case, it is necessary to organize comprehensive training for a commercial or operational director. If digitalization is the responsibility of the Business Director, it will be commercially calibrated and aimed at increasing sales, which means that it will generate additional resources rather than processes and introduce a conditional electronic workflow just because it is necessary (by the way, the EDO can really bring huge benefits and eliminate just internal chaos and costs).
Well, if you’re a top corporate manager with resources, it’s best to have a separate division led by a CDTO (Digital Transformation Manager), which will build the methodology of the system approach and act as a centre of expertise in digital technology, processes, project management, product development. The team should necessarily include: a process specialist / business analyst (better couple), a data specialist, system analyst/architect, an IS specialist (to this we will dedicate the next book), a portfolio manager (if you train the staff, one is enough, if not, the project manager to each unit). If you put them in different units, these people will have to build horizontal links and matrix interactions. And this is longer and suitable only for mature companies, with respect in communications. If the company is less mature, it will result in an increase in the time. A weak system requires centralized control.
Key, I strongly advise against giving the digitalization and digital transformation function to the Director of Information Technology. After all, a rather limited number of IT directors can engage in process re-engineering (which is the core of transformation), approaches to project implementation, product development, has a customer focus, including to the employees of their company. For them, such concepts as UX|UI design of solutions and processes are distant.
It is necessary to pay attention to the IT departments themselves – to describe their structure and processes. Otherwise, with the increase in the number of IT tools, they will stop coping. You will either have to inflate their numbers, and they will become less organized (people will not understand who is doing what, there will be no training and commissioning processes). And/or everything will work randomly, especially technical support. And this is a direct way to discredit digitalization.
As a result, the main advantage of working with business processes and organizational structure – the opportunity to abandon expensive professionals, including IT developers. You will be able to focus on the selection of analysts (business and system) and trainees, who will grow under your company, and who will be 2—3 times cheaper than experienced experts. At the same time, it will be easier to manage them. At the same time, it will be easier to manage them, and the return from IT is higher, the cost is lower. You will also be able to build your work with data: what data is generated by the company, what is needed, who and why, and work with data is key in all digitization and digital transformation.
Chapter 2. Systems limitation theory
The second tool I want to share, and without which it is impossible to do business, is Eliyahu Goldratt’s restrictive theory.
The essence of the theory is to find bottlenecks, system constraints and eliminate them, while increasing the performance of the entire system. This approach also warns of the danger of excessive productivity of one element, i.e., at times the overall success requires reducing the productivity of individual units.
To understand the principle of this tool, consider two practical examples.
Practical examples
Example one.
You need to increase the productivity of the factory, let’s say, on the production of metal doors. You can approach this issue in two ways:
– reducing internal costs and losses by organizing lean production;
– through modernization and technical re-equipment, i.e. there is by removing technological restrictions.
Suppose the arrangements had exhausted their potential. You’ve digitized and visualized your processes, eliminated all the losses, and then you’ve measured the performance of the units, and you’ve discovered that the system’s limitations are now the paint shop.
Then you went to the production manager, and he brought you a list of things to upgrade.
According to preliminary calculations, 200 million rubles are needed for the modernization of the workshop, which will lead to an increase in productivity by 40% and a reduction in the proportion of rejects by 80%. Together, this will increase total productivity by 60%.
You then visualized the flows in production, modeled all the scenarios depending on the product line, and found the system’s limitations inside the shop. Help in this lean production (circle Tahiti Ono, elimination of losses) and mathematical modeling.
As a result, you saw that you can invest only 10 million rubles, and the productivity of the shop will increase by 35%, and the share of rejects will decrease by the same 80%. The total productivity of the enterprise will grow by 53—55%.
This is the principle of system constraint theory.
The second practical example.
A business venture where sales are more than successful. But its limitation is production capacity: production does not have time to process and release all the orders taken, and raw materials are purchased for them. As a result, we get:
– the stock of raw materials and semi-finished products is being overloaded, and storage capacity needs to be increased. This increases the cost of rent or new construction, requires additional staff, also increases the risk of damage to raw materials;
– the raw material begins to be stored longer in stock, which leads to an increase in frozen working capital and future losses. Some of it will go into marriage.
All these are losses in terms of economical production. Additionally, in the language of economists, it is frozen circulating funds, which is also very unpleasant. In addition, there are other effects:
– cancellations of orders, which are reputational losses, risks of penalties, plus raw materials need to be sent to recycling or «perpetual storage» due to the inability to apply it to other orders;
– deterioration of the KPI sales department and managers, which leads to conflicts between departments;
– will start to appear «urgent» and important orders, which is already interference in the production cycle and even more reduced productivity with an avalanche effect;
– increased pressure from owners on production, a further deterioration of the climate and an increase in staff turnover.
As you can see, a huge number of losses are generated, which we will talk about in the next chapter. They lead to a «perfect storm» and crisis.
This example is taken from real life. The company changed 8 managers and 90% of the production staff for the year, there were risks of penalties of 20 million rubles. And the limitation here was in the managers. Yes, the restrictions are not always technological, we will consider a detailed list below.
As a result, it was necessary to reduce the productivity of the sales department, to restructure production processes, and then to develop commerce again.
In terms of digitalization, the system constraint theory will help us to understand where the digit is originally implemented. And this will allow you to quickly feel the effect for a little money, which in turn will remove resistance from the team and will increase the amount of finance available for further changes.
In transforming and increasing efficiency, it is not only changes and technologies that are important, but also the point of focus. Additionally, eventually, it will increase net profits.
If we go back to the instrument, there are five so-called «focus stages» in the constraint theory.
5 steps – the essence of the whole tool
Step