‘Local optimisation projects deliver shareholder value’ True or false? 0


In my previous post I demonstrated a method for identifying a root cause using the data from the Standish Chaos report as an example. This analysis suggested that the causes proposed in the report itself were symptomatic of a much deeper cause .

The cause I proposed was that the organisation doesn’t know why change is necessary. Based on feedback, I have clarified this cause to refer to ‘The organisation does not know why  changing the traditional project evaluation method/s  is necessary.

This clarification is relatively minor and doesn’t change any other part of the tree. Readers are however encouraged to scrutinise this conclusion; the only proviso being to identify where the logic is false and what logic is being proposed in its place

Others however, will broadly agree with the logic but want to argue that the traditional project evaluation methods are not the problem vs those that propose that they are. To address this ‘conflict’ Theory of Constraints proposes another tool called the ‘Evaporating Cloud’ or ‘Conflict Cloud'(CC)  which I have shown below

 

The two points of view- change the traditional project evaluation method(s) or don’t change them- are described in entities D and D’ respectively. Under normal circumstances, debating the pro’s and con’s of either option could be inconclusive however, the CC forces those expressing each alternative point of view to reveal their logic and assumptions in the way that the diagram is written. Examples include:

  1. Describe the common objective (‘A’) ?  Logically there must be a common objective in order for a conflict to even exist
  2. What ‘needs’ (B and C) must each point of view satisfy in order to exist? If I take the perspective of those who believe no change is necessary, I have suggested that traditional tools do a great job at evaluating departmental/functional level projects; so don’t change the methods. Alternatively, those who would propose change could argue that these methods do nothing for evaluating projects that focus on improvements to output relative to the organisational goal.
  3. Why would anyone adopt one point of view over the other? The extra 5 ‘Because’ boxes provide answers to this. These boxes force advocates to expose and document their key assumptions (beliefs). A quick review will reveal some reasonably compelling arguments but there are a number which bear further scrutiny. For the purpose of this article however, I have chosen the assumption highlighted in red to interrogate. There are of course other assumptions that appear dubious but the one chosen is sufficient to demonstrate the method as well as the point that a flawed assumption does exist and once proven (by logic or by injection),  will cause the conflict to disappear.

When an assumption is proven to be false, it means that one side of the conflict comes to the realization that their perspective was based on an assumption that in the context of the conflict, was either irrelevant or proven not to be true. Consequently, there is little alternative but to accept the other perspective.

Proof that ‘Local optimisation projects deliver shareholder value’ is false

The proof is found in this analogy of a pipe whose purpose is to deliver water from section A to the container at the bottom of the diagram.

You can see that the pipe has different diameters at various sections which impede or enable the flow of water. Assume that you are in charge of productivity improvements for this pipe and therefore charged with the task of increasing the rate of water flowing into the container.

Consider the diagram in context of the following :

  1. The purpose of the pipeline is to maximise the rate of water flow
  2. There is unlimited availability of water feeding section A
  3. The water accumulating in the container at the bottom of the flow is consumed immediately

Questions:

Using this information  and the diagram,  answer the following questions:

  1. If you were given sufficient resources to increase the diameter of the pipeline at only one section, which section of the pipeline would you apply those resources?
  2. Given the primary objective, what would be the minimum amount that you would increase the chosen section by?
  3. If changing the project diameter of the pipeline at the chosen section was successful, by how much (roughly – 50%, 100%, 150% etc) would your endeavors increase the rate of flow of water?
  4. If changing the project diameter of the pipeline at the chosen section failed (for whatever reason) would there be any improvement to the flow of water?
  5. If you were to apply those same resources to another section of the pipeline instead of the one that you chose, what impact would it have on the flow of water?

To get the most out of this exercise, please take the time to think about the answers before reading further

Answer:

I hope that it is apparent to you that section E is where you would have applied your scarce resources to maximise the rate of water flow because it is the narrowest part of the pipeline. i.e. it is the pipeline (system) constraint at this moment in time. You would have sought to increase section E at least initially to be equal to the size of section B, thereby tripling (roughly) the water flow rate. If the project was a complete failure, the flow rate would not increase regardless of what other efforts you may have undertaken in applying those same resources to any other section of the pipeline.

As with the pipeline, so to it is, in business.

Organisations whose project evaluation methods allow local optimisation projects to proceed  (without regard to the system constraint) will find that their projects will have no positive impact on the organisations goal AND are more likely to result in a negative outcome through wasted resources.  Clearly not  an acceptable outcome if your goal is to improve shareholder value

Does your organisation currently have a high project failure rate AND approve and fund projects that ignore the systems constraint?

Maybe, just maybe, you  can now see how the dots are joined

But wait, what about those cost reduction projects where every department is asked to reduce their costs by (say) 10% –  aren’t they all local optimisation initiatives and don’t they deliver bottom line value?

I will address this issue in next weeks post

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