Demystifying wealth creation - Eli Goldratt WAY

India has been a developing country for a very long time. Per capita GDP is currently at $2,199 (nominal; 2019 est.) $8,484 (PPP; 2019 est.) ranked 142nd (nominal; 2018) 119th (PPP; 2018), from Economy of India - Wikipedia. We are poor and the average age of the population is quite low. India has more than 50% of its population below the age of 25 and more than 65% below the age of 35. It is expected that, in 2020, the average age of an Indian will be 29 years. Although young, the aspirations are very high.

Unless the per capita GDP is increased rapidly we would have young, restless and frustrated population to cope with.

If we wish to see this scenario change rapidly, then we need to find a WAY to demystify wealth creation. We need to find a WAY to increase productivity of Indian enterprises by orders of magnitude.

We can have an agreement on one principle. Legitimate and legal wealth creation is an outcome of production. More production (which is consumed in market) for same investment and same operating expense would mean more wealth. In other words, higher profit and profitability for enterprises across board would mean more money available to be spread around in terms of paying wages, buying services as well as investment in more productive capacities. This can be converted into a virtuous cycle. More intensely this cycle operates, more wealth can be generated!

Wealth needs to be generated fast and in copious amounts before it can be distributed.

India has 1000s of enterprises in SME category. They occupy a vital space in Indian economy in wealth generation, employment and producing goods and services used domestically and exported. However, the Entrepreneur, who lays the foundation stone of these entities, is ill equipped to grow their businesses productively. This results in great loss to the economy. 

Statistics about SME start-ups

• 80% do not survive 5 years
• 80% of remaining do not survive 10 years
• Surviving 4% struggle to exist.

There is lot of focus, verging on the level of obsession, on “start-up” but hardly any fundamental thinking on why the above statistics prevails and how this could be averted.

SMEs are involved in production and supply of both physical goods and services. For a moment if we consider their involvement only for physical goods productions, we observe that the operations that they run are quite inefficient and costly. Lot of money is locked in inventory and receivables. The reasons could be many, including inability to attract and retain talent who can create systems to manage and improve productivity. SME Entrepreneur is stuck in a vicious cycle where in the entrepreneur's time is spent mostly on fire-fighting. S/He has little time to spend on forward planning and improving systems. SME keeps on bleeding and the profitability is low. This leaves very little money in hand to pay competitive compensation to attract and retain talent.

There is a 'personal' cost that entrepreneurs pay in the form of disturbed work-life balance, indebtedness to the banks and creditors. This creates an environment of thinking on "local optima". What is in it for me? Zero sum thinking kicks in - in order to win, someone must lose.

The worst effect of current "Local Optima" driven business thought process is borne by SMEs themselves. Every input that an SME Entrepreneur gets from business books, journals, academia, consultants is tinged with "Local Optima" thinking. This is like administering poison instead of medicine to a struggling, unwell entity. This has an impact on Indian Economy and hence it touches all of us now as well as in future (Including our kids).

Any good solution that we examine must meet following criteria

• A quick implementation of solutions that remove the cause of current fire-fighting.
• There is no further risk by infusing new capital
• The existing team is able to learn and able to assimilate new way of doing things with some external help
• The solution is stable
• A decisive competitive edge is created to sustain growth

Imagine the scale of wealth generation when 1000s of enterprises get to know this WAY.

Dr. Eliyahu Goldratt, renowned author of "The Goal", used to espouse a concept of Viable Vision, wherein, he claimed that it is possible to convert top-line into bottom-line in 4 years for most of the for-profit organizations without significant increase in investment and operating expenses.

This was a bold assertion, but it was not just theory, many organizations have experienced it. The concepts that Dr. Goldratt recommended can be used in Indian context to facilitate rapid growth of SMEs which have survived for more than a decade, without seeking additional investment or significant increase in operating expense or in other words facilitating a journey of “Chaos to Success”.

