The Goal

Note: This is an overview of Eliyahu Goldratt's book "The Goal". 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 that I cannot possibly reproduce here. If these thinking skills interest you, and they should, I urge you to aquire 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.

Alex has been running his manufacturing plant for about 6 months. A series of incidents brings it to his attention that his plant is not making money. He receives an ultimatum from his boss that if he does not make significant progress in the next three months toward profitability, his plant would have to be shut down entirely. Natually Alex is panicked by this news. He contacts an old University teacher he had run into a few weeks previous to see if he could get some help with his problem. Jonah, as his former teacher is known, offers to assist but is unable to be a regular consultant due to his hectic schedule. Jonah asks Alex what the goal of a business is and Alex is having some difficulty answering Jonah's question. This is not as unreasonable as it might seem. When we are in the middle of the forest we most commonly see only trees and not the overall view of the forest itself.

The Plot

Alex finally concludes that the goal of a business is to make money. Naturally we then need a way to measure our progress toward the goal. At the senior management level the system of measurements is quite simple. It consists of three measurements used together to assess and control the financial health of an organization. These measurements are taught to all business students.The trouble is that they are not terribly relavent to some parts of business and certainly not the parts of a business that we work in after graduating from college or university. The high level measurements used to assess an organization's fiscal health are:

In using these measurements we want all of them going in the right direction all of the time. Profits should grow continuously larger, relative profits should grow larger with the the same assets, and we need to accrue cash and near cash resources so that we always have sufficient liquidity for our business purposes. This lesson liquidity is currently being reinforced as the world heads into a recession and many companies have discovered they have not done an adequate job of maintaining any of these measures but most especially liquidity.

The difficulty in an organization is: How does one know whether any particular action is moving us closer to the goal? You see the three measurements above are expressed in financial terms and it is often difficult for operations to be assessed in financial terms before they are implemented. This is particularly true in manufacturing plants. The financial measurements are not terribly helpful here so Jonah introduces Alex to a new measurement system which is much more functional for assessing whether any given action in a plant is moving the organization toward the goal. This system also requires three measurements and they are as follows:

These measurements are a tool which enables anyone to determine whether any action we want to take will move us toward the goal or away from it. They apply to the system as a whole not just to a part of the system! This point is very important. When we look at just a part of a system we refer to this as a 'localization'. With TOC we are not interested in localizations. We don't want to look at an individual tree we want to consider the forest as a whole. We want throughput to increase; we want operational expense to decrease; we want inventory to decrease. While we want all three measurements to improve at the same time, it is necessary to realize where the greatest improvement will come from. Relative magnitude of improvement over a year for each of these are:

This ought to suggest that our efforts need to be primarily focussed on increasing throughput. However, check out the business news stories and judge for yourself where companies are focussing most of their time and energy. ALmost all of them are focussed in the areas where the least improvement is possible!

So the first fundamental lesson is to focus on throughoput. Any kind of an analysis of how to improve throughput reveals that we need to understand some basic concepts before we can come to grips with how throughput can be increased. The first two concepts are:

In a manufacturing operation, as in life, events occur in a sequence. They do not occur in isolation so thinking about them as if they are separate from all other events in the sequence is not only misleading but will harm the sequence itself! For example painting a part cannot occur until the part is first machined. So the later events are dependent on earlier events. If we are driving along a road following other vehicles then our driving is limited by, dependent upon, the behaviour of the drivers ahead of us. If we cannot pass the vehicles ahead of us then our speed is dependent on their speed. As much of an impact as this dependence has, it is the combination of that dependence and statistical fluctuations which really create the real havoc!

