The Goal: A Process of Ongoing Improvement, page 42
"So, we continue to offer the old stuff rather than the new. We continue to lose market share, but it’s better than to bite the bullet of write-offs. Do you understand now the impact it has on throughput?’’
"Yes, I do. You are right. But Alex, you know what? With some extra effort I think that I can handle them both. I can work on the problem of the way we value inventory and at the same time arrange for more attention to the receivables.’’ He still doesn’t get it but now I think I know how to handle it.
"What about the plant indicators?’’ I ask him.
"That’s a real Pandora’s box,’’ he sighs.
"What is the damage there? Slightly bigger than four days? And what about the fact that sales continue to judge opportunities according to the formal ‘product cost’ and desirable margins. Or even worse, that they will look for anything they can sell above variable cost. What’s the damage there? And what about the transfer prices between us and the other divisions; that’s a real killer. Do you want more?’’
"Stop, stop,’’ he raised his hands. "You made your point. I guess I was inclined to deal with the open receivables issue just because there I know what to do, while in all the others . . .’’ "Afraid?’’ I ask.
"Frankly, yes.’’
"So am I, so am I.’’ I mutter. "Where do we start? Where do we continue? On what should we concentrate first, on what second? It’s overwhelming.’’
"We need a process,’’ he says. "That’s obvious. It’s too bad that the five-step process that we developed turned out to be false. No ...Wait a minute Alex, that’s not the case. At the end, the problem was not wandering bottlenecks. It was insufficient protection for the existing bottlenecks. Maybe we can use that five-step process?’’
"I don’t see how, but it’s worthwhile to check it. Should we head to the plant and give it a try?’’
"Certainly. I’ll have to make some phone calls, but it’s no problem.’’
"No,’’ I say. "I have some commitments for tonight.’’
"You’re right,’’ he says. "It’s very important but not urgent. It can wait for tomorrow.’’
"Identify the system’s constraint(s),’’ Lou reads from the board. "Do we accept it as the first step?’’
"I don’t know,’’ I say. "Let’s examine the logic that brought us to write it. Do you remember what it was?’’
"Roughly,’’ he says. "It was something about the fact that we adopted throughput as the number-one measurement.’’
"I’m afraid that roughly is not good enough,’’ I say. "At least not at such an early stage in our analysis. Let’s try again, from first principles.’’
"I’m all for it,’’ he groans, "But what do you call first principles?’’
"I don’t know. Something basic that we accept without hesitation.’’
"Fine. I have one for you. Every organization was built for a purpose. We haven’t built any organization just for the sake of its mere existence.’’
"Correct,’’ I laugh. "Even though I know some people in some organizations who seem to forget it.’’
"Washington, you mean?’’
"That too. I thought about our corporation, but who cares. Let’s keep going. Another basic fact is that any organization is comprised of more than one person, otherwise it’s not an organization.’’
"Correct,’’ says Lou. "But I don’t see the point in all this. I can give you many more correct statements about organizations in general.’’
"Yes, you probably can, but look at the conclusion that we can derive already. If any organization was built for a purpose and any organization is composed of more than one person, then we must conclude that the purpose of the organization requires the synchronized efforts of more than one person.’’
"That makes sense,’’ he says. "Otherwise we wouldn’t need to create an organization; the efforts of individuals would suffice. So?’’
"If we need synchronized efforts,’’ I continue, "Then the contribution of any single person to the organization’s purpose is strongly dependent upon the performance of others.’’
"Yes, that’s obvious.’’ With a bitter smile he adds, "Obvious to everybody except for our measurement system.’’
Even though I wholeheartedly agree, I ignore his last comment. "If synchronized efforts are required and the contribution of one link is strongly dependent on the performance of the other links, we cannot ignore the fact that organizations are not just a pile of different links, they should be regarded as chains.’’
"Or at least a grid,’’ he corrects me.
"Yes, but you see, every grid can be viewed as composed of several independent chains. The more complex the organization —the more interdependencies between the various links—the smaller number of independent chains it’s composed of.’’
Lou doesn’t want to spend too much time on that point. "If you say so. But that’s not so important. The important thing is you’ve just proven that any organization should be viewed as a chain. I can take it from here. Since the strength of the chain is determined by the weakest link, then the first step to improve an organization must be to identify the weakest link.’’
"Or links,’’ I correct. "Remember, an organization may be comprised of several independent chains.’’
"Yes,’’ he agrees impatiently. "But as you said, the complexity of our organizations almost guarantees that there are not many of them. In any event, it is taken care of by the S in parenthesis that we put at the end of the word ‘constraint’. Fine, Alex, what do we do about the measurements?’’
"Measurements?,’’ I say in surprise. "Where did they come from?’’
"Didn’t we agree yesterday that the distorted measurements are the biggest constraint of the division?’’
