Goldratts Thinking Process and Systems Thinking

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Goldratts Thinking Process and Systems Thinking

• James R. Burns
• Nov. 13, 2008

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THEORY OF CONSTRAINTS GOLDRATT

• 1. Identify the system constraint(s)
• 2. Decide how to exploit the system constraints
• 3. Subordinate everything else to that decision
• 4. Elevate the system constraint(s)
• 5. When this creates new constraints, go back to
  step 1

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Reference(s)

• Dettmer, H. William, Goldratts Theory of
  Constraints, ASQ, 1997.

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THE ISSUES ARE

• What to change?
• What is the core problem?
• What to change to?
• Where to look for the breakthrough idea?
• How to effect the change?
• How to bridge from a breakthrough idea to a full
  solution?

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THE TOOLS ARE

• What to change?
• Here we use a current reality tree
• What to change to?
• Here we use an evaporating cloud and a future
  reality tree
• How to effect the change?
• Here we use a prerequisite tree and a transition
  tree

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Goldratts TP (Thinking Process)

• An excellent methodology to facilitate sessions
  during the initiation phase (definition and
  conceptualization stage) of a project

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Strategy for change

• Create the tree
• Critique the tree

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Why trees??

• To get a complete picture of what is going on
• To model all of the causation involved
• To see what is related to what
• To identify the core problem
• To validate a proposed injection

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What to change?

• Team constructs a current reality tree (CRT)
• Team starts by listing all undesirable effects
  (UDEs)
• Team inter-relates these by use of a tree, called
  a CRT
• In the current reality tree, the team traces
  UDEs back to a core problem (CP)

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EXAMPLES OF UDEs

• Due dates are often missed
• It is difficult to respond to urgent demands
• There are too many late-breaking changes to
  requirements
• Required human resource levels are too low
• There are frequent schedule overruns
• Budgets are often exceeded

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Example Current Reality Tree
Managing Software Development Projects Is rarely
successful
Software Development Projects take too long
Software Development Projects cost too much
Software Development Projects have
quality problems
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Software Development Projects take too long
Software Development Projects cost too much
Fixing changes takes time
There are many late- breaking changes to
requirements
Fixing changes costs money
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There are many late- breaking changes to
requirements
The technology is changing rapidly
Users do not know what They want
There is much un- discovered work
Change in the business World is rampant
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NEXT QUESTION What to Change to??

• Evaporating Cloud
• Future Reality tree

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Core problems are studied further by use of an
evaporating cloud

• Evaporating clouds (EC) will surface assumptions
• Breaking an assumption leads to a breakthrough
  called an injection
• At this point the team is unconcerned with the
  practicality of the injection

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What is an injection?

• a solution to the core problem
• a strategy that will mitigate all of the UDEs
• Injections that appear impossible to achieve are
  called

Flying pigs
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Future Reality Tree

• From the CRT and ECs, a Future Reality Tree (FRT)
  is constructed
• One purpose of the Future Reality Tree is to
  validate that the injection will achieve the
  desired effects (DEs)

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Examples of UDEs and DEs

• Due dates are rarely missed
• Demands are met 99 of the time
• There is little expediting
• Inventory levels are low
• There are no material shortages
• Production lead times are short or satisfactory

• Due date perf. is high
• Customers rely on quick responses
• There is little expediting
• Inventory levels are reduced significantly
• Material is available when needed
• Customers rely on quick responses

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Building the Future Reality Tree

• Start by turning the UDEs around and writing
  them with a positive tone as DEs
• Place DEs at the top of the limbs in the FRT
• At the bottom of the FRT place the injection
• Building the FRT is a two-phase process
• Build considering only positive, ideal links, and
  assuming win/win strategies
• Add negative loops later

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What to change to, Contd?

• The idea here is to get a picture of how an
  injection (a breakthrough) might affect the
  overall performance of the system.
• The Future Reality Tree is the validation that a
  collection of injections will turn all of the
  UDEs into DEs

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How to cause the change?

