The Goal: A Process of Ongoing Improvement



The Goal: A Process of Ongoing ImprovementI finished reading "The Goal: A Process of Ongoing Improvement" today (a sunny and windy beautiful day in Boston btw) which Joel pointed to a couple months back. Like Joel, I'll find it useful should I ever need to run a factory, it also struck a chord with me on some non-programming level, more business like level. One of the takeaways from the book was the description of what the goal of a for-profit organization should be:

"... so I can say that the goal is to increase net profit, while simultaneously increasing both ROI and cash flow and that's the equivalent of saying the goal is to make money.... They're measurements which express the goal of making money perfectly well, but which also permit you to develop operational rules for running your plant. Their names are throughput, inventory and operational expense... Throughput is the rate at which the system generates money through sales.... Inventory is all the money that the system has invested in purchasing things which it intends to sell.... Operational expense is all the money the system spends in order to turn inventory into throughput." (pg 59-60) Selling physical widgets is a much different ballgame than selling services or selling software, so I'm having a hard time imagining how this might apply to a web shop like MINDSEYE, but it's an interesting mental exercise nonetheless.

Another interesting concept (which I'm guessing is covered in the Critical Chain book) is the idea that in a multi-step synchronous process, the fluctuations in speed of the various steps result not in an averaging out of time the system needs to run but rather in an accumulation of the fluctuations. His example was a hike with 15 Boy Scouts, if you let one kid lead the pack and that kid averages between 1.0 and 2.0 mph, the distance between the first and the 15th scout will never average out but will gradually increase with time because "... dependency limits the opportunities for higher fluctuations." (pg 100). In this case, the first scout doesn't have any dependencies, but each of the next 14 do: the person in front of them. Thus, as the hike progresses, the other 14 can never go faster than the person in front of them and so on and so forth. This actually does have some usefulness within our daily jobs as programmers. Each of us does depend on someone in one way or another whether it be for design assets or IA docs or a software function. A breakdown in one step of a project can sometimes be made up through sheer willpower and alot of caffeine, but most likely will result in the project being delayed. The same thinking can be applied to software that we write: slow functions, rather the statistical fluctuations in functions (fast or slow) don't average out as much as they accumulate, which I guess is kind of obvious, but worth noting.

Other nuggets to chew on this morning: "The maximum deviation of a preceding operation will become the starting point of a subsequent operation." (pg 133)

On bottlenecks within an operation: "... Make sure the bottleneck works only on good parts by weeding out the ones that are defective. If you scrap a part before it reaches the bottleneck, all you have lost is a scrapped part. But if you scrap the part after it's passed the bottleneck, you have lost time that cannot be recovered." (pg 156) Do you have expensive (in terms of processor cycles) operations in a computer program after which you then scrub the data for quality? Why not put the scrub before the expensive operation saving yourself some cycles.

On problem solving: "... people would come to me from time to time with problems in mathematics they couldn't solve. They wanted me to check their numbers for them. But after a while I learned not to waste my time checking the numbers -- because numbers were almost always right. However, if I checked the assumptions, they were almost always wrong." (pg 157) Next time someone asks you to review some code that isn't producing the correct results, attack their assumptions before going over the code with a fine tooth comb.

BTW, the book is written as a story so if like reading stories and want to stretch the business side of your brain, but don't enjoy business textbooks, this book is for you!

