Theory of Constraints Handbook - James Cox Iii [669]
The NAs of Step 2.2 (Goldratt, 2008b) are:
To rapidly achieve the VV it behooves the company to have the ability to win significant bonuses on many projects.
For many projects (and more so for sub-projects) there is almost no gain in early delivery. Still, for almost every environment there are large categories of projects (less so for sub-projects) in which early delivery brings substantial gains (sometimes the gains of early delivery dwarf the price of the project).
An example of a project that would result in substantial gains for early delivery is the opening of a retail store. The earlier it opens, the sooner revenues start coming in. The resulting strategy is, “On a considerable portion of the projects bonuses are gained.”
Comparison of RRR and Project S&T Trees
Note how similar the RRR and Project S&T trees are. The NA and strategy of Step 2.1 in each are essentially the same. The only difference is in the definition of reliability. The steps under 2.1 in Level 3 are essentially the same as well. The main difference is which logistical solution is implemented as described in the first step of Level 3. Step 2.2 is similar in that it focuses on achieving more income for faster delivery. In the RRR S&T tree, higher prices are charged based on whether the delivery is rapid or super rapid. In the Projects S&T tree, bonuses are paid based on how much earlier the project is completed.
Pay per Click S&T Tree
The Pay per Click (PPC) S&T tree is for companies that make products that clients use. Step 2.1 of the PPC S&T tree is focused on eliminating the risk to the client, while Step 2.2 is focused on eliminating the risk to the company that makes the products. The NA of Step 2.1 is, “When a good investment is regarded as too risky, eliminating the risk is a client’s significant need.” The resulting strategy is, “The company gains a decisive competitive edge in large markets by providing its equipment in a way that does not involve (almost) any risk for the client.” The titles of the four steps in Level 3 under Step 2.1 are: Market Segmentation, Market Offers Design, Pay-per-Click Selling, and Sales Funnel Management. The first two steps are focused on building the DCE, while the last two are focused on capitalizing on it.
The NA of Step 2.2 is, “Long-term profitability is not the only consideration. Additional investments and additional risks may bring a company to its knees in the short- and medium-term.” The resulting strategy is, “The additional investments needed for the PPC business are well within the capabilities of the company and the associated risks are small and manageable.” All of the steps under Step 2.2 in Level 3 are focused on sustaining the DCE. The first Level 3 step on the right side of the S&T tree is focused on implementing DBR/BM and CCPM to improve performance in the plant.
It is interesting to note that this S&T tree is the only generic VV S&T tree that does not include implementing a logistical solution of TOC on the left side of the S&T tree as the first step. Instead, it is the first step on the right side of the S&T tree.
Comparison of S&T Tree to Key Literature on Strategy10
Now that we understand more about S&T trees, we will compare this approach to the strategic planning approach that is described in the best-selling book, Blue Ocean Strategy (Kim and Mauborgne, 2005). The authors point out that most companies are like fish that live in red oceans. It is red from the blood