One of the first steps he must take is to define the measures for his organisation: measures that will drive his people to the common goal of making more money now and in the future. With the help of some examples of business paradigms or behaviours, it becomes clear that the approach suggested here is a powerful way to spot and achieve really serious SVA!

Acknowledgements

Almost all I have written in this article I owe to Dr. Eliyahu Moshe Goldratt - business thinker and educator. Goldratt is the source of the ‘Theory of Constraints’. Much of Goldratt’s thinking can be found in his 3 business novels The Goal; It’s Not Luck and Critical Chain, which I can wholeheartedly recommend. Another source of Goldratt’s thinking are his ‘Satellite Tapes’, a series of lectures by Goldratt on the subject of applying his theory to production, finance, project management, distribution, marketing, sales, managing people and strategy. These sources of information have been a tremendous influence on my thinking and I hope I have not betrayed Goldratt in what I have written here and that I have helped a little to get his message to more people.

 

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