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THIS IS AN INTERNAL GOLDRATT GROUP DOCUMENT.

IT IS NOT INTENDED FOR GENERAL DISTRIBUTION


Freedom of Choice Page 1 Eliyahu M. Goldratt, 2007


Freedom of Choice

Eliyahu M. Goldratt, 2007


Im used to a relatively fast-paced life, but the past few weeks have
topped anything I experienced before.

June 25th: Its Monday evening. We are in Holland. Rami asks me to
join in on a Skype call from Thomas Corbett. Thomas has a VV
Validation meeting on July 10th with a large retailer in Brazil. The
problem is that the Consumer Goods tree is written from the
perspective of a supplier. Thomas called Rami for help.

Knowing that the sales pipeline in Brazil needs boosting, and hearing
from Thomas that the retailer is over 400M US$ in sales, I ask what his
reaction would be if I will write the retailer S&T tree and fly to Brazil to
conduct the 2 hour meeting with the prospect. The answer comes back
as a YYYYEEEEESSSSS!!!!. I continue: To write urgently a big tree
and to fly around the world for just one meeting doesnt make too much
sense. Can you arrange for three more meetings with retailers?
Thomas short answer is Im already working on it. I ask for 48 hours
to decide.

Less than an hour later Javier is on the phone. He has a meeting with a
$50M retailer in Colombia on July 9th. I tell him about my conversation
with Thomas and start to contemplate the possibility of reaching Brazil
through Colombia.

June 27th: Wednesday afternoon, Lisa joins us in Nottingham.
Tomorrow Ill have to give the last day of an MBA program entitled
TOC for health that Alex had initiated (and taught half of). But today
we still have a few hours before I have to give an evening presentation
to a 150 people gathering. There is no smoking in the hotel, so we
(Lisa, Rami and I) are sitting in a pub. Should I go to Brazil? I ask.

We have a VV seminar scheduled in Brazil on August 17th and due to
some glitches Im concerned that this will be a waste of my time; the
current organizer is far from being sure that he can bring high level
people from 30 companies. But, what if Ill be able to induce the
retailer to recommend the seminar to its suppliers?

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How many suppliers does a retailer have?
What is the suppliers likely response to the retailers recommendation
to attend the seminar?
Why should a retailer be interested in his suppliers attending my
seminar?
(Please try to answer each of the above 3 questions.)

When we finished answering (speculating might be a better word) it
became clear that if Thomas can arrange meetings with more than one
retailer, my trip to Brazil in July can ensure a successful seminar in
August.

One hour later, when Helen and Wendy found that Alex and I can
postpone our meeting to the 19th and 20th of July, the decision was
made. The only one who made a face was Lisa. She had come for a
two-day trip to England and now she has to fly first to Israel (to help
force me to write the tree) and then to Brazil and, alas, big deal, she
brought with her just two outfits. Can you imagine a man raising such
an obstacle? Dont worry, Lisa left Israel with a new, large suitcase.

June 29th: Its Friday and we arrive home. An e-mail from Thomas is in
the mailbox, proudly informing that he scheduled 3 meetings and there
are more in the pipeline. We are going to Brazil.

Two days later and Thomas already arranged meetings with 5 retailers.
The smallest retailer is $2B and the largest just $8B. I asked him to
stop, Lets not do the mistakes on a grander scale.

Thomas definitely delivered, now Id better do my part. The fact that
the consumer-goods case is already described through the suppliers
perspective doesnt make it easier but rather much more difficult to
write the S&T tree from the retailers perspective (youll probably notice
that difficulty when you read the tree). Im sweating under Lisas
whip.

July 6th: With still a few hours to spare, the retailer tree is ready. I am
proud of the end result.

I spend two hours on SKYPE with Javier explaining how to present the
retailer tree and swear him to report to me, in as much detail as he will
remember, on the meeting that he will hold with his, relatively small,
retailer. I want to be fully prepared before having meetings with five of
the largest retailers in Brazil.

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July 8th: The rollercoaster starts as we land in Sao Paulo. Thomas and
Celso tell me how they arranged for the meetings. You probably read
Thomas report about it. The bottom line is that soon after my SKYPE
call with Thomas he found out that the retailer he had a meeting with
for July 10th couldnt make it. So they actually started with zero
meetings on their hands. They never worked with retailers and didnt
have any connections (for some reason that is not clear to me, our
friends in Neogrid who do have many connections with retail were
not asked to help).

Not having anything to lose, Celso and Thomas composed the list of the
dream 10 top retailers in Sao Paulo and decided to go only after them.
They were searching for friends that had friends that knew somebody,
anybody (no matter how low-level) in any one of those retailers.
Through those connections they succeeded to talk with low-level
people from the retailers. They explained the purpose of the meeting
Dr. Goldratt would like to check his new solution for retailers with
people who have broad experience and knowledge in retail. Once they
got a hesitant, or less hesitant, response that the contact person would
check the possibility with his boss, they followed up with a letter.

