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Eliyahu goldratt: the more powerful the competitive edge, the more opportunities are open. He says the first step in capitalizing on a decisive competitive edge is to define the target markets. The criteria for choosing the target markets are confidence, speed and effectiveness, he says.
Eliyahu goldratt: the more powerful the competitive edge, the more opportunities are open. He says the first step in capitalizing on a decisive competitive edge is to define the target markets. The criteria for choosing the target markets are confidence, speed and effectiveness, he says.
Eliyahu goldratt: the more powerful the competitive edge, the more opportunities are open. He says the first step in capitalizing on a decisive competitive edge is to define the target markets. The criteria for choosing the target markets are confidence, speed and effectiveness, he says.
Planning into the Unknown Page 1 Eliyahu M. Goldratt, 2007
Planning into the Unkown or Late Night Daydream?
Eliyahu M. Goldratt, 2007
Reminder:
You are the auditor, Im the project leader, the project is Goldratt Group (GG).
We concluded that:
The more powerful the competitive edge, the more opportunities are open.
The more opportunities are open, the higher is the chance of shooting in every direction, of operating without focus, of floundering.
Focus means instituting self-imposed limitations.
That is the reason that the first step in capitalizing on a decisive competitive edge is to define the target markets.
We used the difficulties that we currently face to devise the criteria for choosing our target markets.
A. Too much time, effort and mainly stamina are drained by prospects that we have to decline due to the high risk of not reaching the VV target. Criterion #1: Our confidence of reaching (and surpassing) the VV target.
B. The need to constantly maintain the clients commitment to adhere to its S&T tree. Criterion #2: The speed in which we expect to get (and continuously enhance) bottom line results.
C. Our inability to turn impressive references and pleased clients into a major stream of qualified prospects. Criterion #3: The number and effectiveness of the referrals that we can get from an existing client the multiplier factor.
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It is flabbergasting. It is flabbergasting to realize that we did not have these obvious criteria. That we didnt aim, but actually stumbled by accident on the retail on the target market that pops out as the best fit, by far, for all three criteria. To realize that until recently we did not attempt to consciously approach retail, that until the lucky coincidence (of Thomas reporting on having a meeting with a retailer one month before a should-we-cancel VV seminar and an hour later Javier reporting of another meeting with a retailer and that on the background of never having a meeting with a retailer) we didnt even bother to construct the Retailer S&T.
We had all the facts. We knew the grotesque situation of almost all retailers: the amount of shortages coupled with the amount of slow moving inventory. We had the solution in detail. We knew the speed at which bottom line results are achieved in retail; speed that stems directly from the fact that in retail any improvement in operations translates immediately to increased sales without the need to construct and execute marketing and sales activities. We knew that one of the prime concerns of a retailer is the performance of its suppliers. We knew that any retailer has at least dozens of suppliers. We knew it all and we ignored it.
No wonder that now were determined not to leave our destiny to the mercy of coincidences, of flukes. Were determined to plan our future actions.
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You didnt just wash your face; you also combed your hair. Reenergized, you stand behind your seat and announce: I dont agree!
To what?
I dont agree that we should change our priorities, you proclaim and start to pace the room.
What are you talking about? Who is suggesting changing priorities? What priorities? When you start to answer, I interrupt, Will you please sit down, I say.
We had launched three initiatives, you start to explain. The first, and most important one, is to make sure that existing projects are running smoothly. I do not agree that all implementations are running well, and THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 3 Eliyahu M. Goldratt, 2007
I think that we should continue to concentrate on preventing floundering implementations. That is top priority!
The question mark that is written all over my face causes you to elaborate, Mickey and Rami are doing audit visits right now. That is the right thing to do. It should continue to be their top priority. And we just instituted the audit report. We should make sure that it is followed; that it becomes a standard procedure.
Whats your point? I ask.
We had launched three initiatives, you start again. Improve implementations is one. To make sure that I follow, you use your fingers to count. Build resource buffers is another project leaders, logistical experts and M&S experts. Another finger is pointing up. And the third one is filling the pipeline through direct efforts. I believe that these are the correct initiatives. I think that we should stick to them. I dont think that we should change our priorities.
I fully agree. One hundred percent, is my response.
Now its your turn to look puzzled.
My friend, I say calmly, there is nothing I want less than changing or messing around with our three current initiatives. What gave you the impression that I do?
