A Guide to Implementing the Theory of Constraints (TOC)

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Introduction

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Constraint Management Model

Holistic Approach

Strategic Advantage

Flexibility

Paradigms

SPIN
Mafia Offers

 

 

Sales Constraints & Mafia Offers

We briefly mentioned sales constraints in the supply chain section.  A sales constraint appears to be an external constraint – we can produce more than we can sell.  However, we also we learnt in the introduction to the supply chain section that most external constraints actually have internal solutions.  In fact they must have internal solutions as there is most often no other way that we can influence the external environment.  So, too, with sales constraints.  We must find internal solutions if we are to succeed.

This page is not a how-to-sell page, but rather a page that draws attention to some rather important research on selling that shows that for larger sales the way in which we sell is most often a considerable constraint.  Nothing more than a self-inflicted limitation on potential throughput.  The research is by Neil Rackham (1) and uses a scientific approach to the analysis of successful sales.  The Theory of Constraints, of course, also adopts a scientific approach to business and therefore we shouldn’t be too surprised if there is some commonality and indeed synergy between these two methodologies.

So why leave this page until the very last?  Why wasn’t it in the supply chain section after the supply chain solutions?  Clearly if we have overcome our self-induced supply chain problems then all we really have left are sales constraints.  The answer is that before we could examine sales constraints we really needed a true understanding of paradigms and we really needed a true understanding of the Thinking Process.  We have that now.

We needed this understanding because we must make some important distinctions that I believe have been muddied to date.  We need to make distinctions between the following;

(1)  Detail complexity sales within a paradigm.

(2)  Detail complexity sales across paradigms.

In the past, in order to provide value, the detail of selling the Theory of Constraints as a product or as a service has been used as an example to illustrate the Theory of Constraints sales process.  This confuses many people – we are using the process to illustrate selling the process.  Moreover, the process that we are trying to sell is the outcome of a new paradigm.  Phew!  No wonder people get confused.  So let’s investigate sales constraints from a generic point of view using the Thinking Process tools as our building blocks.  We will use these building blocks to illustrate the process as we go.  We will still eventually address the problem within the problem; why Theory of Constraints presents a sales constraint to itself.  But along the way I hope that a better understanding of some truly outstanding sales research will become apparent.

What, then, is a sales constraint?  A sales constraint occurs when the marketing has been completed and we have a client or customer – the buyer – to whom we can offer real measurable value but whom we force to abandon the transaction.

 
The Sales Model

Truly outstanding sales research sounds like an oxymoron – but it’s not.  It probably sounds like that because true research into sales techniques is so very rare.  However, Rackham published the results of research into successful large sales that is relevant to anyone in the supply chain; the resulting methodology is called SPIN selling.  While more recent “spin doctoring” in some corporate and political spheres may have debased the acronym, don’t allow that to detract from the message in this work.

Rackham presented a simple sales model to explain the typical sales process.  Here is the model.

The sale is divided into 4 phases or stages.  It begins with preliminaries, finding out about the buyer by the seller and maybe vice versa; developing rapport with one another.  In the investigating stage the seller tries to identify from the buyer the nature and extent of the problem before starting to demonstrate the capability of the product or service on offer and how that will contribute to providing a solution to the buyers problem.  Once adequate capability has been demonstrated the seller will attempt to seal the deal, to obtain commitment topurchase.

The research found that in successful small sales the two latter stages received greater emphasis.  A small sale is defined as one “which can normally be completed in a single call and which involves a low dollar value (1).”  Let’s show this preferential emphasis and call it the small sales model.  It is drawn below.

In small sales most time was spent on demonstrating capability (features), while the most important part was considered to be obtaining commitment (closing).  Although this is a time proven approach for small sales, it is not sufficiently effective for larger sales.

Rackham found that successful tactics used in small sales did not translate up into larger sales.  Larger sales are characterized by a much longer sales cycle, a much greater customer commitment, and an on-going relationship.  Maybe the differences can be best summed up as not closing a sale but rather as opening a relationship (1).  Demonstrating features and trying to obtain a close in a larger sale had the effect of causing sales people to create their own sales constraints.  Sales people in successful large sales spend much more time in the investigating phase or stage and in the demonstrating capability.  Let’s call this our large sales model.

Not only did sales people spend more time and effort on investigating and demonstrating capability, but the way that they did it was significantly different from the successful small sales approach.  The differences form the basis of the SPIN model.  We shall describe this in more detail; however, one of the key differences is the distinction between implied needs and explicit needs in the investigating stage.  The distinction between implied needs and explicit needs provides the entry point for Theory of Constraints.

 
Implied Needs / Explicit Needs

The research found that small sales and large sales generated different needs.  These were called implied needs and explicit needs (1).

