The Goal by Eliyahu Goldratt and Jeff Cox
Book Review Rating – 5 Stars
“The Goal: A Process of Ongoing Improvement” is a fantastic book about performance improvement in a manufacturing business wrapped up in a novel that is hard to put down.
First published in 1984 this book introduced the world to the Theory of Constraints.
The big idea is that many of the ideas for improving a business are misguided at best and expensive mistakes at worst.
That’s because an improvement in an area outside of the constraint that is holding back performance is more an illusion than substance. Real improvements come from removing the constraint.
The Story Of The Goal
I think this was the first popular management book to be written as a story but it is an extremely effective teaching method for putting across the big ideas. The weakness is that it’s hard to pick up the details to put the ideas into action. Eli Goldratt wrote The Race as the follow-up hands-on guide.
There are two stories interlocked in the life of the hero, plant manager Alex Rogo:
- How he can save his struggling plant from closure.
- Whether his marriage could also be saved because he was pouring so much of himself into saving the business.
Both aspects of the story resonate with busy managers.
The Goal hooks it claws in deeper as you read it and recognise that the symptoms the plant is suffering, echo in your own workplace with high costs, backlogs and the frustration that things just don’t get better as fast as you think they should, despite the hard work, best efforts and total commitment of your team.
Jonah Is The Mysterious Guru Of The Goal
Fortunately Alex Rogo has help in the form of a mysterious wise guru called Jonah who teaches Alex the Theory of Constraints.
Jonah teaches by asking questions so that Alex and his team have to search for the answers.
The truth is often more powerful that way but fortunately The Goal makes it easy. Whilst you walk in their steps in the search, you are spoon-fed the answers.
Bottlenecks And Constraints
The essential idea of The Goal is that very business is a system.
Just as the strength of a chain is determined by its weakest link, a system is constrained by one particular operation – the bottleneck.
The logic is that every system must have a bottleneck because otherwise, output would be infinite.
The Goal is set in a manufacturing plant and this makes it easy to envisage the constraint more clearly than in a service based business. Or it did for me because, when I first read it, I was the Finance Director of an engineering business with too much work in progress.
Please don’t get the idea fixed into your head that the Theory of Constraints only applies to manufacturing. The same kind of thinking can transform how service businesses work and it has been applied with the National Heath Service in the UK.
Manufacturing and a physical product makes it easier to see in your mind.
Imagine you have four machines in the production line and every product must pass through each machine in sequence.
- Machine A – maximum output of 200 per hour
- Machine B – maximum output of 225 per hour
- Machine C – maximum output 150 per hour
- Machine D – maximum output 180 per hour
In this very simple example, the constraint is clear. The output of the production line is governed by Machine C which is the bottleneck.
If machine A and B operate at 200 units per hour, then because only 150 units will be processed by Machine C, it means that work in progress builds in front of machine C at the rate of 50 units per hour.
The theory of constraints says that the only way performance of the system can be improved is through improvements in the bottleneck machine C.
Improving machine A and increasing output to 250 units per hour by investing in robotics is an illusion. The system is still constrained by machine C and the money spent on improving machine A is effectively wasted.
Even worse, each hour lost on machine C – through breakdowns or operator issues – is an hour of output lost to the entire system. The other machines can catch up for some downtime but lost output from machine C can never be recovered.
The Theory of Constraints
The Goal’s main message is that in the Theory of Constraints, you must focus all your attention on the constraint.
In a series of vivid examples, The Goal introduces you to the ideas which will improve the constraint.
The first thing is to recognise is the location of your constraint. Piles of work in progress make the constraint obvious in manufacturing but it’s harder to see in service businesses. Get it wrong and your ongoing improvement efforts are wasted.
Here are the five Theory Of Constraint Rules
1. IDENTIFY the system’s constraint(s).
2. Decide how to EXPLOIT the system’s constraint(s).
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system’s constraint(s).
5. WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint.
The Goal And The Criticism of Conventional Accounting
If you want to fight back against your finance department because their guidance doesn’t make much sense, The Goal can give you the ammunition.
The book introduces a new performance basis which recognises that most expenses should be regarded as fixed in the short term including labour.
>>> The Cost Volume Profit Relationship
It is controversial but the argument is powerful and lead to the creation of the concepts of Throughput Accounting.
According to Eliyahu Goldratt and The Goal, the only performance measures that matter are:
- The throughput – effectively defined as sales less material costs – potentially an even tighter definition than contribution margin.
- Operating expenses – all the other costs
- Inventory – all the money tied up in the system
The Goal is to make money and you do that by increasing throughput, decreasing operating expenses and inventory or some combination of all three.
Review Rating For The Goal by Eliyahu Goldratt – Five Stars
I have no hesitation in giving The Goal a five stars business book review rating.
It is an eye-opening, mind-expanding, must-read book which shows how great management education can be built into a powerful and compelling story.
If you are involved in performance improvement, go and buy The Goal and keep an open mind as you read it.
If you are not in manufacturing, you have some work to do to imagine how the theory of constraints fits into service businesses, distribution businesses and retail businesses.
Try because unless you have a business which makes money hand over fist, your business has a constraint. Your fastest way to improve the results of the entire business system, is to find and focus on elevating that constraint.
You can buy The Goal from Amazon.com and Amazon.co.uk (affiliate links)
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