A healthy diet for a healthy organisation
Often we find that the poor performance of the company is attributed to the poor efficiency of its employees, however, most of the times it’s the policy that falls short on building a robust framework in assisting the employees. Mr. Ravi Gilani, Founder & Managing Consultant of Goldratt India, is a certified expert of Theory of Constraints International Certification Organization (TOCICO). He is also one of the most sought-after business consultants in India and has provided his expertise to Indian and transnational organizations such as L&T, Godrej & Boyce, Alstom, Dalmia Cement, OCLEicher, Ringplus Aqua and much more to overcome the impediments in their growth. He also served as a board member of TOCICO from 2005-2008 and 2013-2016.
With his rich experience in the industry and Theory of Constraints, he states the evaluation performance, which is in parts instead of the whole performance evaluating system as one of reasons for poor performance in productivity, diving deep into his theory he says, “Many times when I am asked to help improve worker productivity, I refuse point blank. How about improving the productivity of leadership? But how shall we measure the productivity of CEO / MD / owner & their direct reports?”, the main flaw lied in the Key Result Areas performance measurement system which is totally flawed. The notion that the company performance is the sum total of the part performance is the myth, the reality lies in controlling the performance of the weakest link- the constraint. In the majority of the cases, it is found that this constraint is one among the top management of the company.
TOC does not focus on increasing sales but on increasing the throughput which is the net sales minus the totally variable cost that is the cost that the company will save if it produces and sells one unit less. Recollecting the one such client's astonishments and narrating her words, “One of my clients in consumer durable business, it was selling some products below its totally variable cost i.e. negative contribution! Ostensibly this was being done to protect market share! Once TOC concepts were implemented, it doubled its profits with 6 months without adding any capital equipment or manpower. I was asked by one of the top decision makers-“We have not done anything new. Then why our profits have doubled? My response was- Madam, there are two ways to become healthy. One is to eat the right food, do some exercises, meditation etc. The other one stops eating junk food! Stopping wrong things are far more important than doing right things!”
The reasons for constraint begin in education system itself where Jugaad is the ultimate solution to all the problems and students are yet unaware of the life they would lead to the highly reliable performance environment. The current way to tackle this situation is by breaking the systems in sub-systems and optimizing these sub-systems. The optimization of these sub-systems that will power up the system as a whole is one of the major fundamentals of TOC. Mr. Ravi believes, “TOC will become the main way of managing systems only when a certain number of organizations start acknowledging the contribution of TOC in their growth.”
Many Indian SME’s face multiple cash constraints and untimely delivery which hampers the growth of the organizations. Mr. Ravi explains that expansion and increase in sales without assessment are the focus resulting in cash constraints in the right areas instead of improving throughput. The solution to the same is also given out by him, he says "My recipe for overcoming cash constraint is first for the decision makers to accept that they are facing cash constraint. The next step is to start monitoring cash flow instead of sales, market share, profit etc. All actions must be decided to keep in mind the cash flow in the immediate short term.”
TOC recommends the increase in the throughput and reduction in the operating expenses, most companies that follow TOC are able to increase their throughput by 30-35% in 1 year with minimal or no increase in operational costs. Mr. Ravi also suggests measuring throughput, OTIF, and free cash flow weekly for the quantum increase in making more money.
TOC has been implemented in multiple sectors across India including steel, power, engineering, pharmaceuticals, consumer durables, packaging, electrical equipment, garments, textile, cement, retail, etc. Though India was late in adopting the concept, India has the largest number of TOC implementers as of today, “Goldratt India (earlier Time n Cash) has focused in improving cash, profit, and sales for the manufacturing sector. It has collaborated with all sizes of organizations be it a very small organization with a turnover of less than Rs. 10 crores as well as a very large organization having sales of over Rs. 10,000 crores.”