Statistical fluctuations mean that while we know how many parts are normaly be produced each hour, the actual number of parts fluctuates around an average. In any given hour we may produce more or less than that average. Using the car example in the previous paragraph we would say that our average speed fluctuates around the average of the slowest car ahead of us. This is because the slowest car effectively governs the speed at which all vehicles behind it may travel. It is a bottleneck to all trafic behind it. In a plant these effects are also observed. One of the steps in our system will be a bottleneck. This concept is central to understanding throughput. A bottleneck determines the throughput for the system and any given system only has one maybe two bottlenecks at any given time. There is a mathematical proof of this concept but if we pay attention to the things going on around us common sense will confirm this observation without resorting to reading the mathematical proof. If we look around us we can quickly find several examples of this behaviour in the organizational world around us both in our work worlds and in the wider world in which we life.

The last two paragraphs have just explained something very fundamental to understanding throughput in our organizations but, the reaction of most people to this information is: "So What?" This means they still don't understand: they don't get it! Let's look at some of the implications of the existence of bottlenecks. For example the cost, to the system, of a bottleneck not operating.

We might ask what is the cost of having a bottleneck go down, be non-operational, for an hour. Cost accounting experts will quickly answer with a number which they have calculated with great precision which represents the cost of operating that machine for an hour. The problem with their answer is that they have calculated the cost for the machine as if it was operating all on its own - in isolation or 'localized'. They are demonstrating their understanding of mathematical technique and their total ignorance of the fact that the machine does not operate in a vacuum. Do not misunderstand me, they are not ignorant, they are making an incorrect assumption. They are acting as if the context, the assembly line, is irrelevant when it is anything but irrelevant. The question was "What is the cost if that machine is a bottleneck and takes the whole system down for an hour?" The assumptions are very different. The cost of taking down the whole system for an hour is the total loss of productivity for the entire system for that hour. In other words the system loses one hour of productivity and the organization loses the sale of those products which were not produced. It is as if the whole plant is idle for an entire hour. That number is always substantially higher than the figure which the cost accountants will quote!

Alex and his group then spend quite a bit of time learning how to differentiate and manage bottlenecks. They first have to learn to see things in a new way. Then they learn how to properly manage their bottlenecks. As a result they dramatically increase their throughput and become the bright spot of the company for the next quarterly reporting period. In doing so the bottleneck shifts from being one of the machines in the plant, to being the market. This is the normal state of affairs for many of our business organizations. So they learn to dramatically increase their sales and how to manage their physical bottlenecks at the same time. This is not a trivial point and the know-how to do it is very precious!

The Process

In the Goal a process of ongoing improvment is followed. At first the participants do not realize they are following a process. However, when they analyse their actions they not only see and identify this process but they also realize that they have not done certain things to complete the process. The missed actions are causing problems for them and so the reflection helps them solve some of their residual problems. The process of ongoing improvement that they follow consists of the following five steps:

  1. Identify the system's constraint.
  2. Decide how to Exploit the system's constraint.
  3. Subordinate everything else to the above decision.
  4. Elevate the system's constraint.
  5. Warning!!! If in the previous step a constraint has been broken go back to step 1, but do not allow Inertia to cause the system's constraint.

In going through this process they are assistaed by Jonah who acts as a consultant and mentor to Alex and the others. He directs their attention to certain matters and asks questions that help the team to understand what is happening in their plant from a new perspective. While refusing to supply Alex with answers to his problems, Jonah does guide Alex to learn the things which enable Alex and his team to solve their own problems. The ideas are easy to understand because of the physicallity of a the example - a manufacturing plant. The things discussed are concrete not just abstract ideas, but the very nature of the concrete example also makes it difficult for people to transfer these principles to other areas. This has been a huge problem and is probably the primary cause for the time delay in implementing these ideas in other areas of business. I will explain this further when I discuss the It's Not Luck book.

Alex and his team are very successful, not only saving their plant from closure but setting records for profitability. Alex and his team have difficulty throughout the book because they, like all of us, have accepted things they have been taught without working them out for themselves. As a result of this, they accept many things in their world without having thought critically about them, and without having examined the consequences of those things for themsleves. We should not be surprised by this but most of us are surprised anyway when similar experiences happen to us.

