This paper on strategy was originally included as chapter 19 in the Theory of Constraints Handbook (2010) edited by Cox and Schleier. Originally, in that book, chapter 19 referred to the Intermediate Objectives (IO) Map. In 2011, I renamed that logic diagram to the Goal Tree (GT) as it more accurately reflects the purpose of the tool. This paper uses that updated name.
The Popular Conception of Strategy
Everybody talks about strategy…
“What’s your strategy for finding a job?”
“What’s our strategy for getting this project done on time?”
“What strategy can I use to get out of debt?”
“What’s our strategy for winning the next election?”
“What’s your strategy for getting your spouse to agree to our golf trip to Las Vegas?”
“What’s the strategy for turning around the slumping economy?”
“What’s our strategy for winning the game next Sunday?”
“What strategy should we use to introduce this new product to the market?”
“What strategy can bring peace to the region?”
“What’s your strategy for getting Nadine to go out on a date with you?”
From this list, it should be obvious that the word strategy is used in many different ways to connote a wide variety of meanings.
Strategy’s origin is military, dating back as far as the Chinese general, Sun Tzu in the fifth century BC. In modern times, its military aspect is most often associated with Clausewitz, Moltke, Liddell Hart, and, more recently, Boyd. Nearly all military definitions of strategy involve objectives, winning, application of resources, and execution of policy.
The commercial business community tends to see strategy almost exclusively in terms of marketing or finance. Michael Porter’s famous “low-cost leader versus differentiation” concept was the basis of his landmark book, Competitive Advantage, the virtual bible of business schools for many years. (Porter, 1985)
But such a narrow characterization ignores the applicability of strategy to other kinds of activities and organizations, such as government agencies and not-for-profit groups—systems that do little or no marketing and sales, or are not in business to generate a profit. Moreover, it fails to consider some of the personal, but no less valid, applications of the concept.
The underlying relationship is not between strategy and a particular type of organization; it’s between strategy and systems. Understanding the distinction frees the imagination from artificially imposed constraints on how, and for whom, strategy might be constructively employed.
The System Concept
It’s difficult for many people to think conceptually in terms of systems. It’s easier for them to pigeon-hole systems as “organizations,” either formal or informal. Yet, as Table 1 shows, the system concept goes well beyond organizations.
Security (Law enforcement; military)
In its simplest incarnation, a system is made up of inputs, a process of some kind, outputs, and the environment in which these components exist. (See Figure 19.1)
Any system interacts with other similar (or dissimilar) systems that co-exist in the same environment, and with elements of the external environment itself. Some of these other systems might include suppliers, customers, regulatory bodies, special interest groups, competitors, societal groups, educational institutions, etc. The interactions among systems—or lack thereof—are related to the nature of the system’s chosen functions and activities.
In view of the far-reaching nature of systems and their interactions with other systems and the environment, it would be myopic to consider the concept of strategy exclusively in terms of narrowly-defined organizations or departments such as marketing/sales or military operations. Moreover, while strategy can certainly be developed and deployed without any prior knowledge of the Theory of Constraints (TOC), a thorough familiarity with TOC concepts and principles, in addition to systems thinking, enhances the quality of any strategy subsequently developed. More needs and opportunities are likely to become visible.
A Vertical Hierarchy
Besides the “horizontal” conception of strategy across different types of organizations—commercial, not-for-profit, government agency—there’s a vertical perspective as well. This vertical aspect is related to system levels.
Systems are hierarchical. What usually occupies our attention is no more than one level of a larger system composed of multiple layers. An old rhyme characterizes the vertical relationship:
Big fleas have little fleas
Upon their backs to bit ‘em.
Little fleas have lesser fleas,
And so on, ad infinitum. [The Siphonaptera]
Military organizations differentiate among vertical system levels by using different terms, depending on the level under scrutiny. From lowest to highest, this taxonomy looks like Table 2.
Unified commands (multi-service)
The content of each of these terms decreases in “granularity” as one moves upward in the hierarchy. In other words, tactics are much more detailed, discrete, and narrowly focused than operations. Strategies are much more general and broad than operations, which themselves are more general than tactics.1
Non-military organizations don’t normally make these distinctions, although they could—and perhaps should. Complex systems or organizations experience significant interdependencies among their internal components, the external environment, and other systems.
A Common Denominator
If one accepts that the concept of strategy embodies both vertical and horizontal dimensions, a real need for a common definition of the term emerges. Whether one calls it strategy, operations, or tactics, it answers the same underlying question: how do we get from where we are to where we want to be? Or, expressed another way, how do we achieve what we’ve set out to do?
