The Goal by Eliyahu M. Goldratt

In The Goal, Goldratt provides a compelling story that challenges the way we look at how we measure operational improvement. His analysis distills the work of any organization into three operationally-measurable elements: Inventory, Overhead and Throughput.

At first glance, the ideas Goldratt presents in The Goal appear to apply to the world of manufacturing. However, after full consideration the principles can be applied equally across the gamete of organizations; from consultancy to custom manufacturer and all points in between

While the underlying work that supports the Theory of Constrains is heavily dependent upon formal queue theory, The Goal provides a solid, non-technical starting point for leaders to begin a discussion about productivity and the nature of improvement in their organizations.

THE MEASURES:

Inventory
Inventory is represented by the monies tied up in things the system intends to sell, i.e. any item within the system that is being or will be converted into an item to be sold. This includes raw material from suppliers, work in progress and standing stock levels. Inventory reductions are positive movement, increases are negative movement.

Overhead:
Overhead is represented by the costs of doing business, other than inventory. Total costs less inventory costs, are overhead. As with inventory, overhead reductions are positive movement increases are negative movement.

Throughput
Throughput is represented by the monies coming into the organization in exchange for items produced. Throughput increases are positive movement, decreases are negative movement.

When leaders view an organization through these three measures, productivity improvements are simply measured as the positive change of any combination of the the three elements without a countering negative change in the remaining elements. Leaders who can not speak to these elements and their relationship to operational decisions, are not speaking of real improvements in productivity.

OTHER IMPORTANT CONCEPTS:

Organizational mission and values
The Goal is presented as a novel for a reason, work is a big contributor to the stories of peoples' lives. For an organization to be effective, leaders must provide an environment suited for people, an environment that provides positive material for their stories.

The relationship between local efficiencies and system constraints or bottlenecks
While most organizations strive for system improvement by rewarding production units for eliminating idle time and becoming more efficient, i.e. encouraging local efficiency, the nemesis of the system is not idle time. The nemesis is system constraints or bottlenecks. Simply put, the slowest process or bottleneck establishes the rate of throughput for the entire system; improving efficiency in any other area is not only ineffective, it is counter productive.

Bottlenecks are a symptom of local process efficiency at the expense of system efficiency. If leaders make improvements before a bottleneck, it adds to inventories that can not be processed through the bottleneck; an increase in inventory without a corresponding decrease in overhead or increase in throughput. If they make an improvement after the bottleneck, it adds capacity, that can not be used; an increase in overhead without a corresponding decrease in inventory or increase in throughput. Both "improvements" have an overall negative effect on the measurable elements so they are not system improvements.

Balancing capacity with demand
Queuing theory tells us that as demand reaches capacity, line length approaches infinity. In a production environment, this translates to a balanced system, where capacity equals demand, will always fall behind and is incapable of ever catching up. Since a balanced system can not meeting the demands it is designed to achieve, leaders must build systems with excess capacity that can absorb inescapable system fluctuations.

Continuous improvement
For Goldratt, continuous improvement is more than a catch phrase. Rather, it is a process where leaders constantly evaluating the system to ensure the organization is making real, measurable improvements; remaining true to its mission and values; and maintaining a system view that addresses constraints.

On a personal note, The Goal has been instrumental in the development of my personal approach to management and organizational leadership. By using the concepts and the limited set of measures presented in The Goal, leaders have a tool set that enables them to focus effort in areas that lead to real organizational improvement. Additionally, this ability to clearly communicate the rational needs of the organization enables leaders to more readily establish alignment with the needs of the individuals they lead.

The Goal is a must-have book for any leader with a serious desire to drive real, organizational improvement and change.

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Take care...

JWM