Much of this comes down to the difference between Common Practice and Common Sense. As a result of actions taken in the past which become embedded in the system, Common practice is the way we do things around here. Actions become systematized and are then maintained by tradition and the inertia of the system. Common sense is our intuition about how some aspect of our world actually works. The two are quite different, and usually stand in stark contrast to each other. As people we have gotten used to compartmentalizing Common Practice and Common Sense as if they have no real connection with each other. An example from the book will illustrate. When Alex and his people learn what a bottleneck is their first step is to find out if they have any and where they are. By definition a bottleneck is an operation which has more demand on it than it can fulfill. If we try to get a machine to do more than it is capable of doing we will cause inventory to pile up around it. Common Sense tells us that the biggest piles of inventory will be found around the bottlenecks. Common Practice, however, has us diving into our records to find out what the capacity of our machines are, setting these up in a table and looking for the smallest number. Which method do you suppose yields results faster?

The successful adoption and use of these concepts result in a promotion for Alex. This terrifies him. He and his team did it, but he is not sure he can duplicate his reults in his new job. Jonah has offered to teach Alex the skills he needs, but asks Alex to come up with the list of the skills he needs to learn. In doing this Jonah is continuing his behaviour of getting Alex to understand and solve his own problems. Alex's wife assists him in this process. She became interested wondering what the skills could be. She is convinved that the needed skills are thinking skils and that they must be fundamental not just to managing a company, but fundamental to coping with life. At the end of the book Alex and one other protagonist are examining the five steps of ongoing improvement listed above to try and discern what skills are needed to accomplish that process. They come up with the following list of questions which the skills need to be capable of answering.

  1. How to decide what to change.
  2. How to decide what to change to.
  3. How to successfully plan and accomplish the change while avoiding all of the usual implementation problems.

Answering these questions requires methods of analysis - thinking skills, just as Alex's wife thought - which can be used to unequivically answer the questions. We need answers not guesses! We need to know that the answer we have will work. Jonah did not ask Alex to develop the thinking skills, just the questions which those skills needed to answer. So at this point Alex has his answer and indicates such to Jonah.

Commentary

As a matter of interest, there are at least two methods used to answer these kinds of questions in our society. Since there is more than one method, we need to ask if either method is superior or are they both interchangeable. A partial list of the methods which are used is:

It turns out that the scientific method is superior in one very important way. The heart of the political method is compromise. In the accurate sciences there is no compromise with answers. For example, if we want to know the height of a building so we can send out two teams to find the answer. Most of us would think it ridiculous if they returned with different numbers. We would think it even more ludicrous if we then arbitrarily pick something between the two results to be the correct answer. This is exactly what we do when we use the Political method. The Political method assumes that the goals of both parties are mutually exclusive. The sad part is that we often do not even bother to verify this. We assume rhe objective is the same and start bargaining away what we want or need because something is better than nothing. This example also demonstrates that we have expectations about how many answers there should be to any given problem. When we think there is one right answer we use the scientific method. If agreement and participation are the most important aspects of an issue then we use the political method. This method acknowledges that the parties have different interests and we agree that there needs to be a negotiation for whose interests should take precedence. But this method almost always results in compromises being made by both parties. While this might be equitable - nobody gets exactly what they want, but everyone gets some of what they need - it overlooks the possibility that there might be a solution which could make all parties happy.

The scientific method provide us with the means to examine the assumptions and the consequences of our analyses and thus determine what our course of action should be without resorting to compromise. This is a marked departure from how we usually solve problems in the social and political arena! The point is we do not have to compromise; we have to find an answer which is acceptable to all of the stake holders. These same thinking skills can be used in the social and political arenas to find and implement answers to problems which will solve our social and political problems without resorting to compromise. This makes the Scientific method approach superior to all others.

A dozen years later there had been so much demand for what comes next, that Goldratt wrote another book in which he articulates the thinking skills and explains how to use them to resolve complex problems. In the interim he was forced to develop Jonah's methods so that he could teach them as general principles and not just teach them 'by experience'.