• The prerequisite tree
• The transition tree
• These help to get buy-in
• These help us to develop a strategy for achieving
  a flying pig (an injection that appears
  impossible to achieve or implement)

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The Prerequisite Tree

• Place INJECTIONS at the top
• List the obstacles that are expected
• For each obstacle that is overcome, an
  intermediate objective is achieved
• Each obstacle gives rise to an intermediate
  objective
• The intermediate objectives need to be sequenced

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The Prerequisite Tree, Contd

• Takes an impediment or obstacle approach
• This approach enables dissection of the
  implementation task into an array of
  interrelated, well-defined, intermediate
  objectives

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The Transition Tree

• We know where we stand
• We identified the core problem
• We found an injection (one or more) that produces
  the desired effects
• We found the milestones of the journey--the
  intermediate objectives (IOs)
• The question now is What specific actions must we
  take?

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The Transition Tree, Contd

• We must focus, not on what we plan to do but on
  what we plan to accomplish
• For each IO, a specific action or set of actions
  are determined and initiated
• Causing a specific change in reality is the
  imperative
• The transition tree provides a ROAD MAP for
  getting from here to there!

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Thats it for GCT

• To get the full version, you have to go to New
  Hampshire (Goldratt Institute) , spend two weeks
  and 10,000

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Let's Transition to Systems Thinking
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Systems Thinking vs. Goldratt Thinking Process

• System Thinking is good for dynamical situations
• Goldratt is good for surfacing underlying
  beliefs, assumptions that are incorrect
• There is some overlap between the two
  methodologies

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Why systems thinking?

• Because our logical deduction mechanisms are
  trained to induct linearly, not cyclically
• We dont see the feedback loops
• Consequently, we dont comprehend the
  opportunities for reinforcement or the
  consequences of limitations/constraints
• Forrester every decision, every action is
  embedded in an information feedback loop

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More motivation

• We are immersed in and victims of structures that
  we have little awareness of
• Causes and their effects are often spatially and
  temporally separated
• Todays problems are yesterdays solutions
• To make good decisions we need to understand
  dynamic complexity, not detail complexity

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Still more motivation

• The integration that comes from the application
  of information technology is creating complexity
  at a frenetic pace
• Out of the complexity comes the potential for
  chaos and catastrophe
• To understand and cope with the complexity
  requires causal models provided by systems
  thinking

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Key Benefits of the ST

• A deeper level of learning
• Far better than a mere verbal description
• A clear structural representation of the problem
  or process
• A way to extract the behavioral implications from
  the structure and data
• A hands on tool on which to conduct WHAT IF

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Senges Five Disciplines

• Personal Mastery
• because we need to be the very best we can be
• Mental Models
• because these are the basis of all
  decision-making
• Shared Vision
• because this galvanizes workers to pursue a
  common goal
• Team Learning
• because companies are organized into teams
• Systems Thinking
• because this is only tool for coping with
  complexity

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We are creating a language

• reinforcing feedback and balancing feedback are
  like the nouns and verbs
• systems archetypes are the basic sentences
• Behavior patterns appear again in all
  disciplines--biology, psychology, family therapy,
  economics, political science, ecology and
  management
• Can result in the unification of knowledge across
  all fields

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Recurring behavior patterns

• Do we know how to recognize them?
• Do we know how to describe them?
• Do we know how to prescribe cures for them?
• The ARCHETYPES describe these recurring behavior
  patterns

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The ARCHETYPES

• Provide leverage points, intervention junctures
  at which substantial change can be brought about
• Put the systems perspective into practice
• About a dozen systems ARCHETYPES have been
  identified
• All ARCHETYPES are made up of the systems
  building blocks reinforcing processes,
  balancing processes, delays

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Before looking at the ARCHETYPES we need to
understand simple structures

• The reinforcing feedback loop
• Exhibits exponential growth behavior
• The balancing feedback loop
• Exhibits goal-seeking behavior

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ARCHETYPE 1 LIMITS TO GROWTH