Implied needs are; “statements by the customer of problems, difficulties, and dissatisfactions.”  In the language of Theory of Constraints these are undesirable effects or “UDE’s.”  They are problems in our current reality.  Problems that we would like to be rid of.

Explicit needs are; “specific customer statements of wants or desires.”  In the language of Theory of Constraints these are desirable effects or “DE’s.”  They are potential outcomes in our future reality.  Problem symptoms that we have got rid of, or that we have replaced with something that is more beneficial.

Once we can see this mapping between Rackham’s work and the Thinking Process then SPIN selling begins to look very powerful indeed.  We need to start describing the argument using the Thinking Process as the building blocks.

 
Small Sales

The number of implied needs in successful small sales calls was found to be higher than in unsuccessful small sales calls – in fact twice as many.  In a small sales call the buyer is well aware of the problems; the seller doesn’t spend much time investigating these, they are small enough to be known to the seller too – often implicitly.  In fact the seller concentrates on demonstrating capability – describing features, and letting the buyer make the connection between the problem and the solution.  The seller then closes.  One might argue that the buyer actually made the sale.

Let’s try and draw a model of a successful small sales call.

In the language of Theory of Constraints we could very crudely describe the buyer’s position as a current reality tree containing a small number of problem symptoms (undesirable effects or “UDE’s”) and the seller’s position as that of a potential injection or solution.  Potential because the decisions to buy and implement are still in the future.

Most often the solution to the problem will be a simple product or service – something that the buyer currently does not have, but that the seller does.  Both the problem and the solution are immediate both in time and space.  The perceived value of the solution is commensurate with the perceived cost or current loss arising from the problem.

Unfortunately this approach – demonstrating capability and closing doesn’t work as the scale of the sale increases.  It doesn’t work for two reasons;

(1)  The whole problem is no longer immediate in time or space.

(2)  The price of the solution is perceived as more than the cost of the perceived part-problem.

Let’s draw a model.

In the model we have “deepened” the extent of the problem symptoms in our current reality tree.  The buyer still knows many, but not all, of the implied needs.  Some of the needs now occur in different places or at different times, and although they may all directly affect the buyer, the buyer no longer makes a full connection between the cause of the problems and the resultant effects.

The seller who may well see all of these cause and effect relationships through experience with many sales may continue to stress features which the seller now equates with increased cost of the solution.  A more expensive solution to a problem that is perceived by the buyer to be smaller than it really is.  This is where the small sales approach to larger sales begins to break down.


Buyers Are Not Liars

Some years ago I learnt that all buyers are liars!  Unfortunately I took this at face value and thought that the idea reflected rather poorly upon the person making the comment.  What the speaker actually intended to convey, but that I failed to understand, was that most buyers don’t say what they really want.  Or, more to the point, most buyers can’t say what they really want.

Nonaka and Takeuchi describe the situation as follows.  “Most customers' needs are tacit, which means that they cannot tell exactly or explicitly what they need or want.  Asked ‘What do you need or want?’ most customers tend to answer the question from their limited explicit knowledge of the available products or services they acquired in the past (2).”  In other words they can not verbalize their intuition.  As the sale becomes larger and larger, so too does the difficulty in verbalizing the underlying needs.  This disconnect, in time and space, between the individual problem symptoms becomes too great for the buyer to make all the necessary re-connections.

The SPIN model, through exhaustive research into successful large sales, also comes to the same, but empirically derived, conclusion.  It recognizes the importance in verbalizing underlying needs.  Let’s have a closer look at this model.

 
Large Sales – The SPIN Selling Model

The SPIN model addresses the deficiencies in the small sales model by a different approach to the investigating stage and also the capability stage.  SPIN stands for Situation, Problem, Implication, and Need-payoff (1).  This comes from the questions found to be successful in the investigating stage.  We will examine this first and then look at demonstrating capability later.  Note that the SPIN model only addresses the sale of a pre-existing product or service, it does not address development of the product or service.  In terms of the sales model the SPIN investigating stage is as follows;

Situation questions have been left off the model, because although necessary they don’t have a high correlation with success.  They are necessary but not sufficient, they establish the bounds to the system.  However problem, implication, and need-payoff questions all have a high correlation with successful large sales.

In successful large sales the seller develops the implied needs to a much greater extent.  The seller probes the situation (defines the system) more thoroughly, and then probes the problem.  By probing the problem more fully the seller is able to establish far more of the problem symptoms – those that the buyer hasn’t thought to connect in time or space.  Let’s have a look.

The seller in effect helps the buyer to first verbalize and then to understand the cause and effect relationships within the immediate problem.  However the seller doesn’t stop there.  He also uses investigating questions to enlarge the scope of the situation.  The seller works outwards from the buyer’s immediate problem to the overall implications of the problem for the system as a whole.  Let’s have a look.

