Summary of The Goal​

by Eliyahu Goldratt [Audiobook]

Understand Thruput, Bottlenecks and the Theory of Constraints

 

This summary will help you understand key principles in The Goal: A Process of Ongoing Improvement by Eliyahu Goldratt:

  • thruput
  • bottlenecks
  • the theory of constraints

If you are looking to, optimize a process, any process, be it a single project or an entire business, then this is a fantastic book. There are strategic points in any process that you can exploit. When you elevate the productivity of these strategic points you elevate the productivity of the entire process. I highly recommend the audiobook, which is essentially a radio play style dramatization. The Goal provides a model that is succinct and easy to grasp. Goldratt goes a step further and illustrates his model in the context of a story that is both entertaining and enlightening.

As a way to introduce myself, I am sharing my passion for knowledge with you & telling you how you can get a free audio copy of The Goal, right now. I mention The Goal because it is on my list of 12 “must read”, best business books ever for working professionals. 

This free (and highly detailed) reading list will give you 12 recommendations to help you grow your career (AND give you a shot of confidence to continue up that ladder!)

Three Questions Every Manager Must Be Able to Answer.

The book is touted for Goldratt’s theory of constraints. He also offers additional insight on management. He boils down the manager's role to answering three questions:

  • What do you change?
  • What do you change to?
  • How do you mange the change?

The Goal answers the first two questions quite well. It comes up short in it's attempt to answer the third question. His ideas on addressing the third question are that the Socratic method can be used to lead teams, meh. The remainder of this summary will focus on how the theory of constraints answers the first two questions.

What to change?

Goldratt’s model is know as the theory of constraints. It suggests that every business (or project) is a complex system that consists of of a series of linked activities, essentially a chain. Each step in the process is a link. This chain, like any chain, is as "strong" as it's "weakest link". This link acts as a the constraint for the whole system. We refer to this link as the bottleneck. Weakest link implies that strength, or lack of strength, determines where the bottleneck is found. This is not the case. The bottlenecks are strategic points in the system that if elevated, elevate the whole system. The goal isn’t to remove the bottleneck. So, what is the goal?

 

What Is The Goal?

Goldratt redefines several terms we need to understand. The first is the goal. What is the goal of your organization? Goldratt argues that It should be to make money. I disagree. But lets keep it simple, for now, and say the goal is to make money. How do you know you are making money? This is the core question Goldratt asks. The answer is the core of the theory of constraints. The goal is to increase thru-put while simultaneously decreasing inventory and operational expenses. Let's define some key terms.

  • Thru-put: The rate at which the system generates money thru sales. Sales is an important distinction. This is money generated by the system or implemented ACV.
  • Inventory: All the money that the system has invested in purchasing things which it intends to sell. This is money stuck inside the system or unimplemented ACV.
  • Operational Expense: All the money the system spends in order to turn inventory into thru-put. This is money flowing out of the system or human capital, physical capital, and resource expenses.

​The goal is to increase thru-put while simultaneously decreasing inventory and operational expenses.

Time out. Big picture, we need to to know:

  • where to focus . . . the bottleneck.
  • what we are trying to accomplish . . . the goal.

So now that the goal is clearly identified . . . how do you increase thru-put while decreasing inventory and operational expense? Before you can answer this question you need to understand two additional concepts. This is the light at the end of the tunnel. We are getting there, I promise.

The Ability To Go Faster Than Average Is Restricted.

I’m a math guy. So of course I want to point out this math based truth. We aren’t talking about a leadership ideal on management, the numbers show the cold hard reality that we are up against. There are two phenomena that affect our projects:

  • Dependant Events
  • Statistical Fluctuation

Each step in the chain must take place in order, when this happens, these events are dependent. The time it takes to complete each step fluctuates within a range of times, this is statistical fluctuation. Goldratt uses a hike to demonstrate the effect these realities have on our projects. I’ll summarize but, it’s worth taking the time to read it.

Alex, our story’s hero, has a eureka moment on a hike with a pack of scouts. As the responsible adult he wants to keep everyone close together. He also wants to get the scouts to the site before nightfall. This proves challenging as the line never keeps consistent spacing with the speedy kids zooming ahead and Herbie, the slowest kid lagging behind. Gaps appear in the line of trail walkers.

This is a result of dependant events and statistical fluctuation. The walkers will not all walk at a constant speed. There will be something on the path that slows them down. The leader slows then the whole line slows or risks colliding into the person in front of them. But when the leader speeds up each walker will only speed up to the extent they are able or to the extent the person in front of them is able. Alternatively, individuals have to jog, expending additional energy, to close the ranks. Every lag is transmitted down the line but, the ability to move faster than average is limited. This forces gaps to appear in the line.

In terms of our thru-put model:

  • Thru-put is the amount of trail walked by each scout.
  • Inventory is the gaps of trail between the walkers.
  • Operational expense is the energy exerted to walk the trail.

So the walkers could close the gaps by jogging to catch up, but not without increasing the energy exerted to walk the trail.

How do you ensure everyone can walk at a comfortable pace AND minimize the gaps in the line?

The Theory of Constraints

In the hiking example the solution is to line up the hikers in order of slowest to fastest. The project isn’t completed until the slowest hiker reaches the destination. So make this person first. The only way to make the group faster is to make this person faster so maybe have someone else carry his pack. Each successive hiker should naturally be faster than the person in front of them. When fluctuations cause gaps to appear, they will be able to “catch up” without exerting extra effort.

Here are the formal steps to the Theory of Constraints:

  • Step 1: Identify the system’s constraint.
  • Step 2: Decide how to exploit the system’s constraint.
  • Step 3: Subordinate everything else to the above decision.
  • Step 4: Elevate the system's constraint.

This process answers our first two questions, what do you change? And, what do you change to? The answer is to focus on the bottleneck. And, make improvements to and around the bottlenecks.

What is the cost of a resource loosing an hour on a bottleneck?

It isn’t their hourly wage. Lets point out we are talking about process not resources: a person or team cannot be the bottleneck. If you loose an hour on a bottleneck you loose the combined hourly wages of the entire department because the production for the department is set by the bottleneck. By focusing on the bottleneck you get an out-sized return. It is cheaper and easier to make changes to the bottleneck in a system. By increasing the thru-put through the bottleneck you increase the capacity of the entire system. So, to optimize a system focus on the bottlenecks.

Takeaways

  • The goal is to increase thru-put while simultaneously decreasing inventory and operational expenses.
  • Each step in the chain must take place in order, when this happens, these events are dependent.
  • The time it takes to complete each step fluctuates within a range of times, this is statistical fluctuation.
  • In the hiking example the solution is to line up the hikers in order of slowest to fastest, i.e. subordinate everything to the system constraint.
  • The cost of a lost hour on a bottleneck resource is the combined hourly wages of the entire department.
  • Increase thru-put through the bottleneck you increase the capacity of the entire system.
  • Really, take the time to listen to the audiobook of The Goal.

How To Claim Your Free Audio Copy Of The Goal


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But it can be hard to find the time to read when you’re busy with work, friends, and family. That’s why audio books are vital. You can turn your commute into a classroom.

As a way to introduce myself, I am sharing my passion for knowledge with you & telling you how you can get a free audio book, right now. I mention The Goal because it is on my list of 12 “must read”, best business books ever for working professionals.

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I help leaders make better decisions. I invest in knowledge because measured thinking, analysis, and a-ha moments appreciate in value. If you are a SaaS professional that struggles with aligning your team and getting to the truth, you are in right place. Once you understand how to use KPIs for professional services you will know where to focus & where to lead your team.