• A reinforcing process is set in motion to produce
  a desired result. It creates a spiral of success
  but also creates inadvertent secondary effects
  (manifested in a balancing process) that
  eventually slow down the success.
• All growth will eventually run up against
  constraints, impediments

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Management Principle relative to ARCHETYPE 1

• Dont push growth or success remove the factors
  limiting growth
• This is equivalent to Goldratts Theory of
  Constraints

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Reinforcing Loop Structure
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Reinforcing Loop Behavior
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Balancing Loop Structure
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Balancing Loop Behavior
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ARCHETYPE 1 LIMITS TO GROWTH

• Useful in all situations where growth bumps up
  against limits
• Firms grow for a while, then plateau
• Individuals get better for a while, then their
  personal growth slows.

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Structure
growing action
state of stock
slowing action
Balancing
Reinforcing
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Understanding the Structure

• High-tech orgs grow rapidly because of their
  ability to introduce new products
• This growth plateaus as lead times become too
  long for development of enhancements to existing
  products
• have you considered what happens as software
  becomes more complex???

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How to achieve Leverage

• Most managers react to the slowing growth by
  pushing harder on the reinforcing loop
• Unfortunately, the more vigorously you push the
  familiar levels, the more strongly the balancing
  process resists, and the more futile your efforts
  become.

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Leverage, Continued

• Instead, concentrate on the balancing
  loop--changing the limiting factor
• This is akin to Goldratts Theory of
  Constraints--remove the bottleneck, the
  impediment, the

Constraint!!
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Applications to Quality Circles and JIT

• Quality circles work best when there is
  even-handed emphasis on both balancing and
  reinforcing loops
• THERE WILL ALWAYS BE MORE LIMITING PROCESSES
• When one limitation or impediment is removed,
  another will surface
• Growth eventually WILL STOP

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Create your own LIMITS TO GROWTH story

• Identify a limits to growth pattern in your own
  experience
• Diagram it
• What is growing
• What might be limitations
• Example--the COBA and University capital
  campaigns
• NOW, LOOK FOR LEVERAGE

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Test your LIMITS TO GROWTH model

• Talk to others about your perception
• Test your ideas about leverage in small real-life
  experiments
• Run and re-run the simulation model
• Approach possible resistance and seek WIN-WIN
  strategies with them

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ARCHETYPE 2 shifting the burden

• An underlying problem generates symptoms that
  demand attention. But the underlying problem is
  difficult for people to address, either because
  it is obscure or costly to confront. So people
  shift the burden of their problem to other
  solutions--well-intentioned, easy fixes that seem
  extremely efficient. Unfortunately the easier
  solutions only alleviate the symptoms they leave
  the underlying problem unaltered. The underlying
  problem grows worse and the system loses whatever
  abilities it had to solve the underlying problem.

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The Stereotype Structure
Symptom-Correcting Process
Addiction Loop
Problem-Correcting Process
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EXAMPLE
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Another Example
Raise tuition, add course fees, etc.
Costs of Higher Ed not funded by State
Perceived cost to the student
Lower enrollments
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Still Another Example
Symptom-correcting process
Addiction Loop
Problem-correcting Process
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Shifting the Burden is an insidious problem

• Is has a subtle reinforcing cycle
• This increases dependence on the symptomatic
  solution
• But eventually, the system loses the ability to
  apply the fundamental solution
• The system collapses

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Senge Says

• Todays problems are yesterdays solutions
• We tend to look for solutions where they are
  easiest to find

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HOW TO ACHIEVE LEVERAGE

• Must strengthen the fundamental response
• Requires a long-term orientation and a shared
  vision
• Must weaken the symptomatic response
• Requires a willingness to tell the truth about
  these solutions

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Create your own Shifting the Burden Story

• Is there a problem that is getting gradually
  worse over the long term?
• Is the overall health of the system gradually
  worsening?
• Is there a growing feeling of helplessness?
• Have short-term fixes been applied?
• The Casa Olay problem of using coupons to
  generate business and then cant get away from
  using the coupons because their customer base is
  hooked on coupons

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To structure your problem

• Identify the problem
• Next, identify a fundamental solution
• Then, identify one or several symptomatic
  solutions
• Finally, identify the possible negative side
  effects of the symptomatic solution

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Special Case Eroding Goals

• Full employment meant 4 unemployment in the
  1960s, but 6 to 7 unemployment in the early
  1980s
• Gramm-Rudman bill called for reaching a balanced
  budget by 1991, but this was shifted to 1993 and
  from 1993 to 1996 and from 1995 to 1997
• If all else fails, lower your goals..

