The Goal: A Process of Ongoing Improvement

"The Goal" shows us how Alex learns to apply the Theory of Constraints, with the help of one of his old professors, who he bumps into after many years. Thanks to the professor's wisdom, Alex painstakingly begins to turn the plant around, allowing us to learn his valuable lessons along the way.

Now, don't for a moment be put off by the manufacturing setting of the story. You don't need to have set foot in a factory to understand the points being made, and the terminology used is kept to very general terms, like 'inventory' and 'production line.'

In fact, part of the brilliance of "The Goal" is that its lessons can easily be applied to almost any business that uses processes regularly. You'll hear some examples of exactly how a little later, but they cover universal issues like management, streamlining, problem solving, and the importance of questioning long-held beliefs. These are lessons that can be applied in numerous different settings.

So, is "The Goal" for you? Well, if you work in a manufacturing environment, it might not be. For starters, you're probably familiar with many of the concepts already, and you might also be irritated by the very simplified descriptions, which could also seem a little dated.

For the rest of us, though, this is a must-read classic, which has long been popular with MBA students the world over. There are good reasons why it has more than 300 positive reviews on Amazon. It contains some powerful truths that are effectively conveyed through the story format. So, while it's hardly great literature, it's definitely a page-turner.

The author, Eliyahu Goldratt, is a physicist who became a successful management consultant after creating the Theory of Constraints. He currently runs the Goldratt Institute, a leading provider of Theory of Constraints expertise and consulting.

So, keep listening to find out about those money-losing accounting practices, how hiking with boy scouts helped Alex improve his plant's productivity, and why averages might mean nothing in your business.

Before we dive into the meat of this book, let's take a moment to define what the Theory of Constraints actually is. After all, the whole book is based on this theory, and you may not have come across it before.

The Theory of Constraints has one purpose, which is to help companies consistently achieve their goals.

The theory rests on the assumption that the main goal of all businesses is to make more money. In order to achieve this, they need to do three things.

First, they have to increase their throughput – in other words, increase their sales volumes.

Second, they need to reduce their inventory. After all, when a company has too much inventory, they have goods sitting around made of raw materials they've paid for, and they also have warehouse storage costs.

And third, companies have to reduce their operating expenses, which is all the money that's spent to make the products the company intends to sell.

Fairly simple, right? Well, the Theory of Constraints says that the goal of making more money is usually limited by at least one constraining process, or bottleneck, if you will. Often, there are several, but there's always at least one.

In the theory, there are five steps to resolve this.

First, you have to identify the bottleneck. This could be a machine that can only work at a certain speed, or an individual or even a team that can only get through a critical part of a business process at a certain rate. This is a good example of how these manufacturing-based lessons actually apply to office-based work too.

Second, having identified the bottleneck, you need to work out how this section of your overall process can be made as efficient as possible. This is critical, because your bottleneck controls how much product you make, or don't make. So, when you maximize throughput in the bottleneck, you maximize your productivity.

The third step in the Theory of Constraints is realigning your processes to support the bottleneck. So, you make sure that all your other processes are subordinated and supportive of this one crucial area in the production line. And the fourth step is elevating the performance of your bottleneck, so it works at full capacity.

Of course, once the initial bottleneck you've identified has been made more efficient, some other part of the overall process may become a bottleneck – in which case, the fifth and last step in the theory is to start all over again from step one!

The book offers a vivid illustration of how a person is often the bottleneck in a process. This example is set in the context of a boy-scout hike taken by Alex, the plant manager.

As they start out, Alex decides to put the fastest hiker in front to lead the group. He figures that if the fastest hiker is leading, then they'll get to their campsite in plenty of time. Seems like common sense, right?

But, as the hours pass, that's not happening. The group keeps spreading out, and then the leader has to keep stopping the group, to let everyone catch up. This causes grumbling and discontent among the faster walkers. Alex begins to realize that it's actually the slowest hiker, a boy called Herbie, who's setting the true pace of the group.

It suddenly dawns on Alex that the same thing is happening at his plant. In a stroke of brilliance, he decides to let Herbie, the slowest hiker, lead the group, to see what happens.

After that, the boys get to camp in record time and in good spirits.

That, in a nutshell, is a simple illustration of the Theory of Constraints. And, it's this theory that helps our fictional character, Alex, turn his entire plant around.

So, let's take a look at Alex, his plant, and what we can learn from them both in "The Goal."

One particularly memorable story has to do with one of Alex's workers, Pete. Pete has a goal to get 100 parts completed by four o'clock, to fulfill a rush order. After the parts leave this worker, they go to a robot for finishing. The robot can only handle 25 pieces per hour.