Bob Donovan is right. Lou certainly has a fixation on measurements. "They are definitely a big problem,’’ I say carefully. "But I’m not convinced that they are the constraint.’’
"You’re not?’’ Lou is astonished.
"No I’m not,’’ I say firmly. "Do you think that the fact that most of our products are already outdated in comparison to what the competition is offering is not a major problem? Don’t you realize that the attitude in engineering, claiming that the basic rule of nature is that a project never finishes on time, is an even bigger problem. And what about marketing, have you seen any marketing plan that has any chance of turning the situation around?’’
"No,’’ he grins. "As a matter of fact everything that I’ve seen of long term planning should be more appropriately categorized under ‘long term bullshitting.’’’
I’m on a roll. Today asking me about problems is like opening a dam. "Wait Lou, I haven’t finished. What about the mentality that is so prevalent in headquarters, the mentality of covering your ass. Haven’t you noticed that whenever we asked about something that doesn’t go so well, everyone almost automatically started to blame everybody else?’’
"How could I not notice. Okay, Alex, I get your point. There are major problems all over. It seems that in our division there is a whole herd of constraints, not just a few.’’
"I still claim that there are only few constraints. Our division is too complex to have more than a very few independent chains. Lou, don’t you realize that everything we mentioned so far is closely connected? The lack of sensible long-term strategy, the measurement issues, the lag in product design, the long lead times in production, the general attitude of passing the ball, of apathy, are all connected. We must put our finger on the core problem, on the root that causes them all. That is what actually is meant by identify the constraint. It’s not prioritizing the bad effects, it’s identifying what causes them all.’’
"How are we going to do that? How are we going to identify the divisional constraints?’’
"I don’t know,’’ I say. "But if we succeeded in doing it here, in our plant, it must be possible to do in the division.’’
He thinks about it for a minute and then says, "I don’t think so. Here we were lucky. We were dealing with physical constraints, with bottlenecks, that’s easy. But at the divisional level we’ll have to deal with measurements, with policies, with procedures. Many of them are cast already into behavioral patterns.’’
"I don’t see the difference,’’ I disagree. "Here we had to deal with all of the above. Come to think about it, even here the constraints were never the machines. Yes, we called and still call the oven and the NCX10 bottlenecks, but if they were true bottlenecks how come we succeeded to squeeze almost twice as much out of them as before? How come we increased throughput so much without buying more capacity?’’
"But we changed almost every aspect of how we operate them, and how we operate everything around them.’’
"That is exactly my point,’’ I say. "What aspect of operation did we change?’’ Mimicking his voice I answer, "The measurements, the policies, the procedures. Many of them were cast into behavioral patterns. Lou, don’t you see? The real constraints, even in our plant, were not the machines, they were the policies.’’
"Yes, I do see. But still there are differences,’’ he says stubbornly.
"What differences? Name one.’’
"Alex, what’s the use of pushing me to the corner? Don’t you see that there must be major differences? If there weren’t, how come we don’t even have a clue of what the nature of the divisional constraint is?’’
That stops me dead.
"Sorry. You’re right. You know, Lou, maybe we were lucky here. We had physical constraints that helped us to focus our attention, to zoom in on the real policy constraint. That isn’t the case in the division. Over there we have excess capacity going through our ears. We have excess engineering resources that we succeed so brilliantly in wasting. I’m sure that there is no lack of markets. We simply don’t know how to put our act together to capitalize on what we have.’’
Pacified he says, "That brings us to the real question, how does one go about identifying the system’s constraint? How can we zoom in on the most devastating erroneous policies. Or, to use your term, how does one go about identifying the core problem, the one that is responsible for the existence of so many undesirable effects?’’
"Yes,’’ I agree, "That’s the question, no doubt.’’
Looking at the board I add, "What’s written here is still valid. Identifying the system’s constraint is the first step. What we now understand is that it also translates into a mandatory demand for a technique by which to do it. Lou, that’s it. We found it.’’
The excitement causes me to stand up. "Here it is,’’ I announce, "here is the answer to Jonah’s question. I’m going to call him right now. You can imagine my first sentence: Jonah, I want you to teach me how to identify the core problem.’’
As I turn to leave I hear Lou, "Alex, I think that it might be a little premature.’’
"Why?’’ I ask, my hand on the doorknob. "Do you have any doubt that that is what I must learn first?’’
"No,’’ he says. "On that I’m quite convinced. I just think that maybe you should ask for more. Knowing the core problem exactly might be far from sufficient.’’
"You are right again,’’ I calm down. "It’s just that I was looking for the answer for so long.’’
"I understand, believe me, I understand,’’ he smiles.
"Okay Lou.’’ I sit down. "What else do you think I should ask Jonah to teach me?’’