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The Theory of Constraints (TOC) will change the way you think, February 12, 2006
Reviewer: Cogito "MBA 2007 Candidate" (Ontario, Canada) - See all my reviews
I once was at an intersection in New York City where Wall Street and Broadway intersected. When I stood there I asked myself "Is this the intersection between business and entertainment?".
Eliyahi Goldratt's The Goal is one such intersection between business and entertainment. This book is an entertaining novel and at the same time a thought provoking business book. The only other author I know of who has been able to write such a business novel is Patrick Lencioni. The story is about a plant manager, Alex Rogo, whose plant and marriage are going downhill. He finds himself in the unenviable position of having ninety days in which to save his plant. A fortuitous meeting with an old acquaintance, Jonah, introduces him to the Theory of Constrains (TOC). He uses this new way of thinking to ...
TOC postulates that for an organization to have an ongoing process of improvement, it needs to answer three fundamental questions:
1. What to change?
2. To what to change?
3. How to cause the change?
The goal is to make (more) money, which is done by the following:
1. Increase Throughput
2. Reduce Inventory
3. Reduce Operating Expense
The author does an excellent job explaining his concepts, especially how to work with constraints and bottlenecks (processes in a chain of processes, such that their limited capacity reduces the capacity of the whole chain). He makes the reader empathize with Alex Rogo and his family and team. Don't be surprised if you find yourself cheering for Alex to succeed.
My favorite section in this book is the one in which Alex takes his son and a group of Boy Scouts out on a hiking expedition. Here Alex faces a constraint in the form of the slowest boy, Herbie. Alex gets to apply two of the principles Jonah talked to him about - "dependent events" (events in which the output of one event influences the input to another event) and "statistical fluctuations" (common cause variations in output quantity or quality). He realizes that these are leading to delays in his plant and thinks of ways to fix the problem.
Although this book is excellent in the context of Operations, the "Goal" to "make (more) money by..." is limited in its focus. It is concerned with the cost centers internal to a business. Business performance in today's increasingly competitive market depends on a variety of factors that exist outside the business. These include competitors, external opportunities, customers and the more important non-customers. Executives need to focus on these in order to see the bigger picture.
I read The Goal for the first time in 1996, when I started my undergraduate program in Statistics. I read it again in 2005. This book is necessary reading at the best MBA programs. I recommend it highly.
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73 of 76 people found the following review helpful:
A Remarkably Effective Novel for Learning Management, December 7, 2000
Reviewer: Donald Mitchell "Your Entrepreneurial Coach: Free Tele-Seminars to Build a Billion Dollar Business Listed at http://billiondollarbusiness.blogspot.com/" (a citizen of the world based on Boston) - See all my reviews
(TOP 10 REVIEWER) (REAL NAME)
This novel succeeds in being outstanding at so many levels that it could receive a multiple of five stars. It is hard to imagine a management book in novel form ever approaching this one in usefulness. Most people will learn more that they can apply from this book about management than many people learn to apply from an M.B.A.

The basic story is built around the dilemmas facing Alex Rogo, a newly-appointed plant manager. The plant can't seem to ship, it's losing money, and bad things can happen to good people if all this doesn't change soon. Alex is at a loss for what to do until he pulls out a cigar that Jonah, a physicist from Israel, had recently given him. That cigar reminds him to contact Jonah for possible help. From there, the path to recovery begins.

Let me describe some of the many levels on which this novel is valuable.

First, the book explains how to see businesses as systems as well as any other book on this subject. It compares favorably in this area to such important works as The Fifth Discipline and the Fifth Discipline Handbook. The metaphor of how to speed up a slow-moving group of boy scouts will be visceral to anyone who has done any hiking with a group.

Second, the book helps you learn how to improve the performance of a system by providing you with a replicable process that you can apply to analyzing any human or engineering system. The primary metaphor is improving a manufacturing process, but the same principles apply more broadly to other circumstances.

Third, you will experience the power of the Socratic method as a way to stimulate your mind to learn, and to use Socratic questions to stimulate the minds of others to become better thinkers and doers.

Fourth, the authors also use problem simulation as a practical way to help you experience the learning process they are advocating.

Fifth, the book is unusually good in bringing home the consequences of letting your business process run in a vicious cycle: Your family life may also.

The pacing of the book is especially good. You are given time to stew with issues and come up with your own ideas before sample answers are provided by Alex and his staff in the novel.

Unlike many books that take complicated ideas and oversimplify them so the ideas lose their meaning, this book simplifies ideas in ways that enhance their meaning by making the ideas easier to see and employ.

If you do not understand all of the ins and outs of typical factory accounting, you may get a little lost from time to time. But that's not a problem. That accounting just distorts common perceptions of what needs to be done. You can safely skip anything you don't understand if you don't have to deal with such issues.

While I did not observe any overt errors in the book, companies that do not put an asset charge on operational assets could make the mistake from this book of seeking too little profit. You need to earn on-going returns that exceed your cost of capital, too.

You will get the most from this book if you read The Fifth Discipline following it (if you have not read that book already). The discussion of the beer game simulation in The Fifth Discipline will add to your understanding of system dynamics.

Following that book, I suggest that you then read The Balanced Scorecard and The Strategy-Focused Organization for ideas about how to use goals, measurements, and rewards to concentrate attention onto the highest leverage areas for your system.

After you have finished employing what you have learned and helping others around you to learn more also, I suggest that you think about how to optimize the full upside potential more rapidly through the use of irresistible forces and 2,000 percent solutions to speed your progress. That should leave you with even more success and more time to enjoy it.

Unblock the constraints on your progress!