Theory of Constraints TOC Talent Management Part 1

The theory of constraints (TOC) is an overall management philosophy introduced by Eliyahu M. Goldratt in his book, The Goal, published in 1984. According to him, , constraints are usually external in nature;   Physical [Equipment, Material Shortage, Lack of People, Lack of Space], Policy [Government Regulations, Company Procedures, Union Contracts], Paradigm [Organizational beliefs and culture], and Market [when production capacity increases sales, etc.],  that can be fixed  using FIVE focusing steps  – Identify the constraint, Exploit the constraint, Subordinate and synchronize to the constraint, Evaluate the performance of the constraint and Repeat the process. Consequently, the theory of constraints can be used to improve the efficiency of organizational operations, project management, supply-chain and logistics, high-speed automated production lines, marketing and sales, and finance and accounting. However, even best of the processes cannot work if employees are not skilled or competent or the right fit for the job or are not motivated. Hence, the theory of constraint works effectively well in Talent Management too, such as performance management, recruitment, employee retention, etc. In his book, “What got you here won’t take you there”, Marshall Goldsmith has explained how human habits, behaviors, and beliefs can be constraints and can limit their performance and growth. He highlighted 21 behavioral constraints which can be eliminated through coaching using FIVE focusing steps as explained by Goldratt. In this article, I will be explaining how I am using TOC in Talent Management and helping leaders, managers and high potential employees in eliminating constraints that are limiting their individual and team performance.   

  

Since 2007, I have been helping organizations, initially as a part of internal HR Team and later as a Management Consultant, in improving performances of their employees and teams, more often, the performance of sales team.  Earlier, when I was working as a part of HR team in an organization,  I used to get recommendations from reporting managers to terminate the employment of random employees based on poor performances. An investigation into the case would often suggest that the cause of poor performance was not a real constraint. As a management consultant, it is my responsibility to find a right performance constraint, whether in an individual, or a team and sometimes in an organization and fix it, just like an automobile mechanic.   

According to my experience, potential performance constraints are as follows:

1.    Poorly defined role – competency match [Job Description]

2.    Unclear objectives and performance parameters

3.    Inadequate communication within the organization

4.    Poorly designed performance management system [KRA’s, Definition of Good Performance, Rewards, etc]

5.    Lack of resources and authority to get things done

6.    Poor and conflicting working conditions

7.    Inadequate performance of subordinates or managers

In addition to  above mentioned constraints, career aspirations of employees, their motives and motivations, poorly defined priorities and family life of employees also work as performance constraints [for e.g. An employee going through a divorce and a fight over the custody of his children won’t be able to give 100% to his work].  As a Management Consultant, someone who is helping others to improve their performance, it becomes paramount for me to identify the performance bottleneck and eliminate it from the way, and restore the flow

Khoury’s Performance Equation has summarized it beautifully –

Performance = [(D + A)/O]*Motivation

Where,

D = Degree of Quality and Direction [Knowing what to do, Objectives, Goal, Clear definition of Outstanding and Unacceptable Performance]

A = Ability of an individual [Knowledge, Skills, Competencies, and Right fitment into the role]

O = Obstacles/Opportunities [Lack of resources, Poor Processes, Lack of Authority, etc.]

M = Motivation [Career Path, Future, Family, etc.]

Which means a highly skilled and motivated person won’t be able to perform optimally if he doesn’t have properly defined parameters. Similarly, an employee working in an environment that drives performance and has right system and processes in place won’t be able to perform if he is not a right fit for the role or if he is not motivated enough. 

For me, cases of “D” and “O” come under Consulting Assignments and “A” and “M” come under Coaching Assignments.

Tools to Identify and recognize bottlenecks

To find the bottleneck, whether at organizational level or at the team or an individual level, I use several tools, such as – Problem Specification, Present State / Desired State Technique, Process Mapping, Backward Process Mapping, Scenario Thinking, Fishbone Diagram, Systems Analysis, Psychometric Assessments and 360-degree feedback.  Let me explain these techniques in brief.

Problem Specification – It helps in collecting specifics and appropriate data for defining a problem statement that clearly indicates the link between an undesirable “as is” situation and the desired “should be” situation.

Present State/Desired State Technique – This technique helps us identify where we are and where we want to go so that an appropriate path can be found to reach the desired objective. It also helps us to know whether the solution goals (desired state) are consistent with our needs (present state).

Fishbone Diagram – An Ishikawa Diagram, or the fishbone diagram, because of its unique shape, is a way to visually organize and examine all factors that may influence a given situation by identifying all possible causes that produce an effect.

Process Mapping – This identifies and maps all cross-functional processes, organizations metrics, and estimated processing time. It ensures a systematic understanding of the “as is” situation and improvement process.