You smile, Just the fact that whenever people are talking about something new, something that is better than sliced bread, something that causes them to be disappointed with themselves for not seeing it before, something which is sooo obvious You pause to take a breath and hammer the punch line, It is always at the expense of the existing initiatives.
Well, I smile back, I do admit that a new revelation always introduces a change to the existing initiatives. But the change itself might be small, almost nothing; only the ramifications are huge. And I wait for you to translate it to our case.
Come to think about it, you pick up the ball, the only immediate change is in our third initiative. When we try to set up a meeting, rather than approaching any physical product company, lets make sure that we approach at least some retailers. Then you add, Do you agree that before we gain much more experience with retailers, and verify that we can easily expand from retailers to their suppliers, that THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 4 Eliyahu M. Goldratt, 2007
we should be cautious and also approach companies which are not retailers?
As we always claim, the first rule of prudent management is to be paranoid, I concur.
You relax in your couch and say, Now that we are in full agreement, what do you suggest we discuss next?
The weather? I suggest.
You just throw me a dirty look and say, Eli, be serious. At last we are going to approach our prime target market the retail. What do we have to prepare so that we can safely sustain the expected increase in projects?
I dont know, I admit.
Try, is your laconic answer.
The only way that I know to attempt to answer such a question, I say hesitantly, is by picking numbers out of thin air, making one speculation after another. If we are not careful, this late night discussion can easily turn into just a daydream.
So, lets be careful. Light your pipe and start, you encourage me.
I follow your advice. A good starting point, I slowly say, is to assume some rate of getting new contracts with retailers. No, not good. We are starting with a wild speculation. We need something more concrete. And I pause.
Not necessarily, you say. We do already have a number that we are shooting for. We would like to soon reach the rate of two new contracts a month per region. Since, according to what we discussed so far, the easiest target market is retail, lets just say that we will try to reach two new retailer contracts per month per region. This is not a wild speculation, especially when we will now concentrate on how, practically, we are going to achieve it.
Good idea, I am pleased. According to Thomas and Celso, there shouldnt be a real problem to get meetings with retailers. And Patrick, after he spent a few days on the phone, claims that it is realistic to estimate getting an average of one meeting per two days efforts. But wait, we are moving too fast. Patrick and the Brazilians did use me as THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 5 Eliyahu M. Goldratt, 2007
the trump card to get the meetings. This cannot be done when we are talking about ongoing efforts in all regions.
I was thinking about it, you say. We have such an enticing offer that it must be possible to construct an effective process which does not involve you personally.
Who will develop that process? I ask. Besides, isnt it a distraction for Goldratt Consulting people? It will, unavoidably, come at the expense of more important things they have to do.
It shouldnt be, you confidently answer. Let me remind you, again, what is written in our trees regarding lead generation. After you finally locate the relevant sentence you read: Step 4:31 of the Projects S&T tree Lead Generation. The second parallel assumption is: The characteristics of a person who can build a good lead-generator are not the same as the characteristics of a good salesperson. And the conclusion which is stated in the tactic is: Develop and apply a mechanism, which requires less and less of the sales peoples capacity, to generate a constant buffer of qualified leads. What I suggest is that we do exactly that; lets build a central, dedicated force that will specialize in generating the leads for all regions. And dont worry, the fact that they speak mainly English can be turned into a plus when seeking a high level meeting.
Im toying with the idea. To see if its feasible, lets estimate how many people we are talking about in that dedicated lead-generation force. Lets accept for now that one person can generate a meeting per two days efforts. The next question is, how many meetings do we need to initiate.
Well have to do reverse engineering, you state. We need two contracts per month per region. Lets estimate that the conversion ratio from a meeting to a contract is how much? Speculations, speculations, I mutter under my pipe. You make a face and I explain, We dont have enough experience, to speak of, with large companies, companies with sales over a billion.
Assume that well first approach only retailers with sales of less than $500 million, you overcome my problem. And if they still want to start with pilots, lets go below that to companies of less than $200 million sales. Remember, Javier didnt have a problem getting a handshake with a $50 million company. Like with Vaseline, were his words. Now can we use our experience to get an answer? What should we assume for the conversion ratio from a meeting to a contract? THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 6 Eliyahu M. Goldratt, 2007
I try to give a reliable answer. Regarding the existing state of most retailers, and the fact that they do agree with the logic of our solution, we should expect at the VV Validation meetings the same success percentage we had in meetings when we had a perfect fit between the prospect and our tree.
What is that percentage? you ask impatiently.
High, I say. Very high. But we also have to factor in the drop rate that well have from handshake to contract.
