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By Root 2512 0

projects in the funnel. Obviously, this number must be dramatically lower than the number of open projects currently in our funnel; otherwise, we would not reduce bad multitasking. During a meeting we had with all sales directors, we decided to set this limit to 50 percent of the existing opportunities in the funnel. When we set this maximum number, we used our intuition and followed a rule of thumb. (We also had predicted that it would not be immensely difficult to “freeze” or take out 50 percent of the opportunities, as most of the opportunities are not real or attractive. This prediction was evidently valid, as it took us only an hour to make the decision and determine which projects to remove from the pipeline.)

In retrospect, our intuition was guided by the same logic underlying the “calm-between-the-extremes curve” that exists in multi-project environments.7 Choosing to have more opportunities in the funnel elongates the sales cycle and increases WIP, but since more opportunities means more safety buffer to recover for lost opportunities, expectations are that a high number of opportunities will be won. This is correct when not a lot of opportunities enter the system, but when the amount of opportunities is considerable, another phenomenon starts to raise its ugly head. What we have to bear in mind is that the higher the number of opportunities, the lower the attention given to each one. When there are too many opportunities in the funnel, bad multitasking starts to occur. The higher the bad multitasking is, the lower the hit ratio is.

FIGURE 21-4 Calm between the extremes.

The magnitude of generated sales volume as a function of the number of open opportunities is shown schematically by the following calm-between-the-extremes curve in Fig. 21-4.

When one wishes to determine the number of projects to cut, one needs to be very careful not to go overboard. In other words, do not bring the environment from the extreme right side of the curve—where it is—to the extreme left side. The following formula would do the trick:

(Number of Opportunities × (1 – Hit Ratio))/2

Since being on the extreme right side of the curve assumes high bad multitasking and therefore a very low hit ratio, following the above formula would bring the number of open opportunities to be between the two extremes. If the hit ratio is not as low, the number of projects that would be cut according to the formula is reduced to avoid reaching the left extreme. In our case, since the hit ratio was 11 percent and the number of open projects (opportunities) was 250, if we would have followed this formula we would have cut practically the same number of projects as our intuition guided us to do.8

First guideline: Choke (and even freeze/cut) the number of open opportunities each sales division has in the funnel, and set it as the maximum number of opportunities a sales division can hold in the funnel.

What about limiting opportunities on the salesperson level? How are we going to make sure most of the opportunities for a given division do not fall on the shoulders of a few sales-people, leading to bad multitasking? The pragmatic answer for our company was that until we see there is a problem that calls for a policy, each director determines when a salesperson is handling too many opportunities, and then opportunities should be handed over from one salesperson to another. Our sales measurements and incentives needed to be adjusted to allow this to happen.

Local Efficiencies Must Be Abolished

Let’s now turn to the third concept of supply chain: “Local efficiencies must be abolished.” First, let’s understand it. One of the major enemies of flow is “local efficiencies”—the perception that any point in the chain must work as much as possible. In essence, it corresponds to the erroneous view that encourages measuring the load (number of opportunities) of the funnel instead of measuring the output of the funnel. Examples of local efficiencies could be measurements like:

1. Number of sales calls/opportunities each salesperson has—the more the