This is a little different from a classical approach to current reality trees which generally build down or inwards from the problem symptoms (the mid point or join in our model above) to the underlying cause.  In the SPIN model we also want to build out to other peoples’ problem with the problem.  We need to fully investigate the true implications of the situation at hand.

However successful salespeople don’t stop at that either.  The research also found that the number of questions probing for explicit needs increased substantially in successful large sales.  Remember explicit needs are those about some future state – positive outcomes that the purchase will bring about – the need-payoff.  Let’s add this to the model.

Now the sellers solution not only addresses current problems it also addresses future outcomes.  The cause and effect in time and space is fully understood by the buyer.  The perceived value of the solution is greatly enhanced, but the seller must still demonstrate that capability to supply the solution exists.

In successful small sales demonstrating capability is achieved by showing features.  However in large sales this becomes one of the main causes of resistance or objection.  Again the SPIN research found that successful sales people in large sales used features in a different manner to successful small sales.

Features in successful large sales are recognized as one of two types;

(1)  Advantages – unrealized features; features for which there is no expressed need.

(2)  Benefits – realized features; features for which there is an expressed need.

This is the second part of the SPIN model.

Successful large sales salespersons avoid the use of advantages but meet needs-payoff questions (explicit needs) with benefits, or try to work implicit needs up to an explicit need that can be met by converting an inherent advantage into a benefit.

Once again the perceived value of the solution is enhanced through the demonstration of capability without raising objection or resistance by mentioning latent capability (advantages) to which the buyer might perceive as an additional cost.

 
Quincy’s Rule

Rackham proposed a rule to differentiate between implication questions and need-payoff questions (or if you like implied needs and explicit needs).  He called this Quincy’s Rule after the 8 year old who first described it (1).  “Implication Questions are always sad.  Need-payoff Questions are always happy.”  We could do well to remember this rule.  Sad questions are almost always about undesirable effects (“UDE’s”) of the current reality, happy questions are almost always about desirable effects (“DE’s”) of the future reality.  Just common sense really.  Something that 8 year olds have in abundance.

There is however something more important about Quincy’s Rule.  It allows us to multiplex between DE’s and UDE’s.  In some cultures, in some specific situations, it can be difficult to get UDE’s.  I have seen situations where, arms-folded, UDE’s were not forthcoming – a consequence of inter-factory pride.  And yet 3 days later the same group spent an hour describing 20 or so DE’s – the explicit needs of the future reality.  The explicit needs of the future reality – the happy questions, can then be inverted back to the implied needs of the current reality – the sad questions.  Let’s add this to our model.

In real life implicit needs questions will create leads to explicit needs questions, but moreover, explicit needs questions also allow the seller to better develop the implicit needs as well.

 
Insufficiency Of The SPIN Model

The SPIN model is excellent in avoiding seller-imposed limitations in the sale of large scale transactions.  It addresses the limitations of porting a successful empirical sales model for small sales into a different environment.  However, reading between the lines, it appears that the SPIN model becomes less sufficient the more intangible the solution is that is being offered.  It is possible to train a stand-alone sales staff using the model above.  However, what happens when the solution is a service, a rather expensive service, or even just an idea?

Rackham alludes to this when he notes that many professionals can be quite effective salespeople (1).  He ascribes this to their skill and experience in diagnostic questioning.  Undoubtedly this is true, but I think that this misses a deeper issue.  Can you imagine what this might be?

Let’s have a look.

Professionals selling within their area of expertise have an additional advantage; they know the cause and effect from the proposed solution right through to the future outcomes.  The insufficiency of the SPIN model occurs when we expect stand-alone sales professionals to operate without knowing this cause and effect.  Either because we train the sales professionals without teaching the underlying cause and effect, or we teach it and it is insufficiently understood.  This insufficiency needs to be recognized.

 
Reservations and Obstacles

If we look at the SPIN model through a Theory of Constraints lens then it is apparent that the model doesn’t address the reservations and obstacles that are characteristic of layers 3 and 4 of the layers of resistance.  If you like, the SPIN model addresses layers 1 and 2 only.  The SPIN model certainly makes sure that the sales person doesn’t cause unnecessary objections about parts of the solution that the buyer doesn’t need, but that doesn’t mean that the buyer won’t have reservations about perceived negative ramifications, or that there won’t be perceived obstacles – even if the buyer wants to purchase.  In fact, if the buyer wants to purchase then you can guarantee that these reservations and obstacles will arise.  They should be recognized for what they are – signs that the buyer is buying into the purchase.  The ability to recognize and handle these facets is a valuable contribution or extension to the overall SPIN model.

 
Detail Complexity Sales Within A Paradigm

It goes without saying – and therefore we need to say it – that SPIN selling is the selling of detail complexity within an existing paradigm.  Let’s draw the model again.