Since we started to use the S&T trees in the Consensus Day and in the workshop, our hit ratio did improve, right? you ask.
That is also my impression. Okay, lets estimate that for one contract we need three VV Validation meetings.
That will mean that we need to arrange 6 meetings per month per region, you conclude. How many regions do we have or are about to have?
The last thing that I need now is to dive into the subject of defining a region and discussing our geographic expansion policy. Im ducking that delicate issue, For the sake of an easy calculation, assume that we deal with 10 regions.
Fair enough, you say. That means that we need 60 meetings a month. At a rate of arranging a meeting per two days efforts and assuming 20 working days a month, it brings us to 6 people. Big deal. And if we made a too-optimistic evaluation of the conversion ratio from meeting to contract or of the time needed to get a meeting, then well need 10 people. Thats not a problem.
Not a problem? How are we going to pay for them? I object. Remember, you can not pay from income of future contracts.
Yes, we can! you declare. You can base the payment mainly on success success in arranging a qualified meeting, more if it leads to an S&T Workshop, etc.
You are right. It is a common practice. And we can afford success fees that will guarantee the best people sitting on the phones. Rami is the one that provided the content for the lead-generation steps in the THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 7 Eliyahu M. Goldratt, 2007
S&T; it might be a good idea to dump it on him. He will most probably delegate it to Lisa. It will be in good hands.*
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*The following is an e-mail message from Rami to the directors of GG.
Dorit was the head of the lead-generating department at IBM Israel.
Hi All,
Ive met Dorit yesterday and again today going over the reasoning behind the Retail initiative (we have read together Elis recent documents).
Dorit had expressed great interest to give it a try knowing that we are expecting results (i.e. stream of meetings) by early November.
I would like to update you regarding Elis decision to develop the leads generator compensation scheme. The leads generator compensation should support 3 objectives:
1. Make sure the leads generator has an incentive to produce a constant stream of meetings.
2. Make sure the leads generator has an incentive that the meetings produced are meetings that turn to contracts with a very high hit ratio.
3. Make sure a good lead generator has the financial capabilities to build an organization that will enhance the above two objectives with time.
The change in the compensation is:
- $500USD for qualified meeting (as defined in Alfredo email)
- $2000USD when such meetings reach the stage for concluding the 4x4
- $400USD per month when such meetings are converted to a contract as long as the contract is alive (this will total $20,000USD per full contract life).
The main idea is that we will help the person who is really successful in generating qualified leads to build and sustain an organization for this.
Lisa, lets talk to plan how we make sure we build this machine.
Rami ----------
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You proceed. Moving a retailer from a VV Validation meeting to contract is no different than moving any other physical product company. The real change, at least in scale, will happen when well move from a retailer to its suppliers. When do you think we should start to induce a retailer to put us in contact with its suppliers? You probably thought about it beforehand because without waiting for my answer you proceed, I think that we shouldnt do the mistake that we did in Brazil and try to push the retailers right from the start right from the preliminary meeting. For three reasons.
The first is that, even if they do what we ask them approach all their suppliers it might create a tsunami; we may get too many suppliers too soon. If we want to sustain the success, it is imperative that well have real control on the expansion rate.
The second reason is that we better wait for the beginning of the project. At that stage the client is fully aware due to the S&T Workshop of the need to induce the suppliers to convert into good suppliers. Therefore, it is reasonable to expect that the retailer will actively arrange for us, and with us, to reach its suppliers.
I add, The retailer knowing that the lead time to convert a supplier is long will probably insist to start these efforts close to the beginning of the implementation. On the other hand, we shouldnt have a real difficulty to persuade them that it should be done in a staggered way approaching just a reasonable number of suppliers per month.
You nod in agreement and continue. The third, not less important reason, is that such expansion to suppliers will necessitate more GC people and we better have the income from the retailers contract to support bringing more GC people on board.
Will that income be enough? I inquire.
Lets check, you answer. Most retailers have hundreds of suppliers. Even when we take into account that some are too small, and many will not be interested, still the most conservative rate that I can envision is that a retailer will force us to seriously deal with a minimum of 10 suppliers a month. That will, likely, convert into 5 contracts a month. Considering the amount of time involved in doing, each month, about 10 validation meetings, 7 Consensus Days, and auditing six S&T Workshops, it implies that for each signed contract with a retailer we have to bring on board one new GC person. The unconditional fees of the retailer contract can support it.