Turning this question into a useful definition that suits both the variety of organizational types and the multiplicity of system levels, a “common denominator” definition of strategy might be:
How systems or individuals go about closing the gap between a
current condition or position and a desired future state.
This definition is sufficiently inclusive to account for systems with multiple layers as well as different kinds of systems. It’s not confined to military systems alone, nor is it exclusively centered on marketing or finance. Rather, it addresses both means (how) and ends (future state), regardless of the type or complexity of the system.
A Whole-System View
Means and ends don’t exist in isolation. Every system having means and ends operates in some kind of environment. The nature of the environment—its economic, social, political, and technical characteristics—defines and delimits the resources and range of options a system can exercise in executing its strategy.
The relationship between a system and its environment naturally implies decisions about how to employ available resources in pursuit of the system’s ends—in other words, in executing strategy. In the modern world, neither the environment nor resource availability remains stable for long. The external environment is subject to a wide variety of variables, too. Consider, for example, the extreme fluctuations in international oil prices, the collapse of the U.S. sub-prime mortgage sector, and the failure of huge commercial banks. For most systems—commercial, government agency, or not-for-profit—such external factors, predictable and unpredictable alike, change their respective playing field in dramatic and uncontrollable ways. Such turbulence continually generates situations requiring choices (decisions), any of which can affect outcomes or ends.
It’s almost impossible—certainly impractical—to predict changes in the external environment with any confidence. The same might be true for the availability of resources. It is likewise impractical to preplan for an indeterminate number of contingencies that might happen. Such unpredictability drives a need for rapid, effective decisions, or reactions, during the execution of strategy—perhaps even the revision or replacement of the entire strategy. The point is that in the modern world, strategy can never be static. It’s inextricably linked to execution, and it must be continually reevaluated against the evolving conditions of an ever-changing environment.
The OODA Loop
Perhaps the most influential development in the art of decision-making in the past 30 years is the OODA loop. (See Figure 19.2, next page) The name is an acronym for observe, orient, decide, and act. But the OODA loop is considerably more robust than the mere sequential execution of the four steps the name implies.
In much the same way that the Five Focusing Steps guide the management of system constraints in constraint theory (Goldratt, 1990), the OODA loop is a routine that facilitates rapid, effective decisions at all levels—tactical, operational, or strategic—of any kind of system, whether commercial, government agency, or not-for-profit.
The OODA loop is the conceptual brainchild of John R. Boyd, a U.S. Air Force colonel (1927-1997) who synthesized it from his personal experiences in air-to-air combat, energy-maneuverability theory, policy “battles” in the Pentagon, and extensive research into military history, strategy, and science. But Boyd’s synthesis resulted in far more than the OODA loop alone, which is merely the most visible part of a larger system-level perspective on adjusting and evolving in an ever-changing world. [Coram, Hammond, Richards, Osinga, Safranski]
How does the OODA loop facilitate the development and deployment of strategy?
Strategy as a Journey
If one accepts the concept of strategy as summarized in Figure 19.3, a robust approach to decision making can mean the difference between success and failure in a rapidly changing environment. The first three stages of the OODA loop—observe, orient, and decide—are essential to the creation of strategy in the first place. The last stage—act—clearly applies to deployment of strategy. But it’s called a “loop” for a reason: the first three stages also provide the means to detect and respond to the environmental changes that could rapidly render a strategy invalid.
Many companies use an annual strategic planning cycle, meaning that they have a predetermined yearly schedule for reviewing and updating their strategic plans. In other words, they set their strategy for at least a year then don’t formally revisit it until the same time, next year. But how responsive is that practice to surprise, catastrophic events? How well would such a practice have served the commercial airlines after September 11, 2001, or commercial industries that depend on bank financing after September 2008? If strategy directs a journey from the current state to some desired future state, it’s critical for it to be flexible enough to react immediately to such unexpected surprises. If you were navigating a ship across the ocean and discovered that you had been blown seriously off course, would you wait until the next strategic planning cycle to take corrective action? What if, for some reason, the destination had changed, even without a storm to blow you off course? Would you delay in any way resetting your direction? If not, why would anyone with responsibility for guiding organizations behave any differently?