For example; “if you want to reduce your costs (and increase your profit) then here is a new gizmo that is much more cost effective.”  So long as the seller can build sufficient value for the buyer the transaction is very likely to succeed, whether it is a product of some sort or a service – and with the provision that it meets the sufficiency that we outlined above.

Using the SPIN model to overcome sales-induced constraints is a valid mechanism for increasing throughput.  But what if the detail complexity outcome is the result of a different paradigm?  Here the rules change.  This is where Theory of Constraints applications get into strife when the SPIN model is applied without thought.  We have only ourselves to blame.

 
Detail Complexity Sales Across Paradigms

Once again we want to sell detail, the detail of the solution to the buyer’s need.  In fact there will be little doubt that the detail of the solution can meet the requirements of the detail of the buyer’s need.  However, rather like the insufficiency case, part of the solution will be incompletely understood.  Let’s have a look at the model.

Even if the seller has very skilled professionals who can show the cause and effect from the seller’s solution through to the buyer’s desired results – in other words we overcome SPIN model insufficiency – it is still very likely that we will not be able to overcome the obstacle of “we don’t understand/believe the cause of your solution.”  This is the buyer’s obstacle.  And it is our problem.

As sellers of this paradigm derived solution what are we going to do?

Maybe part of the response is that we can’t sell the paradigm.  We can only sell the resultant realized benefits.  Essentially we must transfer the paradigm at no cost.  Without the paradigm the resultant benefits will not be realized.  There is a danger that the benefits may simply become unrealized advantages – features that are expensive and for which the connection to the explicit needs becomes lost.

If we want to sell detail complexity across a paradigm, then we must supply the effective transferal of the paradigm first.  There is no choice.

If you think that there is a choice then consider how quality as a solution was first evaluated in the U.S.  It was first evaluated in cost reduction terms – always.  It was not evaluated in terms of product competitiveness, or corporate competitiveness, or in terms of increased throughput.  The existing paradigm blocked and (to a large extent) still blocks proper understanding.

There is nothing wrong with the SPIN methodology, we should however be aware that it was developed within the cost-world paradigm.  Therefore we must be very careful when using it to guide us in selling solutions from different paradigms.  To successful sell detail complexity across paradigms, it may be necessary to use Mafia Offers.

 
Mafia Offers

We have seen how assumptions about the transferability of the sales methodology from small sales to large sales can resulted in a self-imposed constraint on sales.  A constraint, however, that can be overcome by changing these internally held sales policies.  But what happens when there are other internal policies that also act as constraints to further sales?  What can we do about these?

Let’s no longer restrict ourselves then to just the policies of selling, instead let’s expand our attention out to the policies of the production and delivery and payment of the products or services that we wish to sell.  Let’s expand outwards to these polices, and at the same time lets move back in from our indirect sphere of influence over the buyer to the much more direct span of control that we have over ourselves – the seller.  This is the essence of the Mafia Offer (3, 4, 5).

Moreover, the Mafia Offer is no longer concerned with only the sale of a pre-existing product or service.  It may also be concerned with the development of a product or service.  In fact the solution may be nothing more than the development of an idea that results in a change that produces greater throughput from an existing sales stream.

The underlying dynamic is that we don’t expect our buyer to change; we must be the ones who change.  After all, we have total control over that.  Well, actually, we might expect our buyer to change but it is probable that the expectation will be short-lived.  Let’s have a look at the process in more detail

In the previous SPIN model the buyer’s core problem is closer in character to the absence of a seller’s product or service.  In the Mafia Offer the buyer’s core problem isn’t so much the lack or absence of something, but rather it is due to the presence of something – a policy; the buyer’s policy.  It is the buyer’s policy that is stopping the seller from selling more.  There is a disconnect between the sellers solution and the buyers policy.

The buyer’s policy might well be within our sphere of influence, but what is the chance of changing the buyer’s policy?  Not much chance at all.  That doesn’t mean that we shouldn’t try, especially using the tools of the Thinking Process at our disposal.  However, once we have exhausted that possibility we should begin to have a look at our own policies.

If we can find just one policy of our own that causes problems for our customers then we may be able to craft a solution for that, which is within our own span of control, and which brings benefit to the buyer and of course ourselves – the seller.  That should be simple – right?  Well, at least we have moved the problem and the potential solution to somewhere that we can do something effective about it.

It is important to remember that we need to know the buyer’s problems and the buyer’s implications.  Too often we will mistakenly confuse the buyer’s problems with “our problems with the buyer.”  These are not the same.  There is a skill required here in being able to stand back and look at the buyer’s problems dispassionately from our own.  Sometimes this is hard.

Equally we must look dispassionately at our own problems, once again being careful not to confuse them with “our problem with the buyer.”  Essentially we must construct a current reality tree of the buyer and a current reality tree of our own – the seller.  Let’s have look.