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Book Summary: “The Goal” by Eliyahu Goldratt

My curiosity was piqued when I saw the article entitled "Amazon CEO Jeff Bezos Had His Top Execs Read These Three Books." Bezos is an avid reader and this past summer he hosted all-day (yes, all day!) book clubs with Amazon’s top executives. Bezos said he used these books as frameworks for sketching out the future of the company, and one of the books they read and discussed was The Goal.

Subtitled "A Process of Ongoing Improvement," the first edition of The Goal was printed in 1984. Written as a novel, it is about a process of continual improvement; based on a company’s manufacturing operations but relevant to all organizations because it’s about people trying to understand what makes their world tick so that they can make it better. As the characters "think logically and consistently about their problems they are able to determine "cause and effect" relationships between their actions and the results."

In the story, the manufacturing operation’s management team is struggling to return what was once a successful plant to profitability so it won’t get closed down by ownership.

Shipments are constantly late and there exists months of production backlog, yet inventories of finished and in-process goods are soaring. Collectively they wonder why they can’t consistently get a quality product out the door on time at the cost that can beat competition.

Given three months to turn the plant around, the plant manager turns to a manufacturing guru who has a unique and potentially risky approach to addressing the problems. First, he takes what can be a complicated subject, productivity, and defines it simply as the act of bringing a company closer to its goal. "Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive." This demands the question: What is the goal?

The plant manager wonders if the goal is cost-effective purchasing, employing good people, high technology, producing quality products, capturing market share, customer satisfaction, etc. He finally decides that making money is the appropriate goal and so, based on the guru’s definition of productivity, an action that moves the plant toward making money is productive. And an action that takes away from making money is non-productive.

The management team agrees on three metrics to determine if the plant is making money: net profit, return on investment (ROI), and cash flow. It becomes obvious, then, that it is critical to build a connection between these three measures and what goes on in the plant…down to every employee on the factory floor. Higher throughput, lower inventories, and reduced operational expenses become their areas of focus to improve plant profitability.

The balance of the story involves the management team and the factory workers employing new methods to identify and address throughput bottlenecks (termed "finding Herbie"), understanding depending and independent events, and analyzing statistical fluctuations. The factory achieves incredible new levels of profitability and the plant manager gets a well-earned promotion.

Some lessons that the plant manager and his management team learned along the way:

  • That people working or machines running and making money are not necessarily the same thing. In other words, having an employee work and profiting from that work are potentially two different things. In the story the guru says that "activating a resource and utilizing a resource are not synonymous." [How much unproductive activity do you have in your organization?]
  • True bottlenecks are any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. [Where are the "bad" bottlenecks in your company?]
  • That bottlenecks are not necessarily bad – or good, they are simply a reality and must be evaluated to determine if they help or hinder overall system throughput. [Do you know which of your bottlenecks are good and which are bad?]
  • That the capacity of the plant is equal to the capacity of its bottlenecks. [Think of it as a group of hikers who can only progress as quickly as the slowest walker. Or that a team is only as strong as its weakest member.]
  • Improvement requires change. And change means uncertainty which translates into fear. "We venture from what is safe and known into what is unknown, a move that most people are afraid to make." It is human nature to strive for control, predictability and certainty. [How much of what you do is actually directed against change?]
  • That in actuality a small number of constraints governs overall performance. [Do you know the key constraints that are holding you or your organization back?]
  • Not to focus all of your energy on the improvements themselves but rather on the process of improvement. [Thus the book’s subtitle "A Process of Ongoing Improvement." Is continual improvement in your organization’s DNA?]
  • You have to know what your goal is before you can optimize a system (e.g., yourself, a factory, a team, a company, etc.). Otherwise there is likely a lot of unproductive activity. [What is your goal? Do you really know what it is? And are you on the right path to accomplish it?]

Good luck finding your "Herbies" (constraints, bottlenecks, hurdles) and addressing them so that your path to success is made easier.