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However, the only way to check for sufficiency is through reality. Once all the actions have been taken, we will know if the actions were sufficient to achieve the desired objective. What we can present as an SA is guidance on what should be considered when reviewing the next level of the S&T tree as it connects to the level above. The way to read the connection is, The SA is the fact we should take into consideration when evaluating whether the group of steps below, the ones that directly connect with this step, are sufficient to achieve this step.

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Sufficiency Assumption (SA): The fact(s) of life that are common sense and commonly ignored, which if ignored will not result in all the steps below being sufficient to achieve the step above them.

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The Top of the VV S&T Trees

The top of the VV S&T trees, which is shown in Table 34-1, is the same for the five generic S&T trees that will be discussed in this chapter. The highest-level strategy of the S&T tree is: The Company is solidly on a POOGI. The next strategy in Level 1 of the S&T tree is that the VV is realized in four years or less. The VV target for the annual net profit (NP) in four years is set to be extraordinarily challenging based on current thinking in business. It is believed within TOC that four years is long enough to change the culture of the company if an extraordinarily challenging target is achieved. This can be validated as more and more companies achieve their VVs. Setting a high target of NP is consistent with the research of Collins and Porras (1994), which indicated that the visionary companies set “big hairy audacious goals.” This exponential level of growth needs to be achieved only with actions that all the stakeholders (such as shareholders and employees) of the company will agree with and support—ones that will also result in stability. This high NP target is shown to be realistic and achievable with the actions in the S&T tree and the understanding of how these actions will result in a much higher NP than previously thought achievable. For example, we can show through logic that a small increase in sales for a retailer does not increase NP at the same percentage of NP to sales ratio the retailer currently has, but rather that most, if not all, of the sales increase becomes NP because costs do not increase much, if at all.

TABLE 34-1 Top of the VV S&T trees (© E. M. Goldratt used by permission, all rights reserved. Source: Modified from E. M. Goldratt, 2008).

The next part of this step (Table 34-1) is the parallel assumptions (PAs)—these are facts of life. PAs present the logic that demonstrates that the strategy and tactic are in essence parallel to each other. An assumption is not considered a fact of life until the people in the company agree that it is currently a fact. We read each element of the S&T tree aloud to check its validity since hearing allows us to verify the logic using another part of our mind beyond seeing it with our eyes. The first PA is (read aloud): For the company to realize the VV, its T must grow (and continue to grow) much faster than OE. Throughput (T) is the rate at which the company generates goal units (i.e., the rate at which the company generates money through sales, which is equivalent to sales minus the totally variable costs [TVC], such as the cost of raw materials). In essence, this PA is stating that the company’s sales must grow and continue to grow much faster than costs. The term cost creates confusion because the word is used with different meanings.2 That is why cost has been defined in TOC. Investment (I) is the money tied up in the company, while Operating Expense (OE) is all the money the company spends to generate goal units (turn Investment into Throughput). Therefore, the cost to buy a machine is I, while the cost to run the machine is OE.

One more dollar in sales and one less dollar of costs have the same impact on NP. However, are changes in costs and sales really equivalent in the long run? The amount by which sales can increase is not intrinsically limited,