Chapters 1 through 3 actively present the reader with a burning platform. The plant and division are failing. Alex Rogo has actively pursued increased efficiency and automation to generate cost reductions, however performance is falling even further behind and fear has become central feature in the corporate culture. If the book stopped here it would be brief tragedy, however Chapter 4 begins the path towards the redemption of Alex Rogo and the ideas that are the bedrock of lean.
- Jonah – advisor
- Lou – plant’s chief accountant
In Chapter 3, Alex was at a company meeting that communicated the depths of the problems the division was having and to search for answers. The meeting was not holding Alex’s attention. He found a cigar in his jacket and flashed back to a chance meeting in an airport lounge. While smoking a cigar, Alex recognizes and strikes up a conversation with a professor from grad school. The discussion turns to the problems at the plant, and even though they have pursued changes that have yielded great efficiencies the problems still exist and perhaps are getting worse. Alex proudly shows Jonah a chart that “proves” that a 36% improvement in efficiency from using robots and automation. Jonah asks one very simple question: was profit up 36% too? Alex struggles and answers that, “it is not that simple.” In fact the number of people in the plant did not go down, inventory did not go down and not one additional widget had been shipped. This interaction foreshadows one of the key ideas that The Goal presents to the reader. We are measuring the wrong thing! When we measure the wrong thing we send the wrong message and we get the wrong results. Chapter 4 closes with Johan and Rogo talking about the real meaning of productivity. Productivity is defined as accomplishing something in terms of a goal. Without knowing the goal, measuring productivity and efficiency is meaningless.
In Chapter 5 we snap back to the all-day meeting to discuss the division’s performance (Chapter 3). Alex continues to ruminate on Jonah’s comments. Alex leaves the meeting under the pretext of a problem back at the plant. As he drives back to the plant he begins to reflect on the “the goal” in the definition of productivity identified in Chapter 4. As Alex drives back he decides that he will not have time to think due to the day-to-day demands (also known as the tyranny of the urgent but not important – See Habit 3 of Stephen Covey) therefore heads to a favorite pizzeria for pizza and beer. Goldratt and Cox use Alex’s inner dialog show why most of current internal goals and measures Alex is being asked to pursue miss the point. The bottom-line goal is that the plant’s goal is to make money. If it does not make money, the rest does not matter. While The Goal is set in a manufacturing plant, the point is that unless any group or department does not materially impact the real goal of an organization it should not exist.
Chapter 6 begins with a search for the overall measures that contribute (or predict) whether the plant is meeting the goal of profitability. One the first questions Alex poses to himself is whether he can assume that making people work and making money are the same thing. This sounds like a funny question, however I often see managers and leaders mistake being busy with delivering value. Alex and Lou brainstorm a set of 3 metrics that impact the goal. They are: 1. net profit, 2. ROI, 3. cash flow. In this conversation Alex tells Lou the truth about the state of the division and the potential closure of the plant. The 3 metrics sound right, however Alex does not see the immediate connection between the measures and day-to-day operations. The chapter ends with Alex asking the 3rd Shift Supervisor how is activities impact net profit, ROI and cash flow. He simply gets the deer-in-the-headlight look.
Chapters 4 – 6 shift the focus from steps in the process to the process as a whole. Organizations have an ultimate goal. In this case the ultimate goal of the plant is make money. The goal is not quality, efficiency or even employment because in the long-run if the plant doesn’t deliver product that can be sold it won’t exist. Whether an organization is for-profit or non-profit, if they don’t attain their ultimate goal they won’t exist.