Orientation and Observation
According to Boyd, the orient step is the most critical of all, despite the fact that it appears second in the sequence. [Safranski, 2008] That’s one reason why he made it more prominent (see Figure 19.2) than any of the other steps. The orient step is the amalgamation or synthesis of the sum of our knowledge about ourselves, our system, values, customs, culture, and experiences (heritage), and the environment. [Osinga, 2007] One might oversimplify by saying that our orientation represents our world view, hard won and tightly held. It’s the lens through which we filter sensory inputs of things happening around us, or in other words, the observations we make in real time.2
The orientation step is the one in which a divergence from our expectations is detected. Part of our orientation is the paradigm [Kuhn, 1962] we live in, the view of the world we create for ourselves based on the factors previously mentioned. These factors all conspire to form our assumptions about the way we think things happen (or should happen). When we observe phenomena or events that don’t fit into our orientation, we have what Boyd referred to as a mismatch. The existence of this mismatch is determined when we analyze and synthesize our observations with the basis of our orientation or paradigm. In other words, we examine what is happening in light of what we expect should be happening. This continual analysis-synthesis process is an integral part of maintaining a robust current orientation.
How does observation happen? Sometimes, as in the case of 9/11 or the sub-prime mortgage meltdown, events are thrust upon us in ways that we can’t ignore. But really sharp system leaders actively look for changes in the environment and evaluating what effect their observations might have on their orientation—in other words, what mismatches might be emerging. The more this active observation is practiced—and the observations synthesized—the more sensitive one eventually becomes to small changes, which may be indicators of more dramatic changes yet to come. This has relevance to competitive advantage, which will be discussed in more detail shortly.
As Figure 19.2 indicates, observations include new outside information, such as research or technology breakthroughs. Unfolding circumstances include the entry of new competitors into the market, new laws or regulations, or world events such as skyrocketing crude oil prices, increased activity of Somali pirates in the Indian Ocean, financial chaos in one sector of the economy, or other international geopolitical developments. Unfolding action with the environment refers specifically to the environmental effects of actions the system might take—the other side of the equation from the impact of environmental changes on the system. Implicit guidance and control (at the top-left in Figure 19.2) represents the changes in a system leader’s observations based on the synthesis of new information, even before decisions or action are contemplated.
Decision and Action
Completion of the orientation step implies that a mismatch or gap between reality and expectations has been identified. The next step would seem to be to decide what to do about it. The decision step in the OODA loop may be deliberate or intuitive. In complex situations, when the decision maker isn’t intimately familiar with the environment or the possible options, this step is likely to require deliberation: “We know that things are not the way they should be—now what should we do about it?” A more formal or structured decision process might ensue.
However, if one’s knowledge of the system and its environment is comprehensive (usually born of deep experience), it may be intuitively obvious what needs to be done. In this case, decision makers often proceed directly to action. This is reflected in the upper-right part of Figure 19.2 (implicit guidance and control).
Even if decision making is more deliberate, available options are often logically tested—that is, compared to reality and their potential outcomes assessed—before proceeding to the action stage. This “hypothesis testing” is reflected in Figure 19.2 in the feedback loop between “Decisions” and “Observations.” The purpose of this testing is to help reduce the impact of uncertainty on a decision among several options.
Inevitably, however, even with the hypothesis-testing feedback loop, the ultimate end of the OODA process is an action of some kind. And because action inevitably influences the environment in some way—after all, that was its purpose in the first place—the process begins all over again with observing to assess the action’s impact. This in turn begets a second iteration of the orientation step to determine how much impact the action had, whether it changed reality in the desired direction, and by how much. The size of the mismatch that results from this second orientation leads to another decision and subsequent action. And the process continues until the ultimate goal of the system is attained.
“Pro-acting” Rather than Reacting
Superficially, it might seem that the OODA loop is reactive. However, Boyd’s contention was that controlling an emerging situation was far preferable than reacting. Consequently, his prescription for using the OODA loop was anything but passive. He was highly motivated to “stir the pot” —to use the OODA process to create mismatches, especially in the perception of adversaries. In this respect, he recommended being pro-active, rather than reactive.
But rational decision making and action depends on a conscious awareness of these four steps: observe, orient, decide, and act. In reality, most people actually do something like this, but they do it unconsciously or intuitively. They’re usually unaware that they’re doing it, which means that they are less likely to “keep the pressure on.” Without consciousness about the OODA process, like the fabled hare, they’re likely to take a nap alongside the road while a tortoise passes them by.
