Theory of Constraints Handbook - James Cox Iii [672]
Kaplan and Norton’s (1996) Balanced Scorecard (BSC) is a tool they developed that is utilized to translate strategy into action. It was initially developed as a way to incorporate non-financial measures with financial measures. The BSC consists of a variety of performance measures that are divided into four categories: financial, customer, internal business processes, and innovation and learning. The process for designing the BSC for a company begins by writing the mission statement and then linking it to strategic business objectives. Next, performance measures are determined, which will be utilized to track progress on the strategic objectives. Johanson et al., (2006) point out that Kaplan and Norton think that “an effective strategic learning process requires a shared strategic framework that communicates the strategy and enables all participants to see how their individual activities contribute to overall strategy fulfillment.” This is what the S&T trees enable us to do.
The BSC has a large number of performance measures. We are aware that measures drive behaviors of people. The problem is that when there are a number of measures, it is likely that these measures are in conflict. In other words, an action taken that improves one measure hurts the performance on another. It is true that we need non-financial measures. That is why we have the three operational measures of T, I, and OE in TOC. We also know clearly what the priorities are for improving these measures when they are in conflict. In the S&T trees, there are few measures of performance. We have found from experience that when people understand what to do and how it is aligned with the goal, the right behaviors will result—assuming of course that we do not continue to use the wrong measures of performance, such as local efficiencies.12 In addition, we argue that it is important to set up a bonus structure that rewards all employees when key performance measures of the company are improved, such as NP.
Execution of the S&T Tree
The S&T tree is a powerful tool for communication and synchronization of the efforts within the organization to achieve the goal. It is easy to learn how to read an S&T tree. The S&T tree is presented to everyone in the company to some degree. Top management must validate the S&T tree to Level 3. The validation process consists of reviewing the S&T tree to verify that each assumption is a fact of life and to deal with all reservations of management. Those who will lead the implementation of the S&T tree validate the S&T tree to Level 4. Between the presentation of Level 3 and Level 4 is knowledge transfer of the key concepts of TOC aligned with the S&T tree to be able to validate fully the logic in the S&T tree. Everyone in the company will be exposed to at least the part of the S&T tree that directly relates to them. They will also understand how their actions support achieving the goal because the S&T tree must always be presented from Level 1 down. However, it is not necessary to present all of the content of the S&T tree to do this.
The usage of the CRT and ECs in companies led to the understanding of the impact of silo thinking (each function being managed in isolation without a clear understanding of its impact on other functions or the whole system) and the many conflicts that exist within an organization. We also understood how a conflict is addressed in one silo can have negative effects on other silos. The S&T tree successfully breaks all these conflicts and ensures that all of the actions are aligned with achieving the goal.
The benefits of using the S&T tree are:
The plan is effectively communicated to all stakeholders.
The full logic of the strategic plan is presented and validated by the stakeholders.
The probability of getting buy-in and collaboration of all the stakeholders increases significantly.
Each stakeholder understands how his or her actions are directly linked to achieving the goal.
Authority and responsibility are aligned.
Fast results are achieved