Pete's goal is 100 pieces. So the first hour he completes 19. The second hour he completes 21. And the third hour he rushes, and is able to do 28 parts.

By the end of the day, he's got his 100 pieces in.

But do you see the problem?

The rush order never gets completed, or shipped, on time, even though Pete gets all his work done by the deadline. The reason is that the robot can only finish 25 pieces per hour. So when Pete completes his 19, the robot is idle. When he completes 28, the robot is backlogged.

Most plants only care about averages. And sure, Pete averages his 100 parts by his deadline. But in this situation, averages don't matter. The reality is that the robot can only do 25 pieces per hour, so Pete should be making 25 pieces per hour.

This is an important lesson that many of us can benefit from learning. When we're part of a team, just getting our work done isn't good enough. Success only comes when the group as a whole gets there together.

Another valuable lesson has to do with cost accounting.

Many plants, and companies, try to save money by placing large bulk orders for supplies they use. It doesn't matter if it's steel, electrical cable, or pencils. The bottom line is that when a bulk order is placed, the cost of each of those items goes down.

Well, Alex starts to realize that this basic cost accounting practice is running his plant into the ground. And, it's a two-pronged problem.

The first prong is that Alex's plant is full of robots. Very expensive, very large robots. When the company decided to invest in these robots, they went ahead only because the robots were going to save money on each part they made. Which means that the more parts the robots make in a day, the cheaper those parts are. This doesn't sound like a bad thing, but in some cases, mass production like this can end up losing money, which is was what was happening in Alex's plant.

The second prong to the cost accounting problem has to do with the bulk materials needed to make all these parts.

A good example of this is steel. Alex's bosses at corporate find a good deal on steel to make widgets. They buy a whole bunch of it, and then instruct Alex to go to work making all these steel widgets.

In order for the company to make their money back both on the robots and the bulk materials, they have to make parts all the time.

The problem is that Alex has warehouses full of excess product. The company was so eager to get a good deal on materials, and to keep the robots busy, that they're making parts that no one is buying. So, Alex is losing lots of money in excess inventory, and also by storing all these products.

Any cost savings made on bulk buying and mass production are eaten up in storage fees and lost production time on the floor.

These are just a few examples out of many in this book. Thanks to his old professor's guiding hand and pointed questions, Alex is able to spot several more problems within his plant, and with a major effort from his team, the plant starts completing all its orders on time, and actually making money.

Alex and his team learn some really valuable lessons as they work to improve the plant's processes. One of the most important is to do with bottlenecks – those tricky sticking points you heard about earlier. Alex learns how important those particular processes are, and why they must be made as efficient as possible. He also learns why workers standing idle, instead of being busy, can actually be a very good thing, and why it's so important to challenge long-held beliefs.

What's so remarkable about this book is how readable it is. If the author had written this as a non-fiction book, with lists and graphics and long paragraphs, the chances are pretty high that it wouldn't be nearly so appealing. But presented as a work of fiction, these important business lessons are easily digested and remembered. Complex ideas and processes are simple to understand and relate to – and Alex is a typical manager, who most of us can identify with.

Watching him go through the ups and downs of trying to turn his plant around is really engaging. Halfway through the book you'll find yourself cheering him on, and by the end, you'll feel as if you turned that plant around yourself.

And, while he's saving the plant, he's also trying to save his marriage. This sub-plot adds a personal, human touch to the story.

While many of the lessons learned are concrete, there are many more that are subtle. For example, as we watch Alex handle emergencies, we learn about good crisis management. As we watch him prod and inspire his team, we learn about good people management. And, as he slowly wins over his go-getter division manager, we learn about the power of good communication.

Each lesson is shown, rather than told. And that's the true power of this book.

Now, you may be wondering why this book is called "The Goal." What goal is the author referring to here? Well, to be fair, it might not be the most helpful title for the material that this great book covers, but here's the reasoning: The examples in the story show that it's easy to get caught up with secondary targets – such as the output of production robots, or the speed of the fastest walker in a troop. But the problem with doing well in areas like these is that you're achieving success in isolation – success that doesn't contribute to the overall goal of the business. Often, achieving your ultimate goal in the most efficient way means running subsidiary activities sub-optimally.

So, whether you're involved in manufacturing or not, there are definitely some valuable lessons to be learned from "The Goal."

"The Goal," by Eliyahu Goldratt and Jeff Cox, is published by North River Press.

That's the end of this episode of Book Insights.