Backward Process Mapping – BPM is a method of solving a problem by assuming and imagining that your problem is solved and then working backward. While conventional thinking urges us to think forward, one step at a time from a beginning point, the working backward method encourages us to move from an imaginary ideal solution and then think backward to the beginning point.

Scenario Thinking – Action learning teams are frequently used to explore the roots of an issue or problem confronting an organization. One of the tools often deployed in such situations, and which has applicability to case-based learning, is scenario thinking and planning. Unlike traditional 

forecasting methods, the attempt to predict trends and exert management control over uncertainty, scenario thinking and planning embraces uncertainty and engages in processes of prospective thinking about alternative possibilities. The purpose of scenarios is not to produce predictions or to enhance planning, but to change the mindset of people who develop and use them.

Systems Thinking – It is a framework to observe interrelationships and study patterns of change rather than static “snapshots”. Today, systems thinking is needed more than ever because we are becoming overwhelmed by complexity. Perhaps, for the first time in history, humankind has the capacity to create far more information than anyone can absorb, to foster far greater interdependency than anyone can manage, and to accelerate change faster than anyone’s ability to keep pace. Certainly, the scale of complexity is without precedent. Organizations are breaking down despite individual brilliance and innovative products because they are unable to pull their diverse functions and talents into a productive whole. The essence of Systems Thinking lies in a shift of mind – seeing interrelationships rather than linear cause-effect chains and seeing processes of change rather than snapshots.

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As a Principal Consultant, Sanjeev is credited with pioneering best practice HR systems and processes for clients. As a Talent Strategist, Sanjeev partners with organizations hiring managers to find, select, and hire top talent which provides a foundation for organization's future growth

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Be Careful While Hiring Through Reference

While hiring through references, we get TWO kinds of people –
Category #1 – X has worked with Y. X vouch for the knowledge, work commitment, trustworthiness and professionalism of Y. When X makes a career move, he refers Y to his new employers, as and when there arises a suitable opportunity OR X refers Y to his contacts when his employers start the process of restructuring or downsizing, which might result in job loss for Y.
Category #2 – X has NOT worked with Y. He has no idea about the knowledge, skills or work-ethics of Y. Y is either a distant relative of X OR Y has been referred to X by Z. X and Z are relatives/friends. None of them has worked with Y. They want to help Y, who is unable to find a job on his own. They want to do it to impress or to return a favor or to be in the good books of their distant relative or friend.
While Category #1 is highly recommended (it saves on recruitment cost and ensures employee engagement as well as retention); hiring by Category #2 is highly risky – uncertain and unstable.
I have done hiring through both kinds of references and let me share with you, hiring Category #2 kind of people is detrimental. It is being said that if you get a job and you don’t have the skills to do the job, take the job and then learn the skill. However, in most of the cases, I have seen, these employees neither have the skills nor have any inclination to learn. Most often they behave like son-in-laws of the organization. Honestly speaking, those who can't find jobs on their own are serious losers. And those who promote them obviously have hidden motives of their own.
Let me share one incident. Once there was a candidate being referred by our CFO. I was informed that one of his uncles had helped the organization in recovering over several million INR of sales tax from government authorities and hence was instructed to hire him. “But the candidate has very poor communication skills, cannot operate on MS Office and has very weak subject knowledge”, I told the CFO. “I will hire in my team and coach to develop the necessary capabilities”, the CFO said with confidence. We hired the candidate. FIVE months later, the CFO realized that the new employee could not be trained. He was unwilling to learn. Many managers in the team tried to coach him, but he was just not willing to learn. He was also told that if he won’t learn and do the required work, he would get terminated. The threat didn’t help. In fact, he was overheard, going around and telling others in the company that no one dared fire him because he had been referred by XYZ and he was related to our CFO. Two weeks later, we fired that employee before he could complete his probation period of SIX months.
I believe that had he focussed on his learnings and developing skills, he could have stayed and grown in the company. What are your thoughts?
Hiring through references of employees has always been seen as a great way to ensure employee retention and increase productivity at workplace. However, do not dilute your hiring processes to fit in a candidate referred by your senior, no matter how senior he has been.

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Compensation Versus Performance Who will win this battle

Once there was a concept of life-time job. People used to join one organization and would work there for rest of their life. They would grow with company. Loyalty and relation were given more preference than anything else. Performance, compensation, and growth were important but not as important as emotions and brotherhood. However, now things have changed. More so in last THREE decades. There seems to be a tussle, a kind of tug of war, between performance and compensation. Loyalty, emotions and relations appear like things of ancient time. For an employee, an employer is as good as his last increment; while for an employer, an employee is as good as his performance in last quarter. Both can replace one another at any time and as many times during their life. Who is going to win this war? Will there be any winner? It is difficult to say.

