It's Not Luck

Note: This is an overview of Eliyahu Goldratt's book "It's Not Luck". This page summarizes the concepts which he introduces in the book. Reading this page is not a substitute for reading the book as there is information in it than I can possibly reproduce here. If these thinking skills interest you, and they should, I urge you to acquire the book for yourself and read it. It is very readable and it is very affordable! The book is available in many bookstores, from Amazon, and also from North River Press.

The saga which began in The Goal continues in Eliyahu Goldratt's next book called It's Not Luck. In this book the thinking skills are introduced and developed. These thinking skills are one of the three necessary things which enable a person to construct new common sense solutions to complex problems. One of the main things that normally makes this so difficult is that people and companies do not exist in a vacuum. They have a history and that history and their traditions, constrain their thinking and approach to problems. To express it another way, common practice normally prevents us from seeing common sense! These Thinking Skills enable a person to systematically break free of the constraints of common practice. They comprise a system of constructing and communicating Common Sense.

The second necessary skill is intuition. The Thinking Skills are no substitute for experience because experience is what enables us to develop intuition about a particular area. In our work life we often find ourselves fighting fires: trying to control a complex system and prevent it from spinning out of control. The fact that a person has the ability to fight fires demonstrates that they have adequate intuition about a particular situation. However, while intuition is necessary for developing new solutions to complex problems, it is not sufficient all by itself.

The third necessary item to accomplish this analysis is the will to do it. You must believe there is a solution to be found or you will not try. Thus the will to do the analysis is the third necessary item. Together these three items are sufficient to find a solution. When intuition is combined with the Thinking Skills and the will to perform the analysis they are sufficient to solve complex problems in any area of human endeavor. This book shows us how this process works.

The protagonist once again is Alex. This time he is the general manager of The Diversified Group. This group consists of three companies: a printing company, a cosmetics company and Pressure Steam. Acquired as a part of a diversification movement by UniCo, these companies are in the diversified group because they have nothing in common with the main business of the organization. A decision is made by the board to sell these companies in order to improve the credit position of the organization. The companies of the diversified group operational performance is exceptional, but their financial performance is marginal. Alex disagrees with the decision to sell but he cannot change it. He starts out as point person in assisting two of the board members with the sale. As the plot progresses his team figures out how to translate their exceptional operational performance into exceptional financial performance too. As far as TOC is concerned , this book demonstrates than policies can be as much of a constraint as a physical resource. This is not a connection that most people will make on their own!

There is also a side plot of applying the thinking skills in his personal life with his children. Alex's wife, a marriage counselor, also uses the thinking skills every day to help people work through their personal issues. By this time TOC was being applied in areas of business other than operations. This book teaches the thinking skills to show how TOC can be applied to solve complex problems.

The Five Thinking Skills

Let me tie the three questions from The Goal to these five thinking skills. In the book these skills are presented, in the order shown above, but that is not the normal sequence in which they are used. The following table shows the sequence in which the skills are normally applied in analyzing an issue.

QuestionThinking Skill Sequence Purpose or Usage
What to ChangeCurrent Reality TreeTo create an accurate representation of the current situation in all of its complexity
Evaporating CloudTo verbalize an accurate and complete statement of the root cause of a problem
What to Change toFuture Reality TreeTo create an accurate and complete representation of the situation as we want it to be in the future
How to Plan the ChangeNegative Branch ReservationTo anticipate all the possible problems that might arise in the transition from Current Reality tree to Future Reality Tree and either prevent their occurrence or change their effect from negative to positive
Transition Tree or Prerequisite TreeTo create a step by step plan to move from the current situation to the planned situation