Fast OODA Loop Cycles
Boyd went even further with the pro-active OODA concept. He contended that if one could cycle through these four steps faster than one’s adversary, a competitive advantage would begin to open up. The non-OODA practitioner would always be at least one cycle behind the OODA user. Moreover, if the OODA user could somehow complete two or more cycles in the time the adversary took to finish one, it would sow confusion in the opponent’s camp. In battle (the context for which Boyd created the OODA loop), this ultimately results in panic, knee-jerk (wrong) reactions, and eventual collapse of the opponent.
The effect is not materially different in business settings. Witness, for example, the introduction of high-technology innovations by the Japanese for nearly two decades. It was commonly recognized that while the world’s markets were enamored of their latest, greatest product introduction (first the Walkman, then CDs, then digital cameras, then compact video devices, then DVDs and MP3 players, etc.), the Japanese were hard at work on the “next big thing.” The rest of the world was always at least one step behind.
Boyd himself provided the original, quintessential example of the fast-cycle OODA loop. As a U.S. Air Force fighter weapons instructor in the 1950s, he made a standing offer to any and all pilots: He would beat his opponent in forty seconds or pay them forty dollars. In eight years, no one was ever able to collect the forty dollars. [Coram, 2002] The reason was that he was always able to execute what amounted to a near-instantaneous OODA cycle faster than any of his opponents could.3
Let’s quickly review what we’ve just covered.
• The OODA loop describes a process of observing, synthesizing those observations orientation), deciding what to do as a result of the synthesis, and acting on that decision.
• Although all systems go through this OODA process, most are completely oblivious to the fact that they’re doing it.
• The OODA loop was originally conceived as a way of mentally managing combat engagements to achieve victory, but its applicability in the development and deployment of strategy has yet to be fully realized.
• The OODA loop appears, on the surface, to be reactive to changes in the environment; however, a deft practitioner can use it proactively to shape the environment or competitive arena to his or her own advantage.
• The ability to cycle through the OODA loop multiple times while others do so only once can provide an insurmountable competitive advantage.
Armed with this knowledge of systems and the OODA loop, leaders can enjoy a substantive potential advantage over others (and the environment) in achieving their systems’ goals. But this advantage remains exclusively potential without discrete tools with which to execute the OODA loop.
The Logical Thinking Process
Concepts such as the OODA loop are eminently useful but sometimes difficult to translate to practical application without some kind of tool to bridge the gap between the conceptual and the practical. Fortunately, the appropriate tool for applying the OODA loop strategically is readily available: The Logical Thinking Process (LTP).4
The LTP is an outgrowth of the evolution of the Theory of Constraints (TOC). Originally conceived as a production scheduling and management methodology called “drum-buffer-rope” (Goldratt, 1990), in the late 1980s and early 1990s TOC outgrew its former production-oriented boundaries and spread into the broader category of systems. One of the first such forays was the thinking process. When it became obvious that resolving production bottlenecks alone didn’t always produce more successful companies, Goldratt needed another solution. He conceived the thinking process to address the application of his Five Focusing Steps (Goldratt, 1990) when system-level constraints were not production bottlenecks—when the factor limiting overall system success lay in non-production areas.
This was a critical breakthrough, because it raised the whole idea of constraint theory to a system concept, rather than just being a production methodology alone. The thinking process afforded a means to examine systems of any kind, not just production companies, and identify the one factor limiting the system the most in its mission to achieve its goal.
Originally composed of five logic trees or tools,5 the thinking process represented a simple application of the scientific method to the challenge of complex system problem solving: what’s the problem (what to change), what to do about it (what to change to), and how to do it (make the change happen)? For the first time, the thinking process offered a concise, direct way to logically analyze whole systems composed of myriad complex interactions and do so rapidly. Moreover, it also allowed for “hypothesis testing” without extensive real-world experimentation to verify the validity of proposed changes. And what it also did that no other problem-solving methodology did was to include a solution implementation “module” —the prerequisite and transition trees. In other words, a complete package. Figure 19.4 illustrates the conceptual flow of the thinking process as originally conceived by Goldratt.
Over the intervening years since Goldratt introduced the thinking process, the trees and their application have evolved and been refined. Although the process was originally intended to solve complex problems by identifying system constraints and facilitating ways to break them, it was inevitable that other applications would emerge. One of these was the use of the thinking process for strategy development and deployment. (Dettmer, 2003) However, applying the thinking process for strategy development purposes requires some modification of both the trees and their sequence. To distinguish these evolutions from the original thinking process, the term “logical thinking process” is used hereafter.
