The Roadmap- Strategy Guide Part 7

Welcome to the TLS Continuum Change Maestro’s Roadmap newsletter. A new edition will be released every Tuesday on LinkedIn. It is by nature an interactive newsletter. What do I mean? My initial intention was the development of a dialogue pertaining to the concept of a change roadmap. I was looking for interaction between those of us here as to what each phase so far meant to you. It appears as though you would prefer to be passive readers, so be it. However, let me reiterate that as we progress through the roadmap if you have something you want to contribute, feel free to comment on any issue that perks your thoughts.

 As part of his Ph.D. Thesis, Alexander Osterwalder created the Business Model Canvas in 2008. If we take the canvas, (It is available under Creative License for general use in the marketplace) it can be the basis for the strategy map for the roadmap. With this edition and the subsequent edition for the next seven weeks we will walk through the canvas components and its implications.

Business Model Canvas Steps

1.    Define the value proposition

2.    Stakeholder Identification and inputs

3.    Stakeholder relationships

4.    Stakeholder Segments

5.    Key Resources

6.    Organizational segments

7.    Revenue streams

8.    Cost Structure

Step 7 Revenue Stream

When we start a project there is in place a given. Our intention is not to make the organizational financial situation worse than it is. In fact, the purpose should be to make the organization more fiscally sound. There are two ways to accomplish that. We can either cut costs or raise revenue.

The business canvas poses several questions to us in this regard. First, it asks us what value is our customer receiving? Second, for what do they currently pay? Third, how are they paying? Fourth, how would they prefer to pay? Fifth, which would work best? Sixth, which is the most cost efficient?  Finally, how are we integrating the revenue streams with the customer routines?

 Let’s look more in-depth at the alternatives. Eliyahu Goldratt showed us the folly in relying strictly on cost reduction in the improvement of our organization. Rather than being guided by how much overhead we can eliminate in order to increase the bottom line we should shift our attention to the increased throughput and increase the bottom line by raising the amount of revenue.

 TLS Continuum Adage: We further believe that unless our organization is going to file for chapter 11, there is never a reason to eliminate headcount. Rather we reallocate our resources where they are needed within the organization.

 This requires us to shift from a primarily cost accounting view of the world and shift in the direction of a throughput accounting view. We end up in the same position with increased bottom line we just do it with different perspective to get there.

 Cutting costs

Cutting costs is grounded in the use of the General Accepted Accounting Practices (GAAP). Goldratt showed us the folly in relying strictly on cost reduction in the improvement of our organization. Rather than being guided by how much overhead we can eliminate to increase the bottom line we should shift our attention to the increased throughput and increase the bottom line by raising the amount of revenue. We further believe that unless our organization is going to file for chapter 11, there is never a reason to eliminate headcount. Rather we reallocate our resources where they are needed within the organization.

This requires us to shift from a primarily cost accounting view of the world and shift in the direction of a throughput accounting view. We end up in the same position with increased bottom line we just do it with different perspective to get there.

 Raising Revenue

Part of the process to determine the goal is to change the organizational view of the world. We no longer calculate things based on cost. Our view must transform to a look at system throughput. Costs are not allocated to a particular product or service, rather they are allotted over the entire process. We do this through the implementation of throughput accounting. The formula for calculating the new view is that throughput is the rate of new sales dollars. In another words, it is the total sales dollars minus the total variable costs to produce the product.

 Throughput Formula: Net Profit = Throughput – Operating Expense

Return on Investment Formula: Return on Investment = (Throughput - Operating Expense)/Investment

 To determine the ROI or Net profit we subtract those product costs from the amount of sales. Inventory or investment costs are the funds you have put into machinery and materials to produce your products. The remaining factor is the organization’s operating expenses.  This provides us with a view of monies traveling through the organization.

While this new approach is usually viewed from a manufacturing view, it can equally be used in a service environment like HR. In the figure below, you can see how this can be applied to HR. 

Every process begins with some sort of input and in this case, it is an investment in something that is required by the HR process. That investment leads to the expenditure of an operating expense meaning that HR had to do something (Like placing an online ad for an open position).   From there you compare your options going forward. At this point you are comparing the process to date to where you thought you would be. If you did not achieve your goal, then you go back to the do something stage and try something else. On the other hand, if you did achieve your goal then you complete the process in the form of an output. The output represents the throughput.

 Next week we will look at the organizational cost structures we need to implement our strategy

 Looking for the perfect model for improving your organizational processes? Order your copy of the TLS Continuum Field Guide - How the Theory of Constraints, Lean and Six Sigma will transform your operations and Program flow to be released in February of 2024

About the author: Daniel Bloom knows HR and Change Management. He’s a speaker on transformational HR, a strategic HR consultant and trainer. Thank you for subscribing to this newsletter. The best strategy that I ever undertook was earning my SPHR and the Six Sigma Black Belt. You can take the same path with our Road to Organizational Excellence Seminar. Starting July 15,2024 you can start the same path as we present live our Road to Operational Excellence - The Human Capital Edition for the following six weeks.

For more information visit https://dbaiconsulting.com/tls-continnuum-master-seminars