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Strategy to ensure better profitability

Israeli management guru offers effective tools to Indian companies

Eliyahu Goldratt

PHYSICIST-TURNED management strategist and a pioneer of the "business novel", Eliyahu Goldratt, known globally for his `Theory of Constraints' developed and fine-tuned over three decades, has embarked on a mission to spread his message to Indian industry — and is apparently succeeding too.

The Israeli management guru, who was in Chennai recently to conduct a workshop on his Viable Vision (VV) programme aimed at top representatives of companies potentially interested in taking up his "unrefusable" offer, finds increasing relevance of this unique strategy in particular to supply chain management.

Viable Vision

Viable Vision, in typical Goldratt style, is both bold and innovative. It guarantees to companies which adopt the programme that in four years, without significant additional investment, they will achieve a net profit that equals in size their turnover in the current year (that is, the year of adoption of VV).

In the normal course, without a VV to their aid, it is a chance of four in a thousand that companies would be able to achieve such a leap, Dr. Goldratt said in an interview to The Hindu. He markets his programme through what he calls a "Mafia" offer — an unrefusable offer (of course, by virtue of its extraordinary attraction and not coercion): 90 per cent of his fee is tied to delivery of promised results. And quite long is the list of global companies and multinationals in diverse sectors which have adopted programmes based on Dr. Goldratt's Theory of Constraints or ToC and VV (See Box).

VV deals with what its inventor calls significant weak links in a production (or service) enterprise and enables the enterprise to achieve a "decisive competitive edge". It has been adopted by service institutions too, such as armed forces (U.S.), hospitals (U.K.) and, according to Dr. Goldratt, has worked wonders in an Israeli school.

Focus on constraints

Why is ToC becoming more relevant in supply chain management? Dr. Goldratt said though the `constraint' (to very rapid growth) could lie anywhere, right from product design and development to production operations and marketing, the supply chain was increasingly becoming crucial because the lifetime of new products was continuously shrinking. The lifetime of products in the market is becoming shorter than the time it takes to develop them as a result of intense competition. ToC could be applied, among others, to shrink the supply chain lead times to achieve the "decisive edge".

One way of overcoming the problem of product obsolescence, he said, was to launch different, well-considered, R and D projects at the same time, but with sturdy walls built between them to minimize interaction and confusion between research teams.

VV envisages that after dealing with the significant constraint, the enterprise will be able to offer its customer (be it another business or consumer) a major advantage in terms of price, delivery schedule or quality, as the case may be. Companies practising VV will need to understand the business of their customers, including the latter's own constraints, to be in a position to make offers that cannot be matched by any competitor.

Limitation of TQM

Dr. Goldratt, while paying tribute to the "path-breaking work" done by Joseph Juran and Edwards Deming in inventing TQM (Total Quality Management) and JIT (Just In Time) which helped companies overcome major weaknesses, said the only limitation in their concepts was the absence of identification of significant constraints whose impact on the business was much greater than that of other constraints. In India, since 1991, companies have been taking to not just ISO certification but also continuous improvement programmes like TQM, TPM (Total Productive Maintenance), Lean Manufacturing and Six Sigma.

How is VV related to these concepts? Dr Goldratt's response is that Lean and Six S are essentially new names given to the pioneering work of Juran and Deming (that is, TQM and JIT) because the duo's works had been wrongly implemented. Once the mistakes were understood, the new names were given essentially to the same programmes. However, in respect of another approach that is becoming popular in India in recent years, ABC (activity-based costing) and its sequence, the Balanced Scorecard, he has serious reservations.

"I am a friend of (Robert) Kaplan (who invented ABC and Balanced Scorecard). In fact, Kaplan's book, Relevance Lost: The Rise and Fall of Management Accounting, demolishing management accounting as then adopted, was an excellent contribution.

"However, when Kaplan and his collaborator developed ABC, they retained the same weaknesses that they had criticized in regard to management accounting," he said.

Dr. Goldratt cited a study undertaken by Lean experts for the APICS (American Production and Inventory Control Society) magazine, which showed that companies following ToC achieved an average cost saving of 15 per cent, against one per cent in the case of Lean Manufacturing and four per cent in the case of Six Sigma. ToC is Lean and Six Sigma Plus and not contradictory to them.

Does he offer VV to companies that are in competition with each other? Yes, in cases where they are unlikely to cross each other's path to progress like, for instance, where there is a wide disparity in their market shares. Otherwise, he would seek the consent of a client company if at all he were to offer the benefit of VV to its competitor. In India, where Tatas are among the companies that have taken to VV, according to Dr. Goldratt, Tatas have permitted him to do VV consulting for even competitors because it is good for industry and the country. "Not everyone is as enlightened as the Tatas", he observed.

Asked whether Goldratt Consulting would accept any client for its VV programme, he said that about 40 per cent of the aspirant companies tended to be selected, after preliminary discussions and workshops. He would look at the risks and prospects of viability in delivering his `Mafia offer' to the applicant. One of the things that counted more was the quality of management, especially its "group dynamics" — capacity to work collectively or in cohesion within its own constituents. "This is often one of the biggest problems with managements", observed Dr. Goldratt.

Can ToC be applied to deal with problems on the personal and family front? Yes, said the management guru, many of whose self-learning programmes are in the public domain and also available in the form of videos. He mentioned in particular his Yany disc meant for the benefit of parents, teachers and children and containing "huge information".

How did he take to writing business novels (apart from business theoretical text books), starting with The Goal, whose hero is a plant manager trying to save his company (and his marriage) and who, in the sequential novel, adopts ToC? "I took inspiration from Fountainhead — the way in which Ayn Rand conveyed her political philosophy through an immensely popular novel," he said.

Working with partners in India like Satyam Computer Services and Vector Consulting Group, Dr Goldratt is developing a team of implementers or `project leaders' for VV (whose training costs as much as $50,000 per head) to meet the growing demand for VV in India. During his visit to Chennai, the Indian edition of a ToC business novel, Necessary but not Sufficient (from Productivity and Quality Publishing Pvt Ltd) dealing with information technology (IT) was released.

R. GOPALAKRISHNAN

In Chennai

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