The Goal Tree
The most significant modification to the LTP for strategy development is the insertion of a new type of tree—the Goal Tree (GT)—at the beginning of the process. (Dettmer, 2007) The Goal Tree is critical to the strategic application. In fact, without it, the remainder of the LTP is nearly useless for strategy development.6
The Goal Tree is a relatively simple structure, but actually putting one together requires some dedicated thinking. Figure 19.5 shows a conceptual version of the Goal Tree. An actual Goal Tree may be found in Figure 19.11 at the end of this chapter.
The goal indicated at the top of the Goal Tree is the ultimate outcome for which the system strives. In a for-profit commercial company, this is usually maximum profit. In not-for-profit organizations, such as charities or hospitals, the goal is usually some favorable contribution to society. Goals of government agencies are likewise not profit-oriented, but rather seek the successful provision of some beneficial service to the general population.
Every goal is typically achieved by realizing a set of critical success factors (CSF). These CSF are terminal outcomes, or results. They’re considered critical because they’re indispensable to attainment of the goal. In any system, and for any goal, very few CSF are normally required to declare goal attainment. For most systems they would number no more than three to five. CSF represent very high level outcomes. They are usually somewhat generic to the category of system under discussion. For example, the CSF for any profit-oriented company would be quite similar, differing primarily only in degree of emphasis. If the goal of a commercial company is to maximize profits, there are really only three CSF: increased Throughput, minimized Inventory, and controlled Operating Expenses. (See Figure 19.6)
Notice that none of these differ, whether the company is an automobile manufacturer or an insurance company. If these CSF are realized, then the inevitable outcome is a company that has maximized profitability.7 Where do the specific details of company activities (processes, products, competitive factors, etc.) fall? They lie beneath the level of the CSF themselves, in what Figure 19.5 depicted as necessary conditions. It is at the necessary condition level that the unique picture of a particular organization emerges. Figure 19.7 shows how this might look for a typical manufacturing company.
The CSF of a not-for-profit organization or government agency would be somewhat different from those of a commercial company. For one thing, neither usually measures its throughput financially, but rather in terms of whatever non-pecuniary benefit the organization is in business to provide for society. Minimum inventory and controlled costs might certainly be relevant, however.
The question of where to put such non-negotiable requirements such as adherence to the law, compliance with regulations, or environmental responsibility inevitably comes up. None of these factors, and others comparable to them, directly affect profitability, so they clearly don’t fit as critical success factors. However, they usually do serve to define the behaviors associated with fulfilling them. In other words, their proper place is as necessary conditions for the generation of Throughput, the reduction of Inventory or the control of Operating Expense. This positions them at least three layers down in any Goal Tree, and probably even lower.
How far down should the Goal Tree be “drilled?” For the purpose of constructing a subsequent Current Reality Tree, it’s not really necessary to go much below the CSF and perhaps one or two layers of necessary conditions. However, for resolution of conflicts that might develop in using the LTP for either strategy development or for complex problem solving, it might be advisable to penetrate down five or six layers.
When the Goal Tree is completed, it provides two crucial ingredients for the successful application of the rest of the LTP. First, it clearly delineates the discrete activities and outcomes required to ensure achievement of the system goal (without regard to what is actually happening at the moment). Second, it provides the basis for consensus among everyone within the system—executives, managers, and specialized employees alike—on what they should be doing to support one another in a coordinated way. This might be called a “unified vision” of where the company is going and what’s required to get there.
Constraint Management Model: A Synthesis of the Theory of Constraints and the OODA Loop
The Five Focusing Steps, the heart and soul of constraint theory, constitute the guiding framework for real system improvement. The OODA loop represents an articulated model for a true cybernetic system—one that is not only capable of self-improvement, but self-determination of direction as well.8 There is an implicit relationship between the two. (See Figure 19.8)
The Five Focusing Steps are inherently a subset of the OODA loop. Identification of system constraints requires observation and orientation (the first two steps in the OODA loop). Exploitation, subordination and elevation are all elements of the decision step in the OODA loop. And the actions to follow the prescriptions of the Five Focusing Steps are the same as the final step of the OODA loop. Both employ a feedback process to begin the cycle again. What makes the OODA loop more generic than the Five Focusing Steps is its applicability to situations in system operations that don’t involve identifying and breaking constraints or dedicated system improvement effort.
Boyd originally conceived the OODA loop to help manage tactical operations. The O-O-D-A (and repeat) cycle is inherent in activities as narrowly focused as driving a car safely on a winding road, or as broad as steering the progress of a corporation into its future. But it’s this last, broader perspective that we’re concerned with when we talk about strategy.
