How's my Luck now?

Reflections, views and descriptions during my stay at IIM Lucknow from July 2004 to March 2006

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Location: India

Friday, February 18, 2005

'Necessary but not Sufficient'

Yet another Eliyahu Goldratt novel that I have just completed. This time, he has co-authored it with Eli Schragenheim and Carol A. Ptak (The North River Press, 2000). And this time, they have officially sub-titled it 'A Theory of Constraints Business Novel'. This book extends the scope of TOC the farthest it can go.
This book is not quite as gripping as the earlier ones because there are a lot of dialogues that are not strictly required and are quite beside the point, in my opinion. There is also a self-congratulatory tone and some publicity about the effectiveness of TOC. However, the book succeeds in driving home its point.

I'll try to summarise how the novel pans out:

At the outset, it seems to be a novel on high-technology companies, as it starts with a scene in a leading ERP vendor BGSoft's office. This company was founded in the early '80s by Scott Duncan (the visionary) and Lenny Abrahms (the mathematician and ace programmer). Lenny coded their first software package, which was for Material Requirements Planning. Over the years, new modules were added and it evolved into an ERP package.
They partnered with a single company, KPI Solutions, who acted as their system integrators or package implementors at client sites. They had a unique selling tactic. They contacted and won over the technical staff of prospective clients even before the client had requested for any proposals. This way, they got their software's features to become the standard specifications asked for in the RFPs of the client, and so became the preferred vendors. They also ran most implementations on time and within budget.

The top management is now worried about exhausting their main market - the large corporations. If that happens, they wouldn't be able to maintain a 40% growth rate that they were doing currently, and their share prices would plummet. Just then, one of their clients questions them on the exact bottom-line value that their software provides them. Now, they are at a loss. The 'business justification' that they normally give their clients just doesn't translate easily into a higher bottom-line figure. So they start thinking, and come up with the answer - TOC techniques.

Each feature of their software has become so cluttered that any addition of new features takes a lot of time. With the simplicity of TOC techniques however, they actually manage to simplify their code and still achieve great bottom-line results in one of the divisions of the said client.
So finally, they have hit upon the great idea. It is to stop selling technology (as their competitors did) and start selling value. They do that and see an even greater boost to their sales, so much so that they have problems managing the large number of projects they have launched. But they realize that the amazing success they have got is not just because of the TOC techniques they have newly coded. It is because their clients also changed the old rules which prevented them from doing any better. So the message is: 'technology is necessary, but not sufficient' to bring real value. You have to change your old rules. Not all rules, but those which were built on the base of an acknowledged limitation that the new technology removes.

Their success so far, however, is limited to the production and distribution modules of the system. The logical extension would be to the other modules (financial, engineering, etc.) as well. And finally, right at the end of the novel, the client who first got them to change their approach, again approaches them with the idea that the high performance of their company alone will not work very well in the long run if their end-customers don't get the advantage of what they were doing. So, finally we have the idea of orienting the whole supply chain to TOC principles - its basics, its techniques, its new measures of performance.

I have skipped a lot of details in the above. The book is definitely worth a read to get an insight not just into TOC principles, but also the working of and the pressures in a high-growth company, especially a high-tech company.

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