Employees don’t want to link their compensation and growth with their performance. Every year they expect certain percentage of increment. They must get promotion every couple of years. And this should not be linked to their performance. They have irrational comparisons of their compensation. They compare their salaries with their colleagues across functions and with their peers across industries. They are not willing to buy concepts of educational backgrounds, relevant experiences and size or revenue of organization.

Following factors can influence your compensation in an organization –

1. Relevant experience — Your total experience is irrelevant. What matters the most is your relevant experience in given role and industry type.
2. Education qualification and Grading of College/Institute — It matters a lot. There is basic qualification requirement for each role. Grading of college or institute implies the quality of training, grooming and knowledge you might have received and hence plays an important role. Same holds true for mode of education — full-time or distance learning.
3. Organization Type and Revenue of Organization — A start-up, matured and multi-national organization will follow different compensation structures. Revenue of company also plays an important role. One cannot compare compensation of one role in a 10 million USD company with a 100 million USD company. That is insanecomparison.
4. Internal Equity — There cannot be any comparison between same job titles in two different functions. For example, internal equity calls for same salary range for two sales managers in same city. However, one cannot compare salaries of Sales Manager with Production Manager.

On other hand, employers don’t want to talk about compensation and benefits in isolation. Growth and compensation must be linked with job responsibilities and accountabilities. Loyalty alone is not sufficient. Organizations require loyalty with consistent track of performance to help you grow. You cannot move to next level just because you have spent certain numbers of years in one position or role. In schools and colleges, getting 60% marks is considered as first class and getting above 75% is distinction. However, this is not true in corporate world. You must score at least 75% in your annual assessment to be considered for any increment. You must consistently score above 90% in your annual assessment for at least THREE years to be considered for promotion to next level in hierarchy. Irrespective of your score in annual assessment, as a standard industry practice, you shall be classified as High Performer, Average Performer and Low Performer in the ratio of 20:60:20, which eventually implies — Must Retain, Try to Retain and Let Go.

Following factors can influence your growth in an organization –

1. Career Planning and Competency Development — Employees are responsible for their own career planning as well as developing necessary skills and competencies required to move up the hierarchy. You know what you want in your life. You know what are your strengths, weaknesses and constraints. It is not the responsibility of an organization to plan or develop your career. Organization does arrange for development programs for employees, however, those programs are planned as per growth aspirations of the organization.
2. Job Descriptions and Skill requirement — Organizations shall prepare job descriptions and skill and requirements for each role. These shall be made available to employees for them to know where they stand in the organization and what they need to do to move up in the hierarchy.
3. Assessment Centre — There is a need to have assessment centres in organizations to assess readiness and competencies of employees required to move to next level in hierarchy. Nothing can be more painful than losing an employee to the market who was ready but not identified.
4. What are you looking for?– Employees shall be very clear about what they want. They must not look for right things at right places. Start-up companies provide an opportunity to create something large from scratch; while matured MNC’s gives an opportunity to expand your horizons. In start-up’s, financials are big constraints; while in matured MNC’s, bureaucracy can be a hurdle for your vertical growth. Final choice is yours.
5. Risk taking abilities — Relocation can be a big hurdle in your career growth. Organizations might give you the kind of growth that you need but you can squander that opportunity, if you are not willing to relocate. You must be willing to take risks.
6. Job Satisfaction — It is the responsibility of organization to give you clear job description, tool to perform your job efficiently and set non-discriminatory performance management system, however, it is not the responsibility to organization to satisfy you. Organization can help you live a good lifestyle based on your capabilities and performance but they can do nothing to satisfy your greed.

There seems to be this chicken and egg type of situation. Employees say, “Give us chance. Give us role and compensation and we will prove our abilities”. While the stand of organizations is, “Develop your skills and competencies. Prove your capabilities.Deserve it before you claim it. We will give you growth and development”. Bike cannot move forward while on stand. Similarly, you cannot move forward, if you will not improve capabilities and competencies.

Over the period of time, one thing that has become very clear that relationship development and wealth creation are two different things. Within relationships, there is a wide gap between personal (emotional) and professional relationships. One must understand, respect and appreciate difference between the two. No one does any business to develop personal relations with employees.

Compensation is nothing more than sequence of numbers and irrespective of what you get you will never be satisfied. On the other hand, performance can be described as continuous improvement towards excellence and hence, no matter what you do there will always be scope for improvement. I am not sure who will win the war of performance versus compensation but I have made an attempt to make conceptual clarification. Self-awareness and communication are two tools that can help bridge this gap.