If we accept the idea that developing and deploying strategy is an expression of the OODA loop, the question that naturally follows is, “How do we go about doing this?” And this is where the LTP offers an ideal solution. The combination of the OODA loop and the LTP produces the Constraint Management Model (CMM) for strategy development and deployment. (Dettmer, 2003) It’s so named because the LTP was derived from the effort to apply the Theory of Constraints to whole systems, and in using the LTP to develop and deploy strategy the management of constraints is a natural byproduct. In other words, you can’t effectively execute whatever strategy you might develop without identifying and breaking your existing system constraints. Figure 19.9 illustrates the CMM.
Step 1. Define the paradigm. The first step in any strategy development process should be to define the system, its goal and critical success factors, and the characteristics of the environment in which it operates. This is where the first three levels of the Goal Tree are developed. Besides some serious conceptual thinking, this naturally requires both internal and external observations to be made—the first step in the OODA loop.
Step 2. Analyze the mismatches. Once the system and its operating environment are defined, and observations of the current situation made, it’s time to synthesize what should be happening with what actually is happening. This synthesis is the essence of Boyd’s orientation step in the OODA loop. The product of this synthesis is one or more gaps, or what Boyd referred to as “mismatches.” In this case, the mismatch is between reality and our expectations. The size and scope of such gaps are specifically articulated. Inevitably, a system’s current constraint will be found somewhere within the identified mismatches.
Step 3. Create a transformation. This is essentially a “brainstorming” step. It’s the point in the process where creativity is required—thinking “outside the box” to create breakthrough ideas. Such ideas must be created before any decisions about what to do can be made. “Creation” is an inspirational or inventive activity. There are several widely used idea-generation methods, such as TRIZ (Rantanen and Domb, 2002) , that can contribute breakthroughs in thinking needed to close the gaps discovered in Step 2.
Step 4. Design the future. Once a breakthrough idea (or more than one) is created to close the gap defined in Step 2, it must be integrated into a whole-system plan that includes not just the changes to close the gap, but the continuing operations that had no mismatches associated with them. Hypothesis testing, whether in the form of a simulation, prototype, or just a logical verification, verifies the efficacy of various alternatives, from which one or more are selected. This is the essence of the decision step in the OODA loop.
Step 5. Plan the execution. Once the decision is made, an execution plan should be formulated, since “the devil is in the details.” Resources, accountabilities, timelines, and measures of success are established in execution planning. (If this is beginning to sound like a project…it’s because it is!) An execution plan represents the “front end” of the OODA loop’s act step.
Step 6. Deploy the strategy. This is the conclusion of the act step. How long the execution actually takes will depend on the nature of the activities planned. Strategies are typically longer-range than business plans or tactical actions. Time horizons are often measured in years. But the completion of Step 5 makes managing deployment much better structured and easier to monitor. Moreover, as the inevitable surprises, deviations, or unexpected variations occur in execution, the plan can be expeditiously corrected to accommodate them. This is the second half of the OODA loop act step.
Step 7. Review the strategy. Presuming that no major breakdowns in strategy deployment occur, the only remaining task is to evaluate the strategy’s overall effectiveness. This obviously brings us back to the OODA loop’s first step again—observe. This time, however, we’re not looking for deviations in deployment. We’re determining whether the overall strategy we developed in Step 4 is really producing the results we want and expect.
Step 7 includes two feedback links. The more common one connects to Step 2 again (Analyze the mismatches). Working with our previously-defined paradigm and expectations (established the first time through the OODA loop in Step 1), we compare the second round of observations with our original expectations.9 Have the gaps identified earlier narrowed or even closed altogether? If not, or if they’re not closing quickly enough to suit us, we must reevaluate our strategy and adjust it as necessary. Even if the gaps have closed, a proactive application of the OODA loop requires that we identify and develop “the next big thing” in our chosen field of operation. For example, Sony didn’t sit on their Diskman® audio players or Trinitron® televisions after they stormed the market with them. They immediately began working on an MP3 player and a flat-screen video display. That’s being proactive.
The second, and less obvious, feedback loop takes us through Step 1 again. This is likely to happen much less frequently than the other feedback loop. This particular loop implies that a complete reexamination (and perhaps redetermination) of goals, critical success factors, and the external environment is required. In other words, it’s possible that dramatic change in the external environment of such a magnitude has precipitated that a complete redesign of strategy is required. What kind of event might this be? How about an economic depression, or some catastrophic event such as a world war? Take Toyota, for example. (Holley, 1997) Originally (before World War II), it was a manufacturer of textile machines. By the end of that war, its surviving manufacturing base had been completely converted to automotive vehicle, at the insistence of the Japanese Imperial Army. That was a conversion forced on Toyota by circumstances. But by 1997 Toyota was anticipating that within a hundred years the automobile segment of their business would constitute no more than ten percent of the total. The rest would be in low-cost prefabricated housing and information systems. These are strategic shifts—proactive ones.