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Another Archetype Eroding Goals

• A type of structure in which the short-term
  solution involves letting a long-term,
  fundamental goal decline
• MANAGEMENT PRINCIPLE Hold the vision
• Dont lower your goals, your standards, your
  vision

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Structure
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Leadership according to Senge

• Articulate the GOAL
• Articulate the actual CONDITION
• Use the GAP between the two to pull the actual
  CONDITION toward the GOAL
• CALLED CREATIVE TENSION the idea is to make
  visible the GAP so that everyone will try harder
  to reach the un-compromised GOAL

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Review

• We have now seen two of the basic systems
  archetypes.
• The Limits to Growth Archetype
• The Shifting the Burden Archetype
• As the archetypes are mastered, they become
  combined into more elaborate systemic
  descriptions.
• The basic sentences become parts of paragraphs
• The simple stories become integrated into more
  involved stories

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The Saga of Peoples Air

• A totally different airline
• Founded in 1980 to provide low-cost, high-quality
  airline service to travelers in the Eastern U.S.
• Grew to nations 5th largest carrier
• Brought in a host of innovative human resource
  policies
• In 1986 lost 133M in first six months, and was
  taken over by Texas Air

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What brought PEOPLES down??

• Many explanations
• Some blame Burrs soft people-oriented
  management policies
• Some blamed the unions
• Others blamed the use of Americans Sabre
  Reservation system
• Load management could offer a limited number of
  low-cost seats while others were full coach

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What variables to blame?

• Fleet variables
• Human resource variables
• Competitive factors
• Financial variables
• Policy Levers

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Fleet variables

• Planes
• Capacity of aircraft
• Routes
• Scheduled flights
• Competitor routes
• Service hours per plane per day
• Fuel efficiency

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Human resources

• Service personnel
• Aircraft personnel
• Maintenance personnel
• Hiring
• Training
• Turnover
• Morale

• Productivity
• Experience
• Team management
• Job rotation
• Stock ownership
• Temporaries

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Competitive Factors

• Market size
• Market segments
• Reputation
• Service quality
• Competitor service quality
• Fares load Management
• Competitor fares

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Financial variables

• Revenues
• Profit
• Cost of plane operations
• Cost of service operations
• Cost of marketing
• Wages

• Stock price
• Growth rate
• Debt
• Interest Rate

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Policy Levers

• Buying planes
• Hiring people
• Pricing
• Marketing expenditures
• Service scope

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Enormous detail complexity

• We could build a model that contained all of this
  detail
• Or we could use the systems archetypes to
  disentangle this parable of complexity

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What do we have in terms of loops?

• A growth loop certainly (reinforcing)
• The airline, unlike WonderTech was investing in
  its capital equipment infrastructure
• It was buying planes to accommodate the growth
• A balancing loop

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What archetypes?

• LIMITS TO GROWTH
• ERODING GOALS (standards)
• The combination of these produces a third
  archetype
• The Growth and Under-investment Archetype
• This was first seen in the WonderTech Scenario

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The Simplified Structure--p. 133
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The Simulation Structure--Reinforcing Loop
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The Simulation
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System Dynamics (SD) Basics

• Peruse relevant literature
• Talk to people knowledgeable about the problem
• List relevant variables
• Describe causal interactions between variables
• Fully delineate the causal loop diagram (CLD)
• Draw behavior over time graphs

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More SD Basics

• From the CLD, delineate the Stock and Flow
  Diagram (SFD)
• From the SFD, enter into Vensim and run the
  simulation model
• Conduct WHAT IF experiments on the simulation
  model within Vensim.
• Draw conclusions and determine policy
  recommendations

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Examples

• Itch--scratch
• population and growth rate of population
• revenues, sales force size, sales
• inventory, order rate, desired inventory,
  adjustment time

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What is system dynamics?