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Do you think, I ask, that we can bring a new GC person on board only at the time of signing a contract and still be able to prepare him/her to do a proper job?
You make a face and answer, Im not sure. What do you think?
Someone has to provide an answer or at least an educated guess, so I try to do my best. First, lets bear in mind that initially we can limit these new GC people to deal with just the suppliers of the retailers. That will limit the task to educating them on only one S&T tree. The initial steps that they will have to deliver to suppliers only are the VV Validation meetings and facilitating the Consensus Days. That should not take longer than to train a person to give a full S&T Workshop. So if we currently assume that it will take between two and three weeks to train a project leader on one prospect and yes I too will feel better once it is verified why should we assume that it should take longer to train a GC person for doing the initial stages?
Carry on, you encourage me.
Assuming that it does take at least two, if not three months, from the retailers project starting until we have to give VV validation meetings to its first suppliers, we can afford to bring the new GC person on board only at the time the contract with the retailer is signed.
You nod in agreement and comment, Very soon, these new people will be very good. I blink and you explain, They will have to give so many events each month that unavoidably it will not take long until they will be really good.
On the initial steps only, I qualify.
Not just on the initial steps, you correct me. They will rapidly gain a very broad knowledge of suppliers to retail. Shallow, I admit, but still very broad. That should help them a lot in auditing the S&T Workshops. Of course well have to give them another dose of knowledge on how to negotiate a contract. On top of some days of formal training, do you think that on-the-job coaching will be helpful?
No doubt, I agree. Well have to use the more experienced ones to coach to new ones. Staggering will be required.
Dont worry, you assure me. Murphy is an effective staggering manager. Besides, at the beginning, no one will even consider using rookies to negotiate the contracts. The same is true for educating the THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 10 Eliyahu M. Goldratt, 2007
new GC people on doing proper project audits. Well give them an additional week or two of formal training by GS and then a few times of doing the audit under supervision of an experienced GC auditor.
Im thinking aloud, Yes, the only way to accommodate the multiplier, of many suppliers stemming from one retailer, is by use of the pyramid method. Thank god that all those clients fall into one single S&T tree.
Anything else? you ask while yawning.
Are you kidding? is my impatient reply. Just look on the numbers. Two retailer contracts per month mean two new GC people per month, per region. If you are not worried about it, just think that each retailer causes five supplier contracts per month for many months. That means that well have to add more GC people once the suppliers reach the contract stage.
Yes, but at that time we have more than enough income to support it, you try to play it down.
Im not worried about the financial aspect. Im worried where are we going to find enough GC people? Not to mention project leaders and the other required experts.
Calm down, you say. We are already dealing with that.
Your remark is not enough to calm me down, just the opposite. In what way are we already dealing with that? I ask in a demanding tone.
Isnt it the essence of our second initiative? you rhetorically ask. Isnt it the reason we currently are trying to build the resource buffers? And Eli, we are on relatively solid ground. In the last few months we have made enough progress to verify most of the underlying assumptions of this initiative.
Meaning? I inquire.
You elaborate, Most of us are confident now that there is no real problem to attract enough candidates to our two days a month program. We know that most people attending enjoy this program and are not just willing, but are actually eager, to continue to invest their time for no monetary compensation. We also know that with any additional dose they become more eager to work with us on our projects. It does look promising. THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 11 Eliyahu M. Goldratt, 2007
Im not so sure. Do we know if we attracted enough of the right people?
You smile, We know that we didnt. You raise your hand to prevent me from commenting and say, But we also now know what people we should attract and we are confident that we can. Of course, as we already say, we all will feel much better once we reach the next steps. Once well pull some of these people to the few weeks class and find out if they are able to facilitate, or should I say command, a good S&T Workshop.
Im not letting you off the hook so easily. Again, my friend, how do we know that we can attract enough suitable people? Seeing from your expression that you are just going to repeat the answer you already gave, I explain, How can you be so sure that we can attract enough people when you dont know how many people we will need to attract?
You think about it. Finally you say, I dont think that the real problem is to attract enough people. Not when we have such a good offer and there are so many good people looking to do something more meaningful with their life. Still you have a point, we should discuss when to attract them.
Im not sure that I understand what you are alluding to.
You elaborate, We can not afford, and it is unfair, to build expectations and not to fulfill them for a long time. We should put them on a project within a maximum of one year after they started to attend our monthly two days.
