Irrational Resistance to Business Success

by curi3 min read2nd Aug 20204 comments

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Rationality
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Below I quote from Process of On Going Improvement forum, letter 6. Eli Goldratt shares a letter he received. I added a few notes to help people follow acronyms.

My question is: Does anyone know of any applications of Less Wrong philosophy to a situation like this? How can LW ideas about rationality explain or fix this sort of problem? The scenario is that someone tried to use rational thinking to make business improvements, was highly successful (which was measured and isn't in dispute), but nevertheless has met so much ongoing resistance that he's at the point of giving up.

I am no expert in TOC but I believe my recent experiences have impact as to what you are writing about.

TOC = Theory Of Constraints. Summary.

About 2 years ago I started on my TOC adventure. Read everything I could get a hold off etc. Tried to get the company interested, etc. In fact, I finally got them interested enough that we had multiple locations participate in the satellite sessions and had enough for three facilitators (myself included). However, I could never get the company to spend for training at AGI. So, in the old air cav fashion, I felt it was up to me to make it happen.

Last year we had real problems with cost, service, high inventory, etc. My plant, I am the plant manager, was being analyzed for a possible shutdown or sell off. We were asking for 17 machines at about $300,000 each due to "lack of capacity" and we were being supplemented by outside producers.

Again, I am not a TOC expert. Basically my exposure has been reading and researching and building computer simulations to understand. But I put on TOC classes for all of my associates (200). I spent 8 hours with each of these associates in multiple classes. We talked about the goal, TIOE, we played the dice game (push, KanBan, DBR) with poker chips, paper clips, and different variations of multiple sided dice and talked about its impact, etc.

The Goal (summary) is a book by Eli Goldratt that has sold over 6 million copies.

TIOE = Throughput, Inventory and Operating Expense. These are the measurements Goldratt recommends.

The dice game is explained in The Goal. It's also now taught by e.g. MIT (section 3-2).

DBR = drum buffer rope. It's about coordinating activities around the bottleneck/constraint.

Last summer we started development on DBR and a new distribution strategy based on what I have read and researched on TOC. I used Bill Dettmer‘s book to develop trees and the clouds. I check our plan against some presentations last November in Memphis when we attended the TOC symposium there.

We had many in the company who doubted but we stuck our necks out and started at the beginning of this year. And we knew we would not be perfect.

YTD results:

YTD = Year to date

Achieved Company President‘s Award for Safety (First Plant to do so) and the planning was based on things I had read about TOC and techniques on establishing teamwork. Service is up from high 80 to low 90 percentile to averaging above 98.5% Costs are under budget for the first time in some years Total Inventory has decreased over 30% and is still dropping No Longer being supplemented by outside companies for our production No longer need additional machines to supply demand We do need additional business to fill our machines Plant is no longer being considered for close, in fact production from other facilities are being transferred in.

The chief concern when we told the big wigs we were going to this, was that the cost of freight would go up because our transfer batch sizes would get small. I told them correct but we would stop shipping product back and forth between distribution centers and repacking of product would be almost non-existant. YTD: Our total freight dollars spent is 10% less than the previous year but they look at $/ lb of freight which has gone up. I know this is wrong, they state they know it is wrong, but it still gets measured and used for evaluations.

Anyway, as we shipped more often but smaller quantities our distribution centers complained that we were costing them too much. I have tried for 9 months to get them to quantify this to me. "If I increase batch size of the transfer how many people will it reduce or how much overtime will it reduce" or any other real incremental cost will it get rid off? The general response is, it is hard to quantify but we know it is there. Maybe their intuition is correct, but maybe it is not.

So finally, I am at my end. The DCs continue to insist that we are driving their costs up with small transfer batch sizes. They have complained greatly to my boss and my bosses boss. I am growing weary of the continual fight, which has cost me and my family so much time and effort. I have chosen togive up. I have grown tired of the comments, "Well it was said in a meeting that the concept did not deliver what we expected." Then I show them the numbers and ask, "What else was expected." The reply, "That is what I heard at the meeting."

DCs = distribution centers.

Maybe I made a mistake trying to bring TOC to my plant myself. I would have loved to hire a consultant who really knew what they were doing, but any mention of that brought long talks about cost, etc. I hate to give up but my frustration level has impacted my family, which is something I cannot let happen.

In the end, I have decided this week to give them their large transfer batch sizes while I begin to look for somewhere else to go.

I did not mean for this to be a bitch session. But I can not believe the sheer level of frustration on trying to achieve buy in, even when:

  1. Prior to going to our concept we had meetings with our leadership where I presented the UDES from the previous year, and all agreed,

UDES = UnDesirable EffectS. He's saying that before starting he discussed what problems the company was facing with leadership and got unanimous agreement.

  1. Showed our potential solution, not all agreed but they were willing to try it
  2. Now showing the best numbers the plant has ever turned out. I just cannot understand the skepticism.

What insight can LW bring to this problem of negative response to rational improvement?

Rationality1
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I don't think this is titled well - this is not a negative response to rational improvement, it's a negative response to change, which impedes (maybe; sometimes resistance to change is illegible but correct) rational improvement.

The LW response to this situation is to recognize that others' maps are part of your territory, in that they are things you can model, predict and react to. DC complaints seem like a fairly straightforward case - at some level, one of two things is true:

1) there exists a management level that cares about end-to-end TIOE, and they can help figure out whether the DCs complaint should be addressed at your end or theirs.

2) DCs are effectively external vendors/customers, and your optimization should include their preferences. If that means subsidizing shipments (paid for by your operational cost improvements), fine. If it means batching or transshipping in ways that seem odd to you, but the DC claims reduces their expense, also fine. This is an extension of Vaniver's mention of Kaldor-Hicks - Ronald Coase ( https://en.wikipedia.org/wiki/Coase_theorem ) showed that you can just pay their costs, if the change is overall more efficient.