Chapter Summary

Chapter Plot Characters Thinking Skill
1 Sets the stage for the book. The key player is Alex, an executive vice president in charge of three companies in the diversified group. Alex, Granby, Doughty, Trumann, Bill Peach, Hilton Smyth  
2 Sharon wants to go to a party which will end late. Her father wants her home earlier. Alex demonstrates how the Cloud can be used to understand and then resolve a situation which has developed into a stand off. Alex, Sharon Evaporating Cloud - Negotiating
3 Alex and Don are touring the printing Company which is headed by Pete. They are assessing the progress made over the last year since they acquired the company. While marginally profitable they have a big problem with the Wrapper department. The chapter finishes with Don asking how Pete can compete for short runs but not for long runs. Alex, Don, Pete Evaporating Cloud - Defining and understanding a complex situation
4 Alex tries to find out if Granby has a plan to avoid the sale of his companies. He learns that he is Granby's 'Ace in the hole.' Alex then confirms with Peach to find out more specifics about the original purchase of his companies. Alex, Granby, Peach Exercise:
Build Evaporating Cloud to describe the situation regarding the sale of the Diversified Group companies with respect to their purchase.
5 Alex announces he will be going to Europe on a business trip. His son, Dave want the use of his new BMW while he is away. Alex says he will think about it. Julie, Alex's wife, offers to help Alex work on his promise (thinking about whether he will load his car to his son.). This introduces how a Negative Reservations Branch is constructed. Alex, Julie, Dave, Sharon Negative Branch Reservations - introduction
6 Alex reviews the situation at ICosmetics (Bob's company) and Pressure Steam ( Stacey's company). They review progress of the last year and examine what the next steps should be. Alex, Don, Bob Donovan, Stacey Kaufman Reviews concept of a Bottleneck and how it can impact an organization. Asks Bob what they need to do next.
7 Alex analyzes the fiscal impact of Bob's new inventory system. Despite creating a substantial short term paper loss Alex tells him to proceed. They then review Stacey's company. Alex, Don, Bob Donovan, Stacey Kaufman Asks Stacey what they need to do next.
8 Dave asks Alex if he will get to use his dad's car while he is away. Alex explains that he has thought about it and has some concerns. Dave wants the answer now and fears his dad will say no. Alex explains that Dave needs to take his concerns seriously. Alex has two concerns, a hoped for trip to Mexico and Dave getting used to using his car. The Mexico problem is easily settled. Alex shows Dave the logic tree which captures his second concern and waits for Dave to suggest possible resolutions. The chapter ends with Julie referring to her work as a Marriage counselor where she uses the five thinking skills daily. She prods Alex to use the skill to solve his marketing problems. Alex, Julie, Dave, Sharon Negative Branch Reservations
Shows a tree and how the feared negative will occur.
9 Don indicates he has a solution for making the wrapper department, a sinkhole of red ink, as profitable as the rest of the company. Alex, Don, Pete Evaporating Cloud - assumptions
10 Alex flies to London with Doughty and Truemann. He gets to know them better and understand their function on the Board of Directors. He and Truemann disagree about selling the companies and Alex uses the Evaporating Cloud to chow Truemann how to capture the essence of a complex problem concisely. Ales, Truemann Evaporating Cloud - constructing, reading
11 The three meet with a prospective buyer to disclose information about the printing company. After the meeting Alex calls Don to see how his new marketing plan is working out. Prospective customers are very interested and Pete has two companies considering giving him all their wrapper business. Truemann is telling Doughty about Evaporating Clouds when Alex joins them in the pub. Finding an opening, Alex tells them about Pete's new sales approach. Alex, Doughty, Truemann Exercise: Transition Tree
Create a transition tree to show how Alex moved the discussion from Clouds to Pete's innovative sales idea.
12 Alex explains to Doughty and Truemann that the Thinking Skill require intuition about the situation at hand in order to effectively use them. Then he explains that the clouds are not the first step in the thinking skill. The first step is to construct a current reality tree. He explains that is it a logic diagram which links by cause and effect all the problems (UDEs) so as to reveal the core problem which is causing all of the other UDEs. Alex, Doughty, Truemann Current Reality Tree - Undesirable Effects (UDEs)
13 The three met with a prospective buyer about Pressure Steam. Alex doesn't quite understand the thrust behind the buyer's questions. Ever thing is about numbers and nothing is about the business. Alex, Doughty, Truemann  
14 Alex discloses the new inventory system for ICosmetics to Doughty and Truemann and its negative short term financial impact. They then meet with a prospective buyer. Afterwards the three talk about who Alex's companies are ignoring Common Tradition and instead using Common Sense. the board members are persuaded that perhaps there is something to these thinking skills. The only other alternative is that Alex is either a management genius or the luckiest divisional manager alive. Alex, Doughty, Truemann Current Reality Tree - UDE list from chapter 12
15 Alex coaches Doughty and Truemann through a partial construction of the Current Reality (CRT) for the UDES they previously listed. Alex, Doughty, Truemann Current Reality Tree - construction, reference to the categories of legitimate reservation which are sued to make sure the tree is accurately describing reality. How to build and refine the logical connections of a CRT.
16 Alex finishes some shopping for his family. Then he calls Pete to see how the potential sales are coming along. Pete has made one sale for the customer's wrapper needs for the entire year. The other customer is in the final stages of negotiating. The new sales approach is going to work. He updates Doughty and Truemann. Alex had spent the morning finishing the CRT and now shares it with the other two. There are some nasty surprises for them in the tree. They have been doing things which have hurt the companies on which they sit as board member. After a careful review and some prodding on Alex's part to remind them that the reason for doing this is to find the core problem. He then shows it to them. It is easier to understand conceptually than it is to realize how one falls afoul of it in practice. Alex, Doughty, Truemann Current Reality Tree - Core problem
