This Focused Performance Weblog started life as a "business management blog" containing links and commentary related primarily to organizational effectiveness with a "Theory of Constraints" perspective, but is in the process of evolving towards primary content on interactive and mobile marketing. Think of it as about Focusing marketing messages for enhanced Performance. If you are on an archive page, current postings are found here.
Saturday, April 18, 2009
Benefits of Change -- From Thinking Faster, an increasingly source of blogfodder for me, in a post on assessing costs and benefits, Jeffrey Phillips asks...
"How do you make sense of the 'benefits' side of the equation?"
Prior to Jeffrey's question in July, back in June, Jack Vinson wrote a good piece summarizing the TOC approach to assessing ROI...
The decision process should be simple:
* How much will throughput increase due to this change (throughput = sales - totally variable costs)?
* How much will actual costs change due to this change? (Note: saving a man-month doesn't count unless you plan on firing someone.)
* How much investment will we need to institute this change?
Things get complex when you start trying to allocate costs/savings/benefits to parts of the organization, be they departments or products. It's best to keep these questions at the organizational level, which is where any "bottom line" exists anyhow. Sure, the answers can be developed via bottom-up analysis of increases and decreases at the department or product level, but the answers themselves only mean anything at the organizational level.
The advantage of posing the questions in terms of throughput, operating costs and investment is that, unlike allocation schemes like traditional cost accounting and ABC analyses, these pieces can be simply added to arrive at the right answer, while the other methods muddy the water with weightings and other manipulations.
But I digress. The question on the table is about benefits. It's about what you can do with the results of the investment that you couldn't do before, and whether that new capability addresses some sort of constraint that's impeding you. From Jack...
Another way to look at this is to use Goldratt's idea that "technology is only beneficial if and only if it diminishes a limitation." I think the statement can be broadened to "an intervention is only beneficial if and only if it diminishes a limitation." Goldratt breaks this further into four questions:
1. What is the power of the technology?
2. What limitation(s) will it diminish?
3. What rules were followed because of the limitation?
4. What new rules should be followed now?
The first two questions are about identifying the real benefits, if any - the "why". The last two questions are about "what" needs to be replaced and "how" the new environment needs to be managed to maximize those benefits.
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