2.5) in some organizations, you can go so far as to play DCs against each other: if you have more capacity than "your" DCs can consume, offer incentives or lower prices to other plants' DCs.

Be prepared, in either of these, to learn that the DCs have a point - even if they can't or won't measure it, if your improvements cost them more than they save you, you haven't really improved the system. If that's the case, you're in for an even more difficult optimization problem - you'll likely need to find allies in one or more DCs to help them reduce the cost of smaller batch sizes. Without support of upper management, this may not be possible.

3) (only after exploring all other options) go ahead and get sold. Be super-efficient for a company that can better value from your operational style.

What insight can LW bring to this problem of negative response to rational improvement?

Some statement carry with them implied worldviews, and then there will be disagreement over the worldview that unhelpfully masquerades as disagreement about the statement. It takes some clever seeing to surface those subterranean issues and handle them. For example, presumably the people causing trouble for our letter-writer aren't against "rational improvement" because it is "rational improvement"; they're against it because it makes them worse off in some way, and that's the battle to try to fight. [Simply knowing that something is a Kaldor-Hicks improvement doesn't mean you should do it, or you should expect no opposition to it!]

In this situation, it sounds like the problem is that improvement for the plant came at cost for the DCs--not necessarily financial, but perhaps in terms of them now having to do more work than they used to, or their KPIs (key performance indicators) being harder to hit.

One solution is to apply TOC one level up. In the old mode of operation, the plant is the tight constraint, and the DC is slack; in the new mode, the plant is now a slack constraint, and the DC is tight. Maybe upper management needs to give the DCs additional resources in order to handle the new demand; maybe the DCs need to apply TOC to be able to better handle the new demand; maybe the DCs are actually operating fine, but need their environment shifted (the level of the KPIs adjusted to the new normal, or which variables are measured adjusted, or so on).

My guess is that their best bet would have been to somehow take on the risk when the concern was raised in the first meeting ("when we told the big wigs") or get an explicit agreement to shift the measurement criterion to the one that made sense.

In this situation, it sounds like the problem is that improvement for the plant came at cost for the DCs

Why do you think so? Merely because they are complaining or for some other reason?

The DCs were unable to substantively identify any problem that was created for them. And they spent 9 months refusing to use measurements or evidence to address this matter, in addition to failing to explain any cause-and-effect logic about what the problem they're now facing is and how it was caused by the change in production. (And, on top of that, without quantifying the alleged cost for them, the DCs want a change to production that will be costly, even though they have done no meaningful comparison to discover which cost is bigger.)

Merely because they are complaining or for some other reason?

The complaints are the smoke, but there's some hints elsewhere as well. Again, the letter-writer's telling of the first big meeting about it:

The chief concern when we told the big wigs we were going to this, was that the cost of freight would go up because our transfer batch sizes would get small. I told them correct but we would stop shipping product back and forth between distribution centers and repacking of product would be almost non-existant. YTD: Our total freight dollars spent is 10% less than the previous year but they look at $/ lb of freight which has gone up. I know this is wrong, they state they know it is wrong, but it still gets measured and used for evaluations.

Whose evaluations? My guess would be the people who are in charge of moving things around--the distribution centers--instead of the people who are in charge of making things--the plant manager, who is the writer of this letter.

From my reading of this, it sounds like when they made the tradeoff they didn't get agreement that the new methodology required new standards, and that total freight dollars would be the judge instead of $/lb of freight.

If they changed the metric to something like $ spent on freight / $ of product delivered to customers, they should have enough data to backcalculate the metric (so they can fairly use it going forward) and it should be focusing the relevant managers on something more relevant to the overall business. [A ratio is still not quite right--now that manager is opposed to many small transactions or heavy items, because the revenue ratio will go down even if total profit goes up--but it's still better than baking volume discounts in to someone's KPI!]

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At this point, I read Eli's response, which takes a different tack on the tactical level (he knows more about how DCs get judged) but seems broadly the same to me on the strategic level. The DCs are complaining, and they might not know how to solve their problem or what it even is, but they are damn sure there is a problem. And so you apply ToC at the higher level and say "ok, time to invest my attention into the constraint that is now tight."

A major component of ToC is that you need system-level thinking in order to solve system-level problems, because most of the effects of decisions are invisible instead of visible. How, then, could it possibly make sense to say "well, it's not in my area; I'm hitting my metrics!" or "well, they can't explain it, so clearly it's not real"?

The DCs were unable to substantively identify any problem that was created for them. And they spent 9 months refusing to use measurements or evidence to address this matter, in addition to failing to explain any cause-and-effect logic about what the problem they're now facing is and how it was caused by the change in production.

The letter-writer has an ability to see things other people in the business can't, because he has this mode of system-level thinking and they don't. That they can't articulate the problems they're facing or solve them shouldn't be a surprise, and is not a reasonable expectation to have of them now. Hence Eli's suggestion, that the company spend to get the DCs access to this new mode of thinking so that they can solve these problems, and others.

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Sometimes there are just obnoxious people who are in the way, who insist that the company spend a million dollars to save ten thousand dollars. If they're below you, correct them or fire them. If those people are sideways to you, you need to solve their problems for them, or get your management to support you over them (which requires focusing on the numbers that management cares about, instead of just the numbers you care about). If these people are above you in the chain, like a CEO who cares a lot about a metric despite the more detailed causal model suggesting the metric is mispriced or confused, the first step is to convince them, and then when that fails, one should move to a company that is interested in using the right metrics, or ignore it as a cost of doing business.