The Role of the Logical Thinking Process in the Constraint Management Model
How does the Logical Thinking Process fit in with the Constraint Management Model? The preceding description of the CMM fairly begs for a structured tool to make Steps 1 through 5 happen. That tool is the LTP. Figure 19.10 (next page) shows how the LTP energizes the CMM.
The Goal Tree is used to establish the benchmark of expected or desired performance. For an organization that already understands that it’s not yet where it wants to be, the articulation of the goal and critical success factors in the Goal Tree establish a “stake in the ground”—the destination marker that determines where the organization wants to be at the end of the strategy’s time horizon. Supporting necessary conditions represent the high-level functional milestones that must be achieved to reach the goal. Inherent in the development of the Goal Tree are research, observations, and information gathered about the external environment.
With the Goal Tree as the entering argument, a Current Reality Tree10 is constructed to depict the relationship between reality and the end results depicted in the Goal Tree. The resulting gaps are reflected as undesirable effects (UDE). The construction of the body of the tree, down to the critical root causes, embodies the synthesis (or orientation) of newly-acquired knowledge about the external environment with experience, expertise, custom, tradition, etc.—the existing paradigm, if you will. The CRT produces the logical causes of the gaps (UDEs), without regard to whether they are politically acceptable to consider changing or not.
Especially in the latter situation, the transformation created in Step 3 is facilitated by the use of Evaporating Clouds, which are specifically designed to resolve intractable dilemmas such as political feasibility. The output of the Evaporating Clouds, and the beginning of this transformation process, is one or more injections that represent breakthrough ideas. These ideas become initiatives, or new projects that will provide the impetus to move the organization from where it is to where it wants to be. Some of these initiatives (changes) will undoubtedly be externally focused. Others will be inwardly directed.
The Future Reality Tree takes these initiatives, or ideas, and logically structures them to verify that they will, in fact, move the organization toward its ultimate goal. The reflection of that movement is in the narrowing, or complete closure, of the gaps identified in Step 2. This narrowing/closure is represented as a desired effect (DE) in the FRT. Besides logically verifying that the initiatives created will, in fact, advance the organization toward its ultimate goal, the FRT will include the “ferreting out” of negative branches—those conditions under which the whole strategy deployment (or key aspects of it) might be derailed. The “trimming” of these negative branches become contingency plans. The completed FRT, with trimmed negative branches, is the organization’s strategy. The FRT injections are the strategic initiatives, programs, projects, etc., required to impel the organization toward its goal.
Once the strategy is developed in Step 4 as the second part of the decide stage in the OODA loop, the action stage naturally follows. Step 5 is the detailed execution planning. Each of the injections, or initiatives, defined and verified in the FRT (Step 5) is “fleshed out” in a Prerequisite Tree (PRT). Obstacles are overcome and important milestones and sequential/parallel tasks are identified. The resulting PRT forms the basis of a project plan—a project activity network—that can be managed using Critical Chain Project Management (CCPM). The consolidation of all PRTs into multi-project CCPM becomes the organization executive’s tool for managing the overall long-term deployment of the strategy.
What about Steps 6 and 7?
The natural question at this point is, “But what about Steps 6 and 7 of the CMM?” The answer is that at the conclusion of Step 5, the role of the LTP comes to an end. Strategy deployment (Step 6) is an ongoing leadership responsibility. Effective executives use a variety of tools and techniques to shepherd a deployment along. If the execution planning in Step 5 included conversion of Prerequisite Trees to a Critical Chain Project Management schedule, then one of the obvious TOC-related tools a leader might use at this point is buffer management.
Step 7 is an executive function, too. It requires a conscious, deliberate effort to repeat the observe step of the OODA loop again with the objective of identifying failure of the strategy to deliver the intended results and the reason for those failure. In many, perhaps most, cases such failure has less to do with the inadequacy of the strategy than it does a rapid, possibly catastrophic shift in the environment. How many perfectly good strategies do you think might have been rendered ineffective by the 9-11 terrorist attacks in 2001, or the collapse of the U.S. economy in 2008? Even if the triggers are not quite so dramatic, such environmental changes can prompt a need to reevaluate and adjust strategies—or even replace them altogether. And so begins the second iteration of the OODA loop with a return to the Goal Tree and Current Reality Tree.
