The Optimization Trap

Avoiding the Pitfalls That Limit Organizational Performance

Hi, my name is Phillip Slater and I am the author of The Optimization Trap.

If you have a few moments I would like to tell you about the book.

A number of years ago I was asked to provide advice to a company that was experiencing financial difficulties. This company operated under significant competitive pressure and had been going down a dangerous path of continuous cost reduction.  Without a model of good operational practice to follow they continually reduced their personnel numbers and other costs, until they reached a point where they could barely operate.  One slip, one absence, one problem and production ceased and/or quality suffered.

Optimization is Often Code for 'Cost Cutting' 

When asked about their approach to management the typical response was that they were continually ‘optimizing’ their performance.  Unfortunately, in this circumstance, ‘optimization’ involved continually cutting their capability and ultimately sub-optimizing the overall result.  This company had fallen into the ‘optimization trap’ and was not able to climb back out.  By the time they called me it was already too late and eventually the company closed down.

The term ‘Optimization Trap’ can be used to describe any number of situations where optimization is the goal:

• Reducing costs and capability until there is no capability to perform properly (as above).

• Focusing solely on improving day to day activities and not thinking about the bigger picture of changing technologies or markets.

• Relying on historic data without considering its current relevance (sometimes referred to as 100% hindsight).

• Working on improving what’s ‘inside the box’ without thinking ‘outside the box’.

• Optimizing one part or component of a system or business and inadvertently sub optimizing the whole (sometimes referred to as a silo approach).

Individually each of these situations presents a challenge when trying to achieve genuine and lasting improvement, collectively they can be disastrous.

The Role of Management is To Change the Way a Business Is Managed

For some time now I have advocated that it is the role of management to change the way a business is managed, not to manage it day-to-day.  The activity of changing the way a business is managed, of course, involves optimization.  Optimization is what managers do, it is all about trading off choices to achieve the best outcome. In this respect it is a key means for companies to improve their operations and generate greater returns for shareholders. 

Many Constraints are Assumed

In mathematics and operations research there is both constrained and unconstrained optimization.  However, in management, from a practical perspective, all problems are constrained.  After all a business has only so much resource, money and time to apply to its problems, and herein lies the issue.  Just where a manager draws the line in terms of the constraints to the optimization can have a significant impact on the suitability and longevity of the solution.

Many constraints are imposed, or assumed, to suit the needs of the problem solver, not because they relate to the problem.  Constraints can be used to simplify the range of solutions, the resources required, the time involved, and in some cases the internal company politics.  In many cases the application of constraints in the pursuit of optimization can lead to complacency, or worse a belief that nothing further can be achieved.  This is the true optimization trap.

Optimization Requires Context

For optimization to be successful it needs to be conducted with context, appreciation for the true operating constraints and organizational culture, and with a view to the changes that make previous optimization obsolete.

A review of current literature shows that the term ‘optimization trap’ is used in innovation management, business development, share trading, software development, advertising, and business cost reduction.

In the Tradition of The Goal and Fish!

In the tradition of such great books as The Goal, The One Minute Manager and Fish, The Optimization Trap tells the story of a Reliability Engineer, Luke Michaels, and his journey in firstly falling into and then climbing out of the optimization trap.  Along the way both you and Luke learn the 7 Principles for avoiding the Optimization Trap.

For this book I have chosen to create an example relating to inventory management.  This was chosen because it is an area that many people readily understand and because true inventory optimization is the long held dream of both finance directors and operations/inventory managers alike, perhaps one of the few things that these groups can readily agree on.

Download a FREE extract from the book

You Can Learn the Lessons of the Optimization Trap

The principles, thought processes and lessons in this book can be applied to any optimization situation, so if your role or business does not relate to managing inventory you can still learn and apply the lessons of the optimization trap.

Also the book can be read by most people in about 1 - 1.5 hours. So you learn the lesson quickly and easily. Perfect for both that next plane flight or spare moments!

Finally, this book is not autobiographical, however, the situations, objections and ultimate solutions are drawn from both my direct experience as both a practitioner and a consultant. Having said that, any resemblance to any person, company, situation or circumstance is purely coincidental.

Best wishes

Phillip Slater

Initiate Action Pty Ltd

49 Vida Street, Aberfeldie Vic 3040 Australia

phone: +61 3 9331 3181 fax: +61 3 9331 3180

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