Have you read a business book that teaches through storytelling?
I have and it's with a novel called "The Goal - A Process of Ongoing Improvement" by Eliyahu M. Goldratt.
It's something else.
I picked it up only because someone alluded to its ideas and I am glad I did. I can't say for sure it's a game changer to me yet but it did spark a new way to look at problem solving.
Coming fresh off the book, let me see if I can crystallize for myself (and you if you're so interested) the teachings that are currently bouncing inside my head. 1
The minimum number of metrics you need to know if you are making money
The first lesson is likely for babies but, for one lacking a business background, extremely enlightening. Early on the characters hit the fundamentals and show how three metrics can tell if you're running a profitable business or not. They are:
- Net profit : How much money you've made. Calculated by what you've made minus expenses.
- ROI : Comparison of the money made relative to the money invested
- Cash flow : Running out of cash.
All this time I stubbornly felt the only measurement you needed to know was profit. Now I see an absolute number doesn't reveal the complete picture, as profit needs to be relative to something else (ROI) to tell you if that's good or not. Is earning $200 in profit good when you invested $1? How about if you invested $1,000?
The book also introduces other metrics
Rate at which the system generates money through sales.
All the money that the system has invested in purchasing things which it intends to sell.
all the money the system spends in order to turn inventory into throughput.
which to be honest I don't have a strong grasp for.
Interconnectedness: What if you are simply a node tied to others by an invisible rope?
The second idea that stands out is how dependent everything can be and how that hidden connection impacts performance. As I read that last sentence, it sure sounds like a 'duh' statement but the novel brings it to life.
Imagine a group of kids walking on a straight line. If you want to determine how fast they can move together, simply find the slowest kid. You can have as many sprinters as you want in there but as long as you have a Herbie (a fat kid), limits are placed on all members. Everybody has to wait for him and go at his pace more or less.
Take a look at the below video, albeit in Spanish.
What puts a cherry on top of this "discovery" is the talk between Julie and Rogo towards the end, my favorite part btw.
"It's how physicists approach a subject; it's so vastly different from what we do in business. They don't start by collecting as much data as possible. On the contrary, they start with one phenomenon, some fact of life, almost randomly chosen, and then they raise a hypothesis: a speculation of a plausible cause for the existence of that fact. And here's the interesting part. It all seems to be based on one key relationship: IF ... THEN."
"What they actually do is derive the unavoidable results logically from their hypothesis. They say: IF the hypothesis is right THEN logically another fact must also exist. With these logical derivation they open up a whole spectrum of other effects. Of course the major effort is to verify whether or not the predicted effects do exist. As more and more predictions are verified, it becomes more obvious that the underlying hypotheses is correct.
"Things start to be connected to each other. Things that we never thought were related start to be strongly connected to each other. One single common cause is the reason for a very larger spectrum of different effects. You know, Julie, it's like order is built out of chaos... - The Goal
Find your Herbie: Or, digging to uncover the core problem
Closely related to the previous lesson, you also learn what to do to solve any systematic problem. 2
In one sentence: find that fat kid 3 dragging everybody else and do whatever it takes to help him "move" faster. It's along the lines of fixing the "weakest link".
- Identify the system's bottlenecks. In the story, that would be the oven & NCX10 machines.
- Decide how to exploit the bottlenecks. Planning to make those machines work non-stop.
- Subordinate everything else to the above decision. Using colored labels to make sure the rest of the workers & machines follow the lead the bottlenecks.
- Elevate the system's bottlenecks. Plugging back the old machines that the NCX10 replaced.
- If, in a previous step, a bottleneck has been broken go back to step 1.
By improving the performance of the weakest link, you'll not only nip the problem at the root but you'll do so in the fastest way possible and get the most bang for the buck.
Theory of Constraints 101
But one thing you quickly notice is that the book never reveals specifically how to apply the theory to any problem. (e.g. how do you find the bottleneck?) The whole story revolves around manufacturing.
But as I think about it some more, remember some passages, and put things together, I come up with this high level view:
- Goal = Why? As in why am I doing this?
- Strategy = What? As in what is the main obstacle holding me back? And what do I need to do to achieve the goal?
- Tactic = How? As in how will I implement exactly the what above?
Using my personal lil' practical cheatsheat (sort of) you:
- Start by writing down why you're really doing this project. The answer gives you the ultimate goal you're after. (Usually money?)
- Then, to find the bottleneck ask yourself: what is the number one reason we aren't achieving the goal? This question is a good starting point. Just keep in mind to be strict and make sure your answer is based on the goal.
- From this point forward, I don't really have pointers on figuring out the "what to do" & "how to" in correcting the constraint. It makes sense though since strategy and tactics are all dependent on the unique obstacle you're tackling. You'll just have to meditate on it. I would think uncovering the bottleneck is the hardest part.
The key is aligning everything to the goal you want to achieve. I figure there's a reason the book is called "The Goal". You can easily overlook the "why" and fail right from the beginning. As stupid as it seems, just write it down.
Anyway, two gems I found that explains the essence of TOC comes from the video below. (It's in Spanish though.)
Basically, Theory Of Constraints
- changes the focus from saving costs to generating money (or whatever your goal).
- makes you focus on the single point you need to improve. (Think of the 80/20 rule)
And that's pretty much what I would ramble on about if I had someone I could talk about this.
Believe it or not, it took a long time to gather my thoughts and put this whole review together.
"Yeah. Yeah. So do you recommend that I read this book? You never told us."
Didn't I? You can't tell from my gushing?
Fine. I'll be direct: Yes, get the book.
"So, what's next?"
What? This long essay isn't good enough? Luckily for you, I am not done reading up on TOC. If you find other links on this topic, let me know. I'll see what I can find and publish a new post if I learn anything new.
Don't you just hate it when you learn something new & you want to discuss it with everyone but no one is around? Someone who is also into it and curious? Yeah... Steve tends to have weird interests. ↩︎
And at the same time, create one. Ah. ↩︎
Fine! The slowest kid in the group. ↩︎
A book I literally had a hard time putting down. Heck, I even stayed up late night to see what Alex Rogo would do. ↩︎