Summary and Conclusion
Formal strategic planning in business dates back only to about 1965, though the development and employment of strategy have been practiced since the days of Sun Tzu some 2,500 years ago. In contemplating strategy, there are some worthwhile points to keep in mind.
• Distinguish between the development of strategy and a strategic plan. The latter is no more than the capture in some written form of the former. Strategy development, not the written plan, should be the primary focus.
• For businesses, strategy is about far more than just marketing and sales. It’s concerned with the long-term attainment of the organization’s goal. If that organization is a commercial company, marketing and sales will be but one part of that effort.
• Organizations live or die as complete integrated systems, existing in an external environment that imposes conditions, including competition, on the activities of the system. Effective strategy must consider both the internal activities and the external environmental factors.
• The OODA loop developed by Boyd provides an excellent foundation for managing the development and evolution of strategy over the foreseeable time horizon of an organization. (It should be emphasized, however, that the OODA loop is only one small but important part of Boyd’s contributions to systemic thinking. The sources on Boyd listed in the endnotes are all highly recommended reading.)
• The Logical Thinking Process is perhaps the most powerful system-level policy analysis tool ever conceived. Strategy development and refinement is very much concerned with policy analysis, since strategic prescriptions inevitably take the form of policies to some degree. Consequently, the use of the LTP as a strategy development and deployment tool can’t be reinforced too strongly.
• Merging the framework provided by the OODA loop with the trees of the LTP provide a “power boost” for organizations of any stripe—commercial, not-for-profit, or government agency—in helping them achieve their goals. If such organizations exist in a “zero sum” environment (a gain for them is a loss for some other group), this kind of assist can spell the difference between success and failure.
1 The military context is the basis for this taxonomy, as reflected in Table 2. In military applications, operations are large-scale coordinated events (often multi-service). Tactics are normally employed by smaller, discrete units.
2 Many people and organizations make no concerted effort whatever to observe what’s going on around them and put such observations into any kind of context relevant to themselves. As Winston Churchill once observed, “Man will occasionally stumble over the truth, but most of the time he will pick himself up and continue on.” (Winston Churchill, http://quotationsbook.com/quote/19633/)
3 It was nearly two decades before Boyd himself actually identified, analyzed and articulated the OODA process he was unquestionably practicing in the 1950s. But he was doing it all the same.
4 Different people variously refer to the methodology created by Goldratt as thinking process, or thinking processes. For the past eight years, I’ve inserted the word “logical” when I refer to it and used the singular form in order to more simply convey what the method involves to audiences having little or no prior exposure to the Theory of Constraints. The simplified, more streamlined version of the thinking process that I teach now—what amounts to a third generation—differs enough from Goldratt’s initial conception that I believe it warrants a modified name. The essential concept of logic trees, though, is still the brainchild of E.M. Goldratt.
5 Current reality tree, evaporating cloud, future reality tree, prerequisite tree, and transition tree.
6 The use of the Goal Tree is not limited to strategy development alone. As it happens, its use as the first step in the LTP for any purpose is highly recommended. See Dettmer (2007) for a more detailed explanation.
7 Note that depending on environmental conditions, “maximum profitability” might actually be numerically negative. But it would be the smallest negative number possible to achieve.
8 A cybernetic system is one that is affected by environmental shifts but has the means through feedback control to continue to meet system objectives. Additionally, a cybernetic system’s objectives are not rigidly fixed but are adaptable to changing conditions and responsive to new understanding. Cybernetic systems gain from experience and thus exhibit learning. (Athey, 1982)
9 It’s highly desirable to capture baseline figures, statistics, and other data in the first iteration of the observe step to facilitate effective detection of change in the second iteration of observation. Too often, this is neglected in actual practice.
10 The Logical Thinking Process (Dettmer, 2007) provides guidance on constructing Current Reality Trees as well as a step-by-step explanation and instructions specifically for integrating the Goal Tree with the Current Reality Tree.
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http://www.brainyquote.com/quotes/authors/w/winston_churchill.html (Winston Churchill)
http://www.earthlife.net/insects/siphonap.html (Siphonaptera: a nursery rhyme, dating back to the 1800s.)
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Safranski, Mark [ed.]. The John Boyd Roundtable: Debating Science, Strategy and War. Ann Arbor, MI: Nimble Books LLC, 2008.
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