| Recommended: If you want to learn more on this topic.. Unless you are willing to commit to a workshop with a TOC Expert, you cannot beat the educational material developed by Eli Goldratt, the originator of the Theory of Constraints. He is an amazing teacher. The 8 Videos in his Satellite Program are a best-buy for a company, intended for use by groups of employees. His provocative coverage of every industrial application of TOC challenges managers to think in new directions, and to recognize the sacred cows in their organization and their own thinking. The 16-CD Self Learning Program is extracted from the same material but intended for use by individuals on their own PCs, rather than groups. The TOC Insights is a new interactive PC-based tool for individuals. As a TOC Expert I thought they were too "cute" ... until I used them with clients. They proved to be highly effective learning tools for the 5 major applications, and the Distribution and Supply Chain solution is documented in detail here for the first time anywhere. |
Planned: a Monthly TOC EZine This EZine is intended to be 100% practical, offering tips, advice and illustrations of users' experiences with the different TOC applications. TOC Experts with practical suggestions to real problems encountered with clients will also contribute. The EZine will promote the use of TOC in combination with other technologies, for improved results. We will be taking subscriptions soon. |
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Methodical approach to constructing a major competitive edge at will Months or years for competitors to catch up Wins new business Enables price increases even in price-competitive markets |
Using Theory of Constraints to construct an offer that is simply too good for the market to refuse (aka Mafia Offer)
Capacity constraints can usually be elevated and broken with focused management, and if necessary, increased Operating Expense or capital investment.
But Market constraints – a lack of sales, or a margin-squeeze that erodes profits even if sales grow – are the constraints that companies often have the most difficulty in breaking. Throwing money at the problem through advertising rarely improves the situation. Simply increasing sales activity often fails to resolve the issue. Promotions can actually be a profit-killer. Across-the-board price cuts may be disastrous. What other options are there? The Theory of Constraints offers a unique approach.
Elevate the customer's perceived value of your offering
The TOC’s solution to this problem is extremely powerful, but is also one that generates skepticism until it is fully understood.
The Theory of Constraints approach is to make small changes in some elements of the total "package" that cause a customer to substantially elevate their perceived value of your product or service.
You might use this to win a new account, or a new market; or just to increase sales to existing customers. Or you can use the TOC solution to elevate customer’s or a prospect’s perceived value of your product or service to the point where they pay you more for your product than they previously paid you, and they pay you more for your product than they pay your competitors. And are delighted to do so.
This approach has become known as the "Unrefusable Offer" (or "Mafia Offer" when political correctness is not a concern). You offer a deal that is so good the customer cannot decline! Yet the deal is one that substantially improves your own bottom line … at the same time as it improves the customer’s bottom line.
How can this be possible?
With exceptions, many organizations value their products based on the internal "costs" of manufacturing the product, plus a profit margin. Again with exceptions, this is an absurd practice. (Think of someone being the sole provider of a glass of water to a man dying of thirst in a desert; what is the water worth? Just the cost of manufacture plus 25%? Of course not!)
It is widely acknowledged (even by companies that do set prices in this way) that the market actually sets the price. Most customers do not care what it costs a supplier to make the product. They care only that it meets their needs for a price that they consider reflects the value of the product to them. The Theory of Constraints solution feeds off this.
Going way beyond "Voice of the Customer" and Customer Questionnaires/Surveys
The TOC Thinking Processes can be used to systematically identify a customer’s deep-rooted core problem and then to identify relatively small changes in a supplier’s product or service that will relieve the symptoms of this core problem to some degree. The bigger the degree, the greater the perceived value of the product and service offered.
The process is not trivial – planning the customer’s buy-in and your own organization’s buy-in can be the most time-consuming elements of the process – but the potential rewards dwarf the investment of time and money in constructing the solution.
This process should not be confused with the superficial approach of asking customers what they want, then attempting to supply it. All too often, the outcome of these popular surveys and responses is an investment of time and money on new products or product "improvements" that make no significant difference to overall sales volumes, and no contribution to total profits of a product or product line.
The Theory of Constraints approach bears no resemblance to this "survey" approach. The TOC approach identifies the area of a core problem that is either so "impossible" to resolve that no one inside the customer organization even considers it a problem worth their attention; or, they see it simply as "the way things are." An alternative approach is to identify a problem that the customer perceives can only be relieved at an unacceptable level of expense or to identify a problem that is so deep-rooted that the organization barely recognizes that it exists, let alone that it can be dealt with.
An Unrefusable Offer has to have one more characteristic; that competitors will not immediately move to duplicate it. To accomplish this characteristic, the nature of the changes are typically Policy-related. Especially if the change calls for significant policy changes in several departments, these are far more difficult for a competitor to match than are changes in product form, function, or price; or changes in service. It takes competitors time to recognize, understand, and adapt to a very different way of thinking and working, by which time the Theory of Constraints organization has a second and third Unrefusable Offer in their hip pocket, waiting to be brought out when the competition gets too close.