17 Alex returns home to find his daughter in a funk. He tries to draw her out of her shell by finding more common ground on things they can talk about. Sharon finally responds by tell her dad why she is depressed. She has had three incidents between herself and her friends and all of them threaten an important value for her of maintaining good friendships. Not realizing this and not knowing how to deal with any of the three she retreats into her shell. Alex teaches her to analyze each incident using the Evaporating Cloud to pinpoint why each of them bothers her so much. Alex, Sharon Evaporating Cloud - this application suggest that when things bother us deeply it is likely to be about something s=which we regard as being very important. The cloud technique enables us to precisely define what the problem is. Then we can proceed to solve the problem.
Exercise:
Examine two or three incidents in your own life that bother you long after they are supposedly done with. Build a cloud for each incident and examine the common goal of each incident. Compare these goals with your values.
18 Alex and Bill, over lunch, discuss the sale of Alex's companies. Alex realizes for the first time that the board's intent is to sell Pressure Steam to the shredders. The company will be taken apart and one of its competitors will buy the customers. This will triple the sale value of the company. It is the only way they can get enough money to adequately improve UniCo's financial position. Alex becomes very upset and gets mad enough to do something about it. He drives around and thinks things through and carefully develops the cloud that needs to be broken. Then he calls Don and tells him to schedule time in the morning to create a Future Reality Tree. Alex, Bill Peach, Don Exercise:
Draw out the Evaporating Cloud whose common objective is to: Manage Add in all the assumptions Ales identifies.
Exercise:
List the objectives Ales identifies at the end of this chapter.
19 The book jumps ahead at this point. Alex is in a meeting with Doughty and Truemann to persuade them to slow down or halt all activities relating to the sale of the three companies. Alex, Doughty, Truemann Exercise:
Create a Transition tree to show the path Alex took to persuade Doughty and Truemann to delay the sale of the companies.
20 Alex and Don create a Future Reality tree. At first there are several assumptions and the thing looks like a 'pig with wings' to use their expression. But the exercise is done to get a better idea of what the injection should be. Alex, Don Future Reality Tree - concept
Exercise:
Draw both Future Reality Trees that Alex and Don build, the preliminary and the final.
Negative Branch Reservation - Better product
21 Don has a problem because his sales people cannot sell the new pitch. Don is dispatched to figure out what is happening and fix it. Dave approaches his dad for advice about a joint venture with a friend. Alex teaches Dave how to evaluate an opportunity and use Negative Branch Reservation to address the obstacles before he makes a decision to go ahead or not. Alex, Pete, Don, Dave Negative Branch Reservation - evaluating an opportunity
22 Don explains the problem Pete's sales people were having. In creating his solution, Pete skipped some steps. He could do it because of his experience and intuition about his industry. However, when his people made sales calls they were not adequately prepared. Don went back and filled in the missing steps according to their Future Reality Tree blueprint and the problems were solved. Alex, Don Evaporating Cloud - the sales person's dilemma.
Transition Tree Exercise - Write out the transition tree in logic tree format.
23 Alex and Don travel to ICosmetics to hear what Bob and his team have come up with for a new sales approach. The trees show clearly what the core problem is and how to fix it. Unfortunately, the short term financial impact will be substantial. They expect to lose two months sales in the conversion. Alex, Don, Bob, Susan, Jeff Current Reality Tree - market situation for Cosmetics retailers
Future Reality Tree - effect of the new sales policies on the current system
24 The last chapter ended with the black cloud of two months lost sales looming over the new sales plan. Bob's team are afraid of this negative outcome. It is important to note here that when an idea to trim a negative leads to more negatives, people often give up on the idea as being impractical. If you do the analysis you can indeed trim all the negatives. Alex writes out the negative branch and asks how they planned to trim the negative outcome. He asked what injections (ideas) they had considered. Finally they tell him what they considered but it would cost even more. As they work through the problem they finally find that it will work with just a few simple modifications. Alex, Don, Bob, Susan, Jeff Negative Branch Reservation - shows how a negative branch can be discouraging. If we work through it the negatives can be trimmed. that is what this thinking skill is all about!
25 Alex updates his family about work. Then Alex finds out how Dave and Herbie's plans to restore an old car are doing. Dave tells how he created the negative Branches for the things he was concerned about and how he and Herbie trimmed them. Dave also caught onto an Idea Alex had explained about how the purchaser and the seller have different viewpoints. Using this Dave and Herbie created a presentation for Herbie's father that he couldn't refuse. Dave and Herbie would restore a car and Herbie would never again ask to borrow one of his dad's antique cars. Dave then suggested that the same idea might apple to the sales of Alex's companies. After due consideration Alex realized that selling a company which is the model for how a business in its industry should be run, has a far greater value than an ordinary company. Alex, Julie, Dave, Sharon Negative Branch Reservation - shows how Dave dealt with Herbie's need to raise money.