It escalated to the extent that in five days they had five meetings and
three more pending on me giving more meeting dates (out of the
original list of ten). The meetings were scheduled with top management
either the President or VPs of purchasing /merchandising. In retailers
these two VPs are holding most of the power; one decides which
products to purchase and the other decides what space (and price) will
be allocated to each product.

I was astonished. If meetings with such high level people, for such big
companies can be arranged with such speed and in such short notice
WITHOUT ANY PRIOR REAL CONNECTIONS, then we might have
stumbled on the key to unlock the market. Nothing in their actions was
specific to Brazil; the retailers in Brazil are no different than retailers in
other regions in the world, TOC is not more known in Brazil, our people
in other regions are as knowledgeable and driven. What can stop us
from emulating it everywhere else?

My mind is racing. I force myself to stop thinking about the big picture
and instead concentrate on the task at hand. There is no point in
building castles before one ensures that they are not built on quicksand.
What is now important is to verify two main things:
1. That I can persuade these retailers to seriously contemplate the
TOC solution.
2. That I can induce them to recommend us to their suppliers.
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I go over the retailers tree again and again. Have I inserted the right
hooks in the right places? What will be their likely response at each
step? How can I best block reservations before they are even
expressed and how should I best leverage on their plausible doubts?

We are going to meet with very large companies. How am I going to
overcome their tendency (almost conditioning) to proceed through a
series of pilots (see our S&T tree for large companies)? I should avoid
anything that can push them in the pilot direction. I decide not to ask
for a handshake immediately at the end of the meeting but to postpone
it to after the Consensus Day (but before the S&T workshop). Since in
Brazil, like in Europe, all top managers are members of the board, a
successful Consensus Day is like an informal board decision. At that
stage it should not be too difficult for the President to give us a
handshake. Is it going to be enough to overcome the pilot mentality? I
doubt it. What about the value of the contract? It comes out much too
big, should I bend the rules? And the huge unconditional portion, isnt
it by itself enough to cause them to hesitate?

I dont sleep well that night. It must be just the jetlag.

July 9th: Patrick joins us. We all go slowly over the tree. There is so
much new in it and I want them to radiate confidence to the prospects.
It is some struggle to shift to the retailers perspective, but once they
adjust to it we are able to examine the main differences between this
tree and the other trees. Straightening operations in retail is so simple
relative to production (and a real piece of cake relative to projects) and
there is no need to do any sales and marketing activities; in retail, the
improved operation automatically translates into increased sales. The
ease to get results and the magnitude of the results are astonishing.
Im starting to wonder how come I never explicitly explained it.
Actually I never highlighted it even to myself. Well, Einstein was right*.

*Einstein: There are two things that do not have any limit, the
universe and human stupidity. About the universe Im not yet sure.

One thing is clear. The next two days meetings are important, more
important than I originally realized. I am determined to be as ready as
I can. But for that I need to scrutinize the picture that is starting to
form in my head. Here I am sitting with five bright people who know
the situation and TOC. Why wont we put our heads together to
pinpoint what exactly we need to do?

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Im hesitating. From harsh experience Ive learned that people relate to
a daring new initiative as if it is an exercise in daydreaming*. When
people relate to a suggested initiative as a daydream their scrutiny does
not help to solidify the suggestion but only to raise, to new heights, the
blood pressure of the initiator. At my age Id better watch my blood
pressure. So, I ask if it is a good time to give a lecture on the
legitimate reservations of a Future Reality Tree. Lisa frantically takes
notes.

*This is, almost always, the attitude when the initiative presented is
aiming at achieving significant results; the more extraordinary are the
future desired effects, the more is the tendency to call the initiator an
optimist. In short, people tend to regard vision and optimism as almost
synonymous.

Now we follow the process of legitimate reservations on an FRT. We
first spend time scrutinizing the objectives of this Brazilian initiative.
After some floundering we summarize them as follows:
1. Making GC Brazil a viable entity.
2. Establishing a solid pipeline in Brazil.
3. Having a solid blueprint for all other regions.

Now its time to scrutinize the injections, actually to check the cause
and effects that connect the suggested injections to the objectives.
Going over the S&T tree already gave us a good feeling about the
chance to convince a retailer to embark on a VV. Javiers report, that
we expect to get in just few hours, will tell us more. But what is the
impact of having a contract with a retailer? To what extent will it
contribute to making GC Brazil a viable entity?