"I don’t know,’’ he answers. "But if the five steps are valid, maybe what you should ask for are the techniques required to enable us to carry those steps out. We already found the need for one technique, why don’t we continue to examine the other four steps?’’
"Good idea,’’ I say enthusiastically. "Let’s proceed. The second step is,’’ I read from the board, "decide how to exploit the system’s constraints. That doesn’t make any sense to me. What is the point in trying to exploit an erroneous policy?’’
"It makes sense only if the constraint is physical, but since we do deal with policy constraints, I guess we’d better move to the next one,’’ Lou agrees with me.
"Subordinate everything else to the above decision,’’ I read. "Same reservation. If the constraint is not physical this step is meaningless. The fourth step is, ‘Elevate the system’s constraint(s).’ Hmm, what are we going to do with this one?’’
"What’s the problem?’’ Lou asks. "If we identify an erroneous policy we should elevate it, we should change the policy.’’
"How lovely. You make it sound so simple,’’ I say sarcastically. "Change the policy! To what? Is it so simple to find a suitable replacement? Maybe for you, Lou, not for me.’’ "For me neither,’’ he grins. "I know that cost accounting is erroneous, but that doesn’t mean I’ve completely figured out what to replace it with. Alex, how does one go about correcting an erroneous measurement or any other policy?’’
"First, I think that you need the light-bulb idea, the breakthrough. The management techniques that Jonah talks about must include the ability to trigger such ideas, otherwise those techniques can’t be used by mere mortals. You know, Lou, Julie predicted that as I come to it I’ll recognize that we are not dealing just with techniques but actually with thinking processes.’’ "It started to look like it,’’ Lou agrees. "But triggering breakthrough ideas by itself is not enough. An even bigger obstacle is to verify that this idea really solves all the resulting bad effects.’’ "Without creating new ones,’’ I add.
"Is it possible at all?’’ Lou sounds very skeptical. "It must be, if we want to plan rather than just react.’’ As I talk I find a much better answer. "Yes, Lou, it must be possible. Look what happened to us with our solution of getting more sales. As a direct result of the French order we threw the plant into a very unpleasant two weeks and we killed or at least delayed a good marketing campaign. If we just thought systematically before we implemented it, rather than after the fact, we could have prevented many problems. Don’t tell me that it was impossible. All the facts were known to us, we simply didn’t have a thinking process that would force and guide us to examine it early in the game.’’
"What do we change to?’’ Lou says.
That throws me off balance. "Pardon me?’’
"If the first thinking process should lead us to answer the question ‘what to change?’ the second thinking process should lead us to answer the question ‘what to change to?’ I can already see the need for a third thinking process.’’
"Yes, so can I. ‘How to cause the change.’’’ Pointing to the fifth step I add, "with the amount of inertia that we can expect in the division, the last one is probably the most important.’’ "So it seems,’’ Lou says.
I stand up and start to pace. "Do you understand what we are asking for?’’ I cannot contain my feelings. "We are asking for the most fundamental things and at the same time we are asking for the world.’’
"I’ve lost you,’’ Lou says quietly.
I stop and look at him. "What are we asking for? For the ability to answer three simple questions: ‘what to change?’, ‘what to change to?’, and ‘how to cause the change?’ Basically what we are asking for is the most fundamental abilities one would expect from a manager. Think about it. If a manager doesn’t know how to answer those three questions, is he or she entitled to be called manager?’’
Throughout Lou signals that he is following me.
"At the same time,’’ I continue, "can you imagine what the meaning is to being able to hone in on the core problem even in a very complex environment? To be able to construct and check solutions that really solve all negative effects without creating new ones? And above all to cause such a major change smoothly, without creating resistance but the opposite, enthusiasm? Can you imagine having such abilities?’’
"Alex, that is what you have done. That’s exactly what you have done in our plant.’’
"Yes and no,’’ I answer. "Yes, that’s what we have done. No Lou, without Jonah’s guidance all of us would be looking for new jobs today. Now I understand why he refused to continue advising us. Jonah said it to me in the clearest way. We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I’m doing my job.’’
"We should and can be our own Jonahs,’’ Lou says and stands up. Then this reserved person surprises me. He puts his arm around my shoulder and says, "I’m proud to work for you.’’
AN INTERVIEW WITH ELI
GOLDRATT AND OTHERS
by David Whitford,
Editor at Large, Fortune Small Business.
DW: The Goal was published 20 years ago. Since then a lot has changed in operations. New, powerful methodologies to improve operations, such as LEAN and Six Sigma, are widespread. The emphasis on reducing lead time and improving due-date performance has become the norm. Even The Goal’s subtitle - a process of ongoing improvement - is a statement that is now taken for granted by every organization. So, my first question: Is The Goal still relevant?
