VUCA world, VUCA company? 2/2

Ariadne's thread to get out of the VUCA labyrinth

In the previous publication, VUCA world, VUCA company?we characterized certain types of companies that we call VUCA by playing with analogies. Here we resort to the Greek metaphor according to which Ariadne gives Theseus a sword and a spool of thread. The sword is used to kill the Minotaur, while the thread allows Theseus to get out of the labyrinth he must enter to achieve his goal.. The purpose of this note is to provide you with the thread that leads you out of the labyrinth of VUCA companies.

We said that in VUCA companies the work agenda is volatile, that what was a priority yesterday is no longer a priority today, even if the task is still pending completion. That they are uncertain, as their course is constantly changing under the belief that all opportunities must be seized and because they inhabit a reactive culture.
complex attribute is because they try to maximize the objectives of each sector or department, generating multiple bottlenecks and conflicts between areas. Finally, they are ambiguous because they compromise in the face of conflict and swing back and forth between the two sides creating confusion and communication disorder.

Origin of the problem

As argued by Dr. Eliyahu Goldratt, behind every problem there is an unresolved conflict. This is no exception. The following is the conflict diagram of the VUCA company.

The diagram begins with the objective, which is to generate harmonious and sustained growth (box A). That is, without waves and without interruptions. For this, there are two necessary conditions: to be effective and efficient, which appear in boxes B and C, respectively.

Effectiveness is achieved with the attainment of goals and for this the action required is to align the management of the system as a whole behind an organizational objective (D). On the other hand, to be efficient you must measure and evaluate people by the objectives of your sector (D').

Thus stated, actions D and D' are mutually exclusive. Aligning the management of the system as a whole behind one organizational objective is incompatible with measuring and evaluating people by the objectives of their sector. Two different objectives cannot be maximized at the same time. This leads to the system oscillating between one objective and the other, creating ambiguity.

We note that the approach taken with the conflict diagram is correct because the required action of aligning the management of the system as a whole behind an organizational goal (D) threatens the need to be efficient (C). The argument is that when the focus and evaluation is on the whole, the system drains resources at the operational levels.

The same happens with measuring and evaluating people by the objectives of their sector (D'), which jeopardizes the need to be efficient (B). The objectives of the areas conflict with each other: administration tries to reduce costs, while marketing tries to increase the value delivered to customers; sales pushes for shorter delivery times, while production complains that these dates are unrealistic, etc. All this leads to a failure to meet targets.

What to change

That decisional knot that traps VUCA companies in the labyrinth can be dissolved. The first step is to recognize those erroneous assumptions that maintain the connection between a necessary condition and the actions that are designed.

Such is the case with the assumption that measuring and evaluating people against the objectives of their sector makes better use of resources and thus the value creation flow of the system as a whole is greater than the costs incurred.

Such a statement seems to be logical. Even more so when there is abundant literature to support it, such as the ABC costing system, which I enthusiastically embraced for years.

Karl Popper warned that we will never know if a hypothesis is true, but when it is not, reality will take care of letting us know that it is not. And that is what happens with this conjecture. Every day more and more evidence and models are added to explain why this logical connection is invalid. In the previous article we detailed the consequences of working in a VUCA company.

What happens in practice is that, by partitioning management into subsystems, multiple bottlenecks are artificially created, transforming simple or complicated systems into complex ones.

Despite sounding similar, complicated and complex are not the same thing. The Cynefin framework developed by Snowden & Boone shows that both simple and complicated organizations are governed by a single constraint, only in the latter the cause-effect relationships are not so clear.

We have seen the erroneous assumption in the branch that satisfies the need for efficiency. However, on the other side there is also another implicit assumption that also deserves to be reviewed. Ample evidence shows the collapse of attempts to manage systems as a whole with centralized decisions. So what is the way out?

Exit from the labyrinth

Since the erroneous assumption is to partition management into subsystems to achieve efficiency, the way out of the labyrinth is achieved by establishing the policy of managing under a systemic view, subordinating the objectives of each subsystem to the restriction of the organization. That weakest link that limits the flow of value creation of the system as a whole.

The five-step approach outlined by TOC provides a powerful framework for systemic constraint management. The first step is to "identify the constraint". The second step is to "decide how to make the most of the constraint". As you may notice, actions have not yet been defined, but the framework that supports them.

The third step states what not to do, as it states "subordinate everything else to the constraint". It is clear here that the objectives of the subsystems are subject to the constraint of the sistema as a whole.

At this point, the objection that we find in the conflict diagram on the effectiveness side may jump out at you, with the assumption that many people implicitly make that in order to align the management of the system as a whole behind an organizational goal, decisions must be centralized.

Dave Snowden sheds light on the mistaken belief. He tells us that what must remain centralized is the coordination of actions, not the decisions. This achieves effectiveness by centralizing the coordination of actions under a shared purpose: to make the most of the constraint. At the same time, efficiency is achieved by giving autonomy and decisional empowerment to people.

We add an argument that remains without refutation and it is the one delivered by Matías Birrell: "the value creation capacity of a system is directly related to the degree of synchronization of its parts".

The Drum-Buffer and Rope (DBR) method, developed by Eliyahu Goldratt, offers a simple solution for managing production. The constraint, like a drum, sets the pace in production. The entry of new production orders is governed by the drum. This avoids overproduction and the detrimental consequences that excess in-process material (WIP) has on the flow. As the constraint completes tasks, a virtual rope alerts upstream that new orders must be started.

We have seen that two objectives cannot be maximized at the same time, therefore, optimizing the organizational objectives necessarily implies that the subsystems operate below the optimum, giving rise to slack. These buffers provide stability to the system by protecting the constraint against variability. Without these buffers, in case of an unforeseen event, any resource becomes a bottleneck, generating chaos. Typical case of the manager who spends his days putting out fires.

That said, we come to the fourth point: "raise the capacity of the constraint". By doing so, the system will generate more value. However, increasing the capacity should avoid balancing the line. It is necessary to check again if this is still the constraint. This leads to the fifth step: "breaking the inertia". The cycle is repeated with point 1.

A matter of perspective

We do not deny the existence of complex systems, our environment is a clear example, we live in a VUCA world. We just give this attribute the character of provisional.

We can find countless facts that show that the complex depends on the observer. Of the observer's capacity to understand, comprehend and interpret the variety of behaviors of the system. So that what seems complex to other observers, without a pattern that explains the cause-effect relationships and feedback loops, when someone reveals it, it becomes simple and even obvious.

Eli Goldratt used his background in physics to apply his knowledge to the organizational field. The five steps approach and the drum, damper and rope system are clear examples that allow to reduce the variety of system behaviours and with it, the complexity. In addition, he has shown that erroneous assumptions lead to the development of policies that translate into management indicators that turn simple or complicated systems into volatile, uncertain, complex and ambiguous ones.

Picking up the thread

It remains to analyze whether the proposed solution eliminates the undesirable effects from which we began to link this analysis.

  • We have eliminated ambiguity by proposing a solution that simultaneously addresses the needs of effectiveness and efficiency.
  • As management is governed by a constraint, the complex character is diluted.
  • The constraint is aligned with the source of competitive advantage and sets the pace of value creation. The resulting KPIs are coherent and consistent, leading to proactive management. Therefore, the attribute of uncertainty is no longer valid.
  • The same applies to volatility. Having identified which is the restriction, time, material, money or human resources buffers can be established to protect the flow. This minimizes interruptions to the value creation process.
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