To answer this question we have to dive into the softer sides. We play
with estimations of size of a large retailer contract, with percent of
unconditional fees, with the number of experts well have to assign and
their costs, we use our (limited) experience to estimate the time and
probabilities to reach the conditional fees, the chance and time to
surpass the VV target and being entitled to the 1/3M bonuses. From all
this elaborate guesswork one solid conclusion comes out; just one (or if
one wishes to be super conservative two) contracts with large retailers
is enough to make GC Brazil viable, not just viable but really
prosperous.

Now that it is clear how much we stand to lose if Ill mess up a meeting,
another related question has to be answered. How soon in the meeting
can I start to push for the second objective without risking the first
one? In other words, how soon should I try to induce them to
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recommend my seminar to their suppliers? Well, it depends on two
factors. The first is the extent to which they accept the necessary
conditions for building their competitive edge. And the second is the
extent to which they regard having good suppliers as essential for
reaching their VV. I hope that their reactions (including their body
language) will be enough to guide me. It is quite uncomfortable to
operate with such high uncertainty when the stakes are so high. What
have I missed? What else can I do to secure the desired outcome?

8 oclock in the evening and, at last, we get a call from Javier. His tone
of voice is enough to indicate that his meeting went extremely well, but
the line is lousy to the extent that I give up on immediate interrogation
and instead ask for a written report. Well have to wait until the
morning for the details.

July 10th: What should I do first, brush my teeth or read Javiers
report?

Its by far better than I hoped for Javiers meeting validated all the
speculations that I made writing the tree, struggling to see the world
through a retailers eyes. No, I was not sure about it only a fool will
expect a prototype to work perfectly the first time.

From Javiers report it is clear that the prospect did not raise any
objections; all remarks were either supporting the claims of the tree or
raising a concern that was decisively answered by the next pages.
Javier had conducted the meeting masterfully (it is worthwhile to read
and analyze his detailed report that was hopefully forwarded to
you). No wonder that Javier ends his e-mail to me with: I expect not
less from you. Thats a tall order.

10 oclock and the first meeting starts. Its with the purchasing director
(VP) of C&A Brazil, a $2B subsidiary, and his three main lieutenants. I
have to be careful since it is so easy to give purchasing managers the
impression that the tree condemns them personally, that they are the
Directly-Responsible-People. The first step is to set the stage right to
bridge the gap between the grand picture I want to unfold through the
tree and whatever expectations they had formed by the way the
meeting was organized Dr. Goldratt would like to check his new
solution for retailers with people who have broad experience and
knowledge in retail.

Ive meticulously prepared myself, now what is left is just to see if what
Ive planned will actually work. I start by stating that it is their choice
what will be covered in this meeting. Shall I restrict myself to just the
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purchasing function, should I expand it to cover the full supply chain or
(looking directly into the eyes of the VP) regarding the fact that he is a
member of the board of directors of this reputable company, should I
expose the real thing my suggested strategy and tactics for their
company? My words, tone of voice and my body language dont leave
him much choice; he chooses the third alternative. From there on Im
sailing in charted waters, replicating the approach that Javier took and
(to my relief) the response of the four of them is basically replicating
the positive responses that Javier described.

Im finishing the meeting stating my two expectations: that they will
arrange a meeting for Thomas with their President and that they will
approach their suppliers and recommend that they come to my
seminar. Since C&A Brazil is selling its own brand fashion clothes their
suppliers are mainly contractors 400 of them. They do not commit
but make all the positive noises. I have conducted many such meetings
and this one is certainly a very good one.

We got a second, decisive, verification that the tree is appealing to
retailers but Im still not sure if Ive made the right choice. Ive elected
not to raise, at all, the subject of gaining confidence through pilots.
Should I address this more explicitly? Im not too concerned; the
meeting went so well that, in the worst case, Thomas can proceed,
smoothly, by just following the big company S&T tree. The real
question is: are they going to move on their suppliers? The seminar is
just one month away, so we wont have to wait long before well know
the answer. I love the business world, it is a dream world for a
scientist. In physics one has to wait (and work hard) for years before a
predicted effect can be checked and here it is just a matter of weeks.

We are waiting for the next meeting to start when it turns out that due
to a scheduling mix-up it will be postponed until tomorrow. Its fine
with me. Later the extent to which Murphy can use the secretaries to
confuse timetables, will be fully unfolded.

We are sitting in the lobby when Thomas checks his SMS messages and,
in the middle of a pretty good joke, interrupts us. He has two
messages from C&A suppliers. So they did move. And so quickly. It is
only six hours since theyve left. We sit quietly trying to digest the
ramifications.

