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Viable Vision: Transforming Total Sales into Net Profits

Notes from the very awesome, Theory of Constraints based strategic management book, called Viable Vision by Gerald Kendall.
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Viable Vision describes a systems approach to management, showing that within the complexities of any organization, there is an inherent simplicity that governs its throughput.

Since a chain is only as strong as its weakest link, we must look at the entire organization as one system in order to find the biggest leverage point (constraint) for improvement.

And:

Since we have not yet seen a company making infinite profits, we assume that every company always has a constraint.

Yet most companies do not appear to have the correct roadmap to their vision.

We must begin with the CEO, to ensure an understanding of the goals of the organization and his/her perception of the major problems blocking achievement.

We want to put our organization on a process of ongoing improvement; we cannot do that while allowing common nonsense to govern people.

Management is overwhelmed:

What do you want me to do, fulfil my operational responsibilities or work on improvement projects? I do not have time to do both.

Viable Vision on Improvement Initiatives and Strategy

Any company that has only 30 percent market share and excess capacity should first look in their current markets to increase sales.

The fatal mistake that organization’s made years ago, when the Total Quality Management movement was popular, was to apply the TQM process everywhere. Most methods are correct, but only when applied to the right problems.

An optimal strategy will insulate a company from huge swings when there are economic downturns or major new competitors, yet most long-term strategies are as useful as a five-year weather forecast.

Viable Vision on 5 necessary prerequisites to any good strategy

1. Frame of reference for all management (T, I, and OE combined with the 5 focusing steps)
2. Predictable operations logistics that allow the organization to turn on a dime. DBR
3. Distribution within a supply chain that is superior to competitor supply chains
4. Project management through critical chain and dedicated urgency
5. Process / software solutions

Viable Vision on Performance Measurement and Improvement Initiatives

Tell me how you measure me and I will tell you how I will behave. If my measurements are not clear, no one can predict how I will behave.

Today’s environment is much more complex than several decades ago. In the 80s, markets were more stable and product life was much longer. … managers feel compelled to deal with increasing complexity by breaking down organizations into smaller pieces.

The purpose of measurements is to motivate the parts to do what is good for the supply chain as a whole.

Strengthening a link that is not the weakest does not increase the strength of the chain and does not help generate more throughput.

Therefore, this intense focus on the leverage point, the weakest link, is the opposite of the cost frame of reference (where managers operating under the additive rule look in every local area for improvement).

Consider the use of profit centers in cost accounting…

Since most functional areas are cost centers, they naturally focus on reducing cost within their local area. Rather than improving the organization.

When one department acting as a profit center, allocates its costs to other depts who have no control over those costs, it is no surprise that the profit center induces criticism, resistance, and illogical behaviour. Since when does the IT dept have a bank account to collect profits?

A profit center puts various parts of the organization into an automatic win/lose situation.

The new frame of reference must encourage measurements on real profit centers and discourage the nonsense associated with artificial profit centers.

Viable Vision Chapter 5 on Marketing

70% of companies today have their constraint in the market.

[private_free]Marketing – spreading the corn so the ducks will want to come to your field. Sales – taking a gun and shooting the sitting ducks.

In most companies today, you will not find marketing.

Instead, you find a host of tasks such as sales support, sales training, advertising, collateral development, promotion, and others.

Labeled as marketing, these tasks do not come close to accomplishing the vital role of marketing. Further, if the real problems of the markets are not addressed, the company ends up wasting its sales effort.

Successful marketing should bring a lot of ducks into your field with glue on their feet!

This perception of value is based on what problems the product or service helps customers overcome.

Marketing’s job is to increase the customers perception of value of the product, compared to all competing products.

Focusing on the prospects problems. Once you try to shoot a sitting duck and miss, the duck is no longer sitting.

Analysing a valid sample of those customers who said no. Simple surveys.

Criteria for customer perception of value and why it lost so many deals, to determine the key criterion for the buyers decision.[/private_free]

Marketing Strategy: Mafia Offers and Segmentation

The value proposition does not sell itself. Sometimes the sales people are not sufficiently trained to sell the value.

A value proposition keeps you in business, but it is not the same as having an offer to the market that is too good to refuse.

How is the company going to reach such a high goal? What is the mechanism? What will make your offer to the market too good to refuse? Why won’t your competitors be able to copy it easily? What logical changes must be part of the solution to achieve it? How will you start to get the fruits within six months, not five years from now? What does each functional area have to do to help achieve the vision?

The first step in this process was to identify the organizations biggest constraint… to find a leverage point.

Not just ideas…

Before we talk about compelling offers to these markets, you must make sure that they are not wasting what they have.

Other than competitive pricing, warehoused inventory, and fast order turnaround…

Must be simple and work perfectly.

Add product variety… one of the keys to increasing throughput exponentially.

Ask their top suppliers to accept daily orders.

Order lead time is cut.

You must offer in writing to pay your customer penalties if you are late on delivery. But there is a big catch! Offer to give up 100 percent of your profit if you are late.

The Mafia Offer

[private_free]Elevate, brings more ducks to your field who are drooling over your corn.

What problems do the clients in our markets have that no one in the industry is addressing? This question is the core of market research.

When a marketing person can access senior customer management and learn about the business through this approach, the resulting analysis often leads to a huge competitive advantage.

Find policies that drive customers crazy, and change the policy![/private_free]

Segmentation

[private_free]A market is segmented if and only if the price and quantity of a product sold in one market is not impacted by the price and quantity sold in another market.

Vital rule is to segment your market, not your resources. Gives flexibility to shift resources between segments based on demand.[/private_free] [widget id=”text-402250971″]Text: Free Membership Banner[/widget]

Viable Vision really is an excellent read, with chapters on: Operations, Distribution, Project Management, Achieving Buy-In, Strategy, Paradigm Shifts, Conflict Resolution, and more. A highly recommended read to anyone serious about high-level strategic business growth.