• A way to characterize systems as stocks and flows
  between stocks
• Stocks are variables that accumulate the affects
  of other variables
• Rates are variables the control the flows of
  material into and out of stocks
• Auxiliaries are variables the modify information
  as it is passed from stocks to rates

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A single-sector Exponential growth Model

• Consider a simple population with infinite
  resources--food, water, air, etc. Given,
  mortality information in terms of birth and death
  rates, what is this population likely to grow to
  by a certain time?

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Exponentially growing population model

• In 1900 there were just 1.65 billion people on
  the planet. Today, there are more than 6 billion
  people on the planet. Every year there are .04
  births per capita and .028 deaths per capita.
• The .04 births per capita shall be referred to as
  a parameter called BIRTH RATE NORMAL

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From Causal Diagram to Schematic (Stock Flow)
Diagram (SFD)

• Some simple causal models
• Some associated schematic models
• Some rules

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Some rules for translating CLDs into SFDs

• What we are doing is identifying every connection
  (also called edge or arrow) and every quantity in
  the CLD as to type

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Linkage (Edge) Types

• There are two types of causal links in causal
  models
• Information
• Flow
• Information proceeds from stocks and parameters
  toward rates where it is used to control flows
• Flow edges proceed from rates to states (stocks)
  in the causal diagram always

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Loops

• In any loop involving a pair of quantities/edges,
  
• one quantity must be a rate
• the other a state or stock,
• one edge must be a flow edge
• the other an information edge

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CONSISTENCYa way to identify connections and
quantities

• All of the edges directed toward a quantity are
  of the same type
• All of the edges directed away from a quantity
  are of the same type

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Rates and their edges
93
Parameters and their edges
94
Stocks and their edges
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Auxiliaries and their edges
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Outputs and their edges
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Steps for Translating CLDs into SFDs
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STEP 1 Identify parameters

• Parameters have no edges directed toward them

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STEP 2 Identify the edges directed from
parameters

• These are information edges always

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STEP 3 By consistency identify as many other
edge types as you can
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STEP 4 Look for loops involving a pair of
quantities only

• Use the rules identified above

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System Dynamics Software

• STELLA and I think
• High Performance Systems, Inc.
• best fit for K-12 education

103
Vensim More System Dynamics Software

• Ventana systems, Inc.
• Free from downloading off their web site
  www.vensim.com
• Robust--including parametric data fitting and
  optimization
• best fit for higher education

104
Powersim Yet another

• What Accenture is using
• More like STELLA

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A DEMO
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Can you construct the schematic model for this
Causal model?
107
We know what that is
108
How about this one?
109
We know what it is, as well
110
Seeing Structures, not just Trees

• Helps us focus on what is important and what is
  not
• Helps us determine what variables to focus on and
  which to play less attention to

111
WonderTech The Chapter 7 Scenario

• A lesson in Growth and Underinvestment
• What Senge gets out of this is the Growth and
  Underinvestment Archetype
• A combination of variants of the Limits to Growth
  Archetype and the Shifting the Burden Archetype

112
The WonderTech Scenario

• WonderTech continues to invest in the growth side
  of the process. Sales grow but then plateau.
  Management puts more sales people into the field.
  Offers more incentives to sales force. But
  because of long lead times, customers wane. Yes
  you have a great product, but you cant deliver
  on your lead time promise of eight weeks. We
  know weve heard from your other customers.
  In fact, the company relaxed its lead-time
  standard out to twelve to sixteen weeks because
  of insufficient capacity.

113
The Reinforcing Loop
114
The Balancing Loop Following the LTG Archetype
115
The Growth Curve Page 117
116
Whats happened?

