Prof. James Holt usually gave a talk about Managing Complex Organizations this morning at the TOC ICO conference. He peppered the talk with humor and little tidbits. I wonder what his online TOC classes are like?
The topic of "complexity" is a familiar topic in the TOC community, and it is usually a question of how you define it. The TOC-standard definition has to do with the number of degrees of freedom: the more independent variables that affect the system, the more complex. Then Holt suggested that today's heavily matrixed organizations are the epitome of simplicity: they are so networked and intertwined that there couldn't possibly be any degrees of freedom. That got plenty of laughs.
Holt made the interesting distinction that the organization's leaders should always subordinate to the work of the organization, but that they are often stuck because they have no universal measure that points them in the direction of what to improve.
Holt's basic concept in this talk was that we should use the TOC supply chain measures to measure the the internal "supply chain" of an organization, wether that is the supply of ideas, new products, new customers, projects, or products. Just as links in a supply chain are measured by Throughput Dollar Days (TDD) and Inventory Dollar Days (IDD)*, you can do the same within an organization.
He suggested that this concept could be used to help management focus. They can then see where & when to (re)allocate resources; the impact of their improvement efforts; where to improve the system; etc.
* TDD is a measure of effectiveness: did I deliver what I said when it was needed. It is calculated by multiplying number of days late by the value of the item - ideally calculated in terms of value according to the final link in the chain. This measure should be driven to zero, as it shows a failure in delivery.
* IDD is a measure of efficiency: how much did it cost to get the level of throughput we are getting? Its calculated by multiplying the cost (not value) of WIP by how long it has been in the system. There will always be a non-zero value of IDD.