We still have 4 meetings with larger retailers ahead of us. It is
conceivable that we will have 300 companies in the seminar. Thomas
calls the VV seminar organizer. Not to worry, he tells us we will have
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enough room in the seminar even if the organizer will have to build the
hall himself.

In a low voice Patrick is asking: Eli, how many more GC auditors do we
need?

Slightly embarrassed I admit that until 10 minutes ago I was convinced
that GC auditors capacity will not be a problem until the end of 2008.
If what we see is real, Patrick comments, you are painfully wrong.

Im starting to realize the extent to which we are not ready for success
and how quickly it can hit us.

July 11th: When we gather in the conference room, Thomas informs us
that he got a call from C&A. They went over our VV seminar brochure
and noticed that in two days the early bird price will no longer be
applicable. They ask for an extension and for a special code for their
suppliers to register.

Now 300 suppliers in the seminar doesnt look so farfetched. I
contemplate the ramifications. We had a 50% conversion ratio from
companies attending to companies applying. The fact that these
attendees come because of a strong recommendation from their
important client will only help to increase the conversion rate. In the
past most applicants did not turn into VV Validation meetings because
so many of the companies were not a good enough fit to our standard
S&T trees. But in this case the fit is almost guaranteed; we know a-
priory that they do fit the consumer goods tree. That means that this
seminar can yield over 150 validation meetings. Who is going to
conduct these meetings? And what about and if so

Something is wrong, I conclude and call Rami. I give him the bare
facts and ask him to come back to me with just one number:
conservatively, how many GC people well need for GC Brazil within one
year from today.

The next meeting is with a supermarket chain with sales of over $8b a
year. We have the Director (VP) of merchandising. When we reach the
necessary conditions of 2:1, he tells us that shortages are over 25%. I
know that we are going to go through a pleasant repeat. And we do.
He responds extremely well to my suggestion to send their suppliers to
the seminar. They have 14,000, yes fourteen thousand suppliers.

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Patrick receives Ramis answer 10 GC people. Tell him about the
meeting that just ended, I suggest. Five minutes later, Ramis
response is add a zero. That sentence continues to echo in my head.

The next meeting doesnt start on time. Murphy strikes again and
again.
The end result was that we finished with just three meetings out of five.
Celso and Thomas are embarrassed and irritated but I dont let it cloud
their grand achievement.

Late afternoon, we had what turned out to be our last meeting. Its a
direct larger competitor of C&A with $4B in yearly sales. The meeting
goes as smoothly as the previous ones. The director of purchasing
states that he will contact their suppliers 4,000 of them and makes
sure that he got all the seminar material.

On my flight home I decide to do my best to ensure that Mickey,
Alfredo, Oded, Eli S., Bill, Helen and Rami all join my meeting with Alex.
No matter what they had scheduled for the 19th and 20th of July they
must come to Holland.

WE who teach all our clients how important it is not just to plan the
build and capitalize, but that the real task is to carefully plan the
sustain;
WE who give the warning that capitalizing on a competitive edge
leads, unavoidably, to an increase in sales that, if unprepared for, can
easily destroy the competitive edge and the company;
WE havent done what we preach!!!

Im deeply disappointed with myself.

July 19th: Everybody is in Holland. In five minutes we start. I quickly
check my e-mails. The e-mail from Thomas hits me between the eyes.

He succeeded to contact only two out of the three retailers we met.
And both informed him that no, they are not going to arrange a meeting
with their President. And that, before they know more about the
content of my seminar they are not going to approach their suppliers in
any major way. In retrospect that is what one expects from a director
of a large company; the careful, risk avoidance, pilot mentality.

But now, three minutes before the gathering of all the top people of GG
I dont have time or patience for retrospect.

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Im facing two alternatives:

One choice is, to behave like a kid whose prized toy was brutality taken
away, like an adult that comes to claim his winning of the big prize in
the lottery just to find out that one number is different. In short to feel
that life is a bitch and then you die.

The other choice is to examine where we stand. To realize that in the
last three weeks:
1. Reality just vividly demonstrated what should be our most perfect
target market retail.
2. Reality just pointed us in the direction of the most powerful
multiplier one retailer leads to numerous suppliers.
In short, reality just showed us a very effective way to CAPITALIZE on
our already BUILT competitive edge. And
3. Reality just spared us from floundering under an avalanche.
4. All ingredients are lined up to get everything that we wanted and
then some, in a planned and controlled way.
In short, reality just highlighted to us how important and easy it is to
plan our actions to ensure that we SUSTAIN the exponential growth.

Two alternatives, one is to bitch about reality and the other is to
harvest the gifts it just gave us. This is what I call THE FREEDOM OF
CHOICE.

We spent the next two days in constructing the (now) OBVIOUS
capitalize and sustain. But that is the subject of the next document.