• WTs management did not pay much attention to
  their delivery service. They mainly tracked
  sales, profits, market share and return on
  investment. WTs managers waited until demand
  fell off before getting concerned about delivery
  times. But this is too late. The slow delivery
  time has already begun to correct itself. The
  management was not very concerned about the
  relaxed delivery time standard of eight weeks.

117
The WonderTech Scenario

• The firm decides to build a new manufacturing
  facility. But the facility comes on line at a
  time when sales are declining and lead times are
  coming back to the eight-week standard.
• Of every 10 startup companies, 5 will disappear
  with five years, only 4 survive into their tenth
  year and only 3 into their fifteenth year.

118
The Shifting the Burden Component
119
Put the whole thing together
120
Comments on The Senge Methodology

• Sees problems as conforming to a finite number of
  archetypes
• Formulates models based on combinations of the
  archetypes
• Addresses problem-driven situations
• What about situations and systems that are
  technology-driven, dynamics-driven,
  exogenously-driven, anything but problem-driven

121
More Comments on the Senge Methodology

• But does this become sufficiently general to
  accommodate all dynamical scenarios and
  situations?
• It is difficult to translate his archetypes and
  causal models into running system dynamics
  simulations
• A lot of variables (RATE VARIABLES, specifically)
  get left out in terms of connections

122
More Comments on the Senge Methodology

• The focus is on characterizing the dynamics, not
  on how to capture that in terms of stocks, flows
  and information paths
• He doesnt label his edges with or - signs

123
Another methodology The Sector Approach to SD
model formulation

• Begin by identifying the sectors
• A sector is all the structure associated with a
  single flow
• There could be several states in a single sector
• Determine the within-sector structure
• Reuse existing molecules where possible
• Determine the between-sector information
  infrastructure
• There are no flows and therefore no stocks or
  rates here

124
A Single-sector Exponential goal-seeking Model

• Sonya Magnova is a television retailer who wishes
  to maintain a desired inventory of DI television
  sets so that she doesnt have to sell her
  demonstrator and show models. Sonyas ordering
  policy is quite simple--adjust actual inventory I
  toward desired inventory DI so as to force these
  to conform as closely as possible. The initial
  inventory is Io. The time required for ordered
  inventory to be received is AT.

125
A Two-sector Housing/population Model

• A resort community in Colorado has determined
  that population growth in the area depends on the
  availability of hoousing as well as the
  persistent natural attractiveness of the area.
  Abundant housing attracts people at a greater
  rate than under normal conditions. The opposite
  is true when housing is tight. Area Residents
  also leave the community at a certain rate due
  primarily to the availability of housing.

126
Two-sector Population/housing Model, Continued

• The housing construction industry, on the other
  hand, fluctuates depending on the land
  availability and housing desires. Abundant
  housing cuts back the construction of houses
  while the opposite is true when the housing
  situation is tight. Also, as land for
  residential development fills up (in this
  mountain valley), the construction rate decreases
  to the level of the demolition rate of houses.

127
What are the main sectors and how do these
interact?

• Population
• Housing

128
What is the structure within each sector?

• Determine state/rate interactions first
• Determine necessary supporting infrastructure
• PARAMETERS
• AUXILIARIES

129
What does the structure within the population
sector look like?

• RATES in-migration, out-migration, net death
  rate
• STATES population
• PARAMETERS in-migration normal, out-migration
  normal, net death-rate normal

130
What does the structure within the housing sector
look like?

• RATES construction rate, demolition rate
• STATES housing
• AUXILIARIES Land availability multiplier, land
  fraction occupied
• PARAMETERS normal housing construction, average
  lifetime of housing
• PARAMETERS land occupied by each unit, total
  residential land

131
What is the structure between sectors?

• There are only AUXILIARIES, PARAMETERS, INPUTS
  and OUTPUTS

132
What are the between-sector auxiliaries?

• Housing desired
• Housing ratio
• Housing construction multiplier
• Attractiveness for in-migration multiplier
• PARAMETER Housing units required per person

133
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