Theory of Constraints Handbook - James Cox Iii [420]
If new products and new markets are a risky proposition, why use innovation as your sole approach to increasing sales? And why would you take such a risky action if you could develop a Mafia Offer? The answer, of course, is you wouldn’t. Nevertheless, innovation is the only logical alternative if you are not aware of TOC or Mafia Offers.
I would say the same thing about price. Price reductions can also be copied very quickly and do not typically provide a sustainable advantage. Therefore, Mafia Offers are not solely based on price.
In addition, remember this list:
We have outstanding quality and it’s better than the competition.
We have a great reputation.
We get good results for our customers.
We have very knowledgeable, great employees with low turnover.
We’re very responsive.
We’re very innovative, helping our customers to …
You can trust us.
These are not the qualities of a Mafia Offer. Your competitors say the exact same thing. All good companies have these qualities or they wouldn’t be in business for long. A Mafia Offer is not a list of strengths, a cliché, subjective, or offered by the competition.
In the custom label company example:
The Mafia Offer was developed for a regular company with its existing products in its existing markets.
This company had no particular competitive advantage or innovation—no patent, no unique technology, the same equipment as competitors, and similar employees.
Yet, it was not based on a price reduction, not easy for the competition to follow, and so good that most customers would accept it readily.
Where to Start?
Should we improve operations or create a Mafia Offer first? We’ve done it both ways and either way works. But I like to start by developing the Mafia Offer. Once you have the offer, you know to what degree you need to improve operations.
More importantly, it gives you a reason to change. We have found that when we start with the offer, the client is more motivated to make the operational improvements. The operational improvements occur faster.
When we have worked with clients that have already implemented TOC in their operations, we often find that they have been giving away some or all of the improvements they’ve made. This is particularly true in cases where they had very bad DDP. They improve operations and then they give away the shorter lead times because they feel guilty about their past performance. Therefore, my recommendation is to create your Mafia Offer first, and then make the operational improvements necessary to deliver your offer.
However, before you make your offer there are some things you must do. Getting your operations in shape is paramount. The fastest way to kill a Mafia Offer is to not be able to deliver it. So, make sure you can deliver your offer by doing a couple of dry runs. Pretend that several of your orders or jobs are for your offer and see how you do. Alternatively, if you are going to guarantee a shipping date, determine how much you would be paying in penalties if every order were guaranteed.
Making sure your operation is ready for the offer is straightforward. However, you should also predict what could go wrong from both your perspective and your customers’ perspective. This will help you to determine if you’ve missed anything and to create some of the details of your offer.
This is not permission to create a bunch of small print (weasel words) for your offer. The objective is to predict negative branches and to trim them. When in doubt, do not add weasel words; instead favor your customers’ position.
Protecting yourself and looking out for your interests is what caused the negatives for your customer in the first place, so don’t back track. But at the same time, don’t put your entire business at risk.
Sustaining the Advantage and the Offer
Based on experience, a good Mafia Offer will give you years on the competition. The competition thinks