Each SME entity has unique challenges and there is no one-size-fits-all solution. Any entity which has survived for more than 10 years has most of the pieces of jig-saw puzzle in place. But the Entrepreneur is not trained to envision and implement a growth strategy on their own. They are very good at technology of the solution that their company provides to the market but not at building and sustaining an organisation equipped with systems and process that can support their vision.

Each SME entrepreneur involved in manufacturing has to visualize the big picture. The big picture that every one can relate is that of FLOW. Flow of material from mines / refineries / farms to market. Each enterprise is small segment of this continuous flow that takes place because of pull created by end-user consumption. Each entrepreneur has to create conditions so that more flow happens through not only their enterprise but also through the supply chain that they are part of. The principles of flow as practiced by manufacturing greats like Henry Ford and Taiichi Ohna are as follows:

• Improving flow (or equivalently lead time) is a primary objective of operations.
• This primary objective should be translated into a practical mechanism that guides the operation when not to produce (prevents overproduction).
• Local efficiencies must be abolished.
• A focusing process to balance flow must be in place.

Its all about flow!

Dr. Goldratt has created a huge body of knowledge (Theory of Constraints) that guides leaders to follow a disciplined process of ongoing improvement. There are logical step by step methods to create conditions to achieve higher and smoother flow through the enterprise on an ongoing basis.

Following method will uncover the entrepreneurial opportunity in reinvigorating existing SMEs who have survived for more than a decade due to sheer grit and staying power of an entrepreneur but are struggling none-the-less.

Using analogy of solving a jigsaw puzzle, Goldratt’s concepts can be applied for real-life scenarios for Designing the new organization reality of the SME.

A repeatable method of solving a rectangular jigsaw puzzle involves following smart steps:

1.     Identify the corner pieces, four in number, which can be spotted from the whole mass of puzzle pieces.

2.    Identify the edge pieces, number depending on the size of the puzzle (for a 10 X 10, there will be 4X8=32 edge pieces).

3.    Using the above 36 pieces create a frame for solving the puzzle.

4.    Once the outer frame is ready, inner pieces can be added by trial and error to complete the picture.

The proposed outcome of the above intervention is realization of explosive growth and stability simultaneously for the SME. The methodology also creates a road-map for next 4 quarters for investment in capacity and capability so that the growth becomes sustainable.

The four corners:

1. What and how of a Decisive Competitive Edge that an SME can aim for, by exploiting the unmet needs of the market. These are nothing but chronic complaints that the customers have from suppliers like your SME.
2. Align the Order Execution Process to BULD capability to support unrefusable (Mafia) offer decided in the above exercise.
3. Align the marketing and sales effort to CAPITALIZE on the above capability.
4. Align the investment decisions to support and SUSTAIN increased business that would flow into the company as a logical outcome of the above 3 steps

The Edges

1. Align the measurements, rewards and recognition system for employees and other stake-holders to participate in the Chaos to Success journey in a positive manner.
2. Gear up the enterprise IT system to facilitate day to day planning and execution as well as provide timely information to support tactical and strategic decisions.

TOC (Theory of Constraints) has been classified as a Continuous Improvement Methodology. 

The concepts can be used for Design Thinking for Organization Design very effectively.

It would aim at using logical thinking processes and will equip Entrepreneur to

• Do more with less in less time.
• Release capital stuck in non-moving inventory and receivables.
• Make smart investment decisions...Exploit before Elevate.
• Generate capital to plough back in achieving scale
• Improve quality and cost competitiveness.
• Foster harmony among disparate stakeholders on firm and stable Win-win platform.

It is possible to usher in a productivity revolution in Indian economy along the lines of Green revolution and White revolution that India experienced with collaborative and cooperative efforts of many people to achieve a common Goal. This can generate enormous amount of wealth that can be used to reinvest to make Indian economy healthier.

What do you think?

We at Yagna (www.yagnaworld.com), believe that this a YAGNA needs to be conducted.

We need to offer our sacrifice (Ahuti)

• The urge to hold steadfast "I Know"
• The urge to believe "People are bad"
• The urge to pursue zero-sum game or compromise in a conflict
• The urge to romanticize complex solutions
• The tendency to settle for small wins