Differences between buyers view of a product and a sellers view of a product.
26 Julie wants to know that Alex has a plan for his own future and not just the future of his companies. Together they go through the process of creating a prerequisite tree to see what is necessary for Alex to secure and equal or better job. Alex, Julie Prerequisite Tree - Shows how to build a transition or prerequisite tree. While the ere are two names for this tree, the names reflect the purpose for which the tree will be used. The actually look the same. Only the process for building them is slightly different. Alex builds a tree to plan what needs to be done to secure a equal or better job.
Exercise:
Draw out the tree that Alex and Julie create.
27 Alex walks Doughty and Truemann through the marketing solution for ICosmetics. He show them the Current Reality Tree. This reveals the core problem in the market. Then he show them the Future Reality Tree and how by changing their existing policies they can solve the core problem in the market. The new inventory system will make it very difficult for competitors to copy them. Then the board members came up with potential problems. Alex has a Negative Branch tree, prepared by Bob's team, for each potential difficulty they raise. They are very impressed. Then Alex has them calculate how much cash UniCo will receive from ICosmetics over the next four months. They will receive more cash from operations than they expected from the sale of the company! Alex then speculates what would happen if Pressure Steam comes up with their own solution. This buys him some time for Pressure Steam to create a new marketing solution. Alex then claims they are going about the sale of the companies all wrong. What they should be selling is not a printing, a cosmetics company and a steam company, but they should be selling these companies as models of excellence in their industries. Then Alex flies out to see Stacey and her people. Alex, Doughty, Trumann, Don, Stacey Transition Tree - The process Alex follows in this chapter was determined by creating a transition tree.
Exercise:
Draw the transition tree that Alex followed in his discussion with the board members.
28 Stacey introduces Alex to a large group of her people. Because of low morale, they think they will be sold and the company broken up, no one will do anything. Alex leads a discussion in which he tries to lead then through the process of creating a CRT but they resist because they think it is pointless. Much of the interaction revolves around Alex and Joe and Alex deliberately misunderstand him to get a rise out of him or someone else. They explore cutting prices, placing parts on consignment, and several other ideas. Finally Joe, in exasperation say they should give the clients everything. Someone calls out "Xerox'. The ball starts rolling and Alex lets Stacey assume control. He quietly leaves. Alex, Don, Stacey, Joe Intuition - Alex interacts with the sales VP, Joe, and in the process the idea to sell the steam itself instead of the parts comes to the fore.
The process works but people's emotions can ,and do, get in the way.
29 Six months later Alex and Bob are waiting for the papers to be signed which will mean he will report to a new boss. Pete's company sold for $168 million and Bob's sold for $270 million. UniCo gets $438 million for just two of the companies. Since all three were purchased for just under $255 million. Alex and Granby review the progress of Pressure Steam. The company is eating its competitors for lunch but it is too early to know where things will stabilize. Doughty and Truemann quiz Alex about what to do with all the cash that they now have. Alex states that that decision has to be made in the context of a corporate strategy. They want to know more but Alex says there isn't time at present. The four of them arrange to go out for lunch and discuss it then. Alex, Bob, Granby, Doughty, Truemann  
30 In this chapter and the next, Alex discusses his concept of a good corporate strategy. These two chapters are worth their weight in platinum. In my bachelors and masters degrees in business I was presented with many ideas for a corporate strategy. What is in these two chapters beats everything else I have ever heard of. I am not going to tell what it is because I would have to basically replicate it verbatim. I have too much respect for the author to do that. These two chapters are worth more than the price of the book all by themselves! Alex, Granby, Doughty, Truemann  
31 The previous chapter ends without disclosing the conclusion. In this chapter Alex recounts what happens to his wife. He finishes the presentation. Buy the book and read it! Alex, Julie