Business is the practice of making money but what is the goal?
This is the 36th book in the series Learning Together and Leading Together where we are going through the Personal MBA plan curated by Josh Kaufman. Our goal is to get through 99 books this year. Do we read the whole book? Nope. We digest the summary(s) of the book and I give my thoughts and you give your thoughts. Feel free to follow along and comment if you would like.
The best summary I found about The Goal was found here. That review is below and tweaked by myself.
Subtitled “A Process of Ongoing Improvement,” the first edition of The Goal was printed in 1984. Written as a novel, it is about a process of continual improvement. Based on a company’s manufacturing operations but relevant to all organizations because it’s about people trying to understand what makes their world tick so that they can make it better. As the characters “think logically and consistently about their problems they are able to determine “cause and effect” relationships between their actions and the results.”
In the story, the manufacturing operation’s management team is struggling to return what was once a successful plant to profitability so it won’t get closed down by ownership.
Shipments are constantly late and there exists months of production backlog, yet inventories of finished and in-process goods are soaring. Collectively they wonder why they can’t consistently get a quality product out the door on time at the cost that can beat competition.
Given three months to turn the plant around, the plant manager turns to a manufacturing guru who has a unique and potentially risky approach to addressing the problems. First, he takes what can be a complicated subject, productivity, and defines it simply as the act of bringing a company closer to its goal. “Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.” This demands the question: What is the goal?
The plant manager wonders if the goal is cost-effective purchasing, employing good people, high technology, producing quality products, capturing market share, customer satisfaction, etc. He finally decides that making money is the appropriate goal and so, based on the guru’s definition of productivity, an action that moves the plant toward making money is productive. And an action that takes away from making money is non-productive.
The management team agrees on three metrics to determine if the plant is making money: net profit, return on investment (ROI), and cash flow. It becomes obvious, then, that it is critical to build a connection between these three measures and what goes on in the plant…down to every employee on the factory floor. Higher throughput, lower inventories, and reduced operational expenses become their areas of focus to improve plant profitability.
The balance of the story involves the management team and the factory workers employing new methods to identify and address throughput bottlenecks (termed “finding Herbie”), understanding depending and independent events, and analyzing statistical fluctuations. The factory achieves incredible new levels of profitability and the plant manager gets a well-earned promotion.
8 lessons and questions that the plant manager and his team learned along the way:
- That people working or machines running and making money are not necessarily the same thing. In other words, having an employee work and profiting from that work are potentially two different things. In the story the guru says that “activating a resource and utilizing a resource are not synonymous.” How much unproductive activity do you have in your organization?
- True bottlenecks are any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. Where are the “bad” bottlenecks in your company?
- That bottlenecks are not necessarily bad – or good, they are simply a reality and must be evaluated to determine if they help or hinder overall system throughput. Do you know which of your bottlenecks are good and which are bad?
- That the capacity of the plant is equal to the capacity of its bottlenecks. Think of it as a group of hikers who can only progress as quickly as the slowest walker. Or that a team is only as strong as its weakest member.
- Improvement requires change. And change means uncertainty which translates into fear. “We venture from what is safe and known into what is unknown, a move that most people are afraid to make.” It is human nature to strive for control, predictability and certainty. How much of what you do is actually directed against change?
- That in actuality a small number of constraints governs overall performance. Do you know the key constraints that are holding you or your organization back?
- Not to focus all of your energy on the improvements themselves but rather on the process of improvement. Thus the book’s subtitle “A Process of Ongoing Improvement.” Is continual improvement in your organization’s DNA?
- You have to know what your goal is before you can optimize a system (e.g., yourself, a factory, a team, a company, etc.). Otherwise there is likely a lot of unproductive activity. What is your goal, and are you on the right path to accomplish it?
Off subject but I will start here, I once had a great guy named Herbie work for me. When going through this book and seeing the phrase “Find the Herbies” I couldn’t help but think of him. Not because he was a bottleneck but because I would have never classified him as a hinderance. Okay, moving on.
A lot of leaders that I sit down with today talk about their mission and vision of their company. These are great things to talk about when spreading the word about your company. Mission and vision should attract talent and set the foundation of the culture of your company. Notice though that the mission and vision of the company is not the same as the goal of the company.
Let me break it down this way. I am going to make up the mission, vision, and goal for a fake soda company name PopTop. The entrepreneur who starts PopTop wants to create an all natural, organic, and give back soda company that is ecofriendly. The vision is set, “Pop we can believe in.” The mission of the company is “Every hand holds a PopTop”. So we have a vision and we have a mission but what is the goal? You could say that it is for everyone person to try PopTop but that wouldn’t be exactly right. The goal is to produce enough PopTop at a rate that meets demand as the company grows world wide. Notice that the goal has to be met for the mission to be accomplished and the vision to be seen.
I really like the way this book breaks down the goal and helps you understand in story form the objective. If you are set on your mission and vision then I highly recommend you pick this book up to answer the question, “What is your goal?”
If you need a hard copy of the book go here: [amazon_enhanced asin=”0884271951″ /]