One year is too long, I comment. Now I see your point. In order to know how many we should attract into our resource buffers, we need an estimation of when and how many people we will need when and how many we are going to pull from the buffers. After a short pause, I hesitantly say, Im afraid to go there. It might throw us into the la-la land of piles of speculations.
You take your time before saying, Not necessarily.
I am waiting for you to continue and eventually you do. We dont need to know when and how many; it is enough to know the trigger point and the ratio.
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Dont you think that its a little too late, actually its much too early, for riddles? I desperately ask.
Your way of explaining is through asking questions. When do we need the bulk of the resources?
When suppliers start to sign contracts, I confidently answer.
How many people will we need per contract? is your next question.
It depends on the size of the supplier, I answer. But, on average, we can say that per contract well need one project leader, two logistical experts and one M&S expert. Later on, when the projects are more mature, we can use the same people for more projects.
Good enough, you say. So once we have a contract with a retailer we know, better to say confidently assume, that within two to three months well have about 10 VV validation meetings a month. That means that three to four months later we will need to conduct 6 S&T Workshops and two months after that we will have to start 5 supplier projects. Per month. Using your numbers, this means that once we sign a contract with a retailer we should start efforts to attract into our buffers, each month, an additional 5 candidates for project leaders, an additional 10 logistical and 5 M&S experts. These numbers should be factored by the success ratio of converting a person from the resource pool into a good deliverer.
What about more GC people? I ask.
Just assume that the best candidates for project leaders will be good candidates for GC, you answer. Later on, we can recruit the GC people from the best deliverers that have already proven themselves. What are the additional qualifications a GC person should meet?
It is an important question, I admit. But not for now. My friend, I think that what you said is genius.
You blush and then can not control yourself and ask, Why?
Its not easy to plan, period. But when you face a situation like we are facing, a situation when the unknown is huge. When the response of prospects can vary from almost nobody moves, all the way to too many moving to an avalanche, its almost impossible to plan. Planning can easily deteriorate into just daydreaming. You do some speculations, you add the numbers, you do some more speculations, you use THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 13 Eliyahu M. Goldratt, 2007
multipliers, and not before long you look on the end result and you find yourself in euphoria. I know, Ive been there. More than once.
Thanks to you my friend, we didnt fall into that trap. Rather than looking for the end result into numbers which are a result of a pile of speculations, you were careful to keep us on the road of trigger points and ratios. Signing a contract with a retailer is a solid trigger point. Once we have a contract we know what to do; we follow the ratios.
Per retailer contract we bring on board a GC person from the resource pool and train him/her. We have enough time. We also move to inducing more people into the various resource buffers. We know the ratio of one retailer contract to the number of people we have to enroll, per month, into the buffers and we have enough time to recruit, train and most importantly to modify the numbers according to the actuals. In short, we operate with solid rules even though we live in a reality where the unknowns are huge. That is genius!
I never saw you smile so broadly before.
Moreover, I continue. We now have a controlled process. Actually in the whole thing there are only two points that we have to control. The first one is the number of meetings we schedule with retailers.
Thats a key one, you agree. And the second?
The second is the number of suppliers we agree with a retailer to approach per month.
We both relax in our seats and think about it.
After a while you ask, Where is the constraint?
Isnt it obvious, I answer. Its the schools. The number of instructors we will need is frightening and the time to prepare a good instructor is the longest.
Shouldnt we discuss it? you ask.
Whats the point? I say. We now know the trigger point a contract with a retailer. Oded and Eli S. can tell you immediately the ratios they do know how many students we can put into a class and how many classes an instructor can give per year. They are also aware that their instructors should be able to deliver a week long upgrade a quarter for every person working on our VV projects. Im not worried, THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT. IT IS NOT INTENDED FOR GENERAL DISTRIBUTION Planning into the Unknown Page 14 Eliyahu M. Goldratt, 2007
these people have already pulled off a bigger miracle, they can do it again.
I am worried, you softly say.
And you want to discuss it now? I ask. Its not late night anymore, and I point to the sun that shines through the windows.
You sigh. I guess that to worry will not help, you say. If we want to help GS, the best thing that we can do is to expedite three or four retailers. What the schools need the most are some real cases to practice on before they have to provide the big quantities.
Agreed.
Eli, what about the fact that if well do so many supplier projects per month we are running the risk of, again, having TOC associated mainly with production? And what about the other solutions we have, are we going to become mainly a single solution company?
Give me some credit, I say. And smiling I add, These are excellent topics for our next late night discussions. Shall we schedule the dates now?