The Goal: A Process of Ongoing Improvement, Third Revised Edition

by Eliyahu M. Goldratt

  disturbed. "You worked so hard and now you want to give the

  credit to somebody else?"

  "Julie, I'm serious. Jonah is the one who gave me all the

  answers, I was just the instrument. As much as I would like to

  think otherwise, that's the plain, bare truth."

  "No, it's far from the truth."

  I turn nervously in my chair, "But . . ."

  "Alex, stop this nonsense," Julie says in a firm voice. "Artifi-cial modesty doesn't suit you." She raises her hand to prevent me

  from answering and firmly continues, "Nobody handed you solu-

  tions on a silver platter. Tell me, Mr. Rogo, how many nights did

  you sweat until you succeeded in finding the answers?"

  "Quite a few," I admit with a smile.

  "You see!" Julie tries to close the subject.

  "No, I don't see," I laugh. "I'm very well aware that Jonah didn't simply give me the answers. As a matter of fact, during

  those long nights, (and days), considerable time was spent cursing

  him for just that. But, come on, Julie, the fact that he elected to

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  present them in the form of very pointed questions doesn't

  change a thing."

  Rather than continuing, Julie calls the waiter and starts to

  order. She's right. This line of discussion will just ruin a pleasant

  evening.

  It's not until I'm busy with my delicious veal parmesan that

  my thoughts start to crystallize. What was the nature of the an-

  swers, the solutions, that Jonah caused us to develop? They all

  had one thing in common. They all made common sense, and at

  the same time, they flew directly in the face of everything I'd ever

  learned. Would we have had the courage to try to implement

  them if it weren't for the fact that we'd had to sweat to construct

  them? Most probably not. If it weren't for the conviction that we

  gained in the struggle—for the ownership that we developed in

  the process—I don't think we'd actually have had the guts to put

  our solutions into practice.

  Still deep in thought, I raise my eyes from the plate and

  examine Julie's face. It's as if she was waiting for me all this time.

  "How come you didn't think of it yourselves?" I hear her

  asking. "To me your answers look like plain, common sense. Why

  couldn't you do it without Jonah's guiding questions?"

  "Good question, very good question. Frankly, I doubt I

  know the answer."

  "Alex, don't tell me you haven't thought about it."

  "Yes, I have," I admit. "All of us, back in the plant, had the same question. The solutions look trivial, but the fact is that for

  years we've done the exact opposite. Moreover, the other plants

  still insist on sticking to the old, devastating ways. Probably Mark

  Twain was right saying that 'common sense is not common at all'

  or something similar."

  "That's not an answer to my question." She doesn't let me off

  the hook.

  "Just bear with me," I plead. "I really don't know. I'm not sure that I even know the meaning of'common sense'. What do

  you think we mean when we refer to something as 'common

  sense'?"

  "It's unfair to answer a question with a question." She re-

  fuses my apparent attempt to turn the table.

  "Why not?" I try again.

  She doesn't allow her lips to move.

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  "Okay," I give up. "The best that I have come up with so far is to recognize that we refer to something as common sense only

  if it is in line with our own intuition."

  She nods her head in approval.

  "Which only helps to intensify your question," I continue. "It only means that when we recognize something as common sense,

  it must be that, at least intuitively, we knew it all along. Why is

  there so often the need for an external trigger to help us realize

  something that we already knew intuitively?"

  "That was my question!"

  "Yes, darling, I know. Probably these intuitive conclusions

  are masked by something else, something that's not common

  sense."

  "What could that be?"

  "Probably common practice."

  "Makes sense," she smiles and turns to finish her dinner.

  "I must admit," I say after a while, "that Jonah's way of leading to the answers through asking questions, his 'Socratic ap-

  proach,' is very effective at peeling away the layers—the thick

  layers—of common practice. I tried to explain the answers to

  others, who needed them as badly as we did, but got nowhere. As

  a matter of fact, if it hadn't been for Ethan Frost's appreciation

  of our improvements to the bottom line, my approach might have

  led to some very undesirable results.

  "You know," I continue, "it's amazing how deeply ingrained

  those things are that we've been told and practiced, but never

  spent the time to think about on our own. 'Don't give the an-

  swers, just ask the questions!' I'll have to practice that."

  Julie doesn't look too enthused.

  "What's the matter?" I ask.

  "Nothing," she says.

  ' 'Don't give the answers,' definitely makes sense," I try to

  convince her. "Spelling out the answers when you are trying to

  convince someone who blindly follows the common practice is

  totally ineffective. Actually there are only two possibilities, either

  you are not understood, or you are understood."

  "You don't say?"

  "In the first case, no real harm has been done, people are

  just going to ignore you. The second case might be much worse,

  people might understand you. They'll take your message as

  something worse than criticism."

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  "What is worse than criticism?" she asks innocently .

  "Constructive criticism." I smile gloomily, remembering the

  harsh responses of Hilton Smyth and that Cravitz fellow. "You

  have a point, but it's below the belt. People will never forgive you

  for that."

  "Alex, you don't have to convince me that when I want to

  persuade somebody—especially my husband—that giving an-

  swers is not the way. I'm simply not convinced that only asking

  questions is much better."

  I think about it. She is right. Whenever I tried just to ask

  questions it was interpreted as patronizing, or even worse, that I

  was simply negative.

  "It looks like one should think twice before charging the tall

  windmills of common practice." I conclude gloomily.

  Julie busies herself with the delicious cheesecake our waiter

  is placing in front of us. I do the same.

  When the coffee's served I gather enough stamina to con-

  tinue the conversation. "Julie, is it really so bad? I don't recall

  giving you a lot of grief."

  "Are you kidding? Not only are you stubborn like a Southern

  mule, you had to go and pass on these genes to your kids. I bet

  you gave Jonah a hard time as well."

  I think about
it for a short while. "No Julie, with Jonah

  somehow it was different. You see, whenever I'm talking with

  Jonah, I have the distinct feeling that not only is he ready with his

  questions, he's also ready with my questions. It must be that the

  Socratic method is much more than just asking questions. One

  thing I can tell you, improvising with this method is hazardous,

  believe me, I've tried. It's like throwing a sharpened boomer-

  ang."

  Then it dawns on me. Here's the answer. This is the tech-

  nique that I should ask Jonah to teach me: how to persuade other

  people, how to peel away the layers of common practice, how to

  overcome the resistance to change.

  I tell Julie about my last telephone conversation with Jonah.

  "That's very interesting," she says at last. "You definitely need to learn how to manage your life better. But sweetheart,"

  she laughs, "be careful, remember what happened to Socrates.

  He was forced to drink poison."

  "I don't intend to give Jonah any poison," I say, still very

  excited. "Julie, let me tell you, whenever Jonah and I talked

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  about my troubles at the plant, I always felt he anticipated my

  response. It actually bothered me for quite some time."

  "Why?"

  "When did he have the time to learn so much? I'm not talk-

  ing about theories, I'm talking about his intimate understanding

  of how the wheels are really turning in a plant. As far as I know,

  he never worked one day of his life in industry. He's a physicist. I

  can't believe that a scientist, sitting in his ivory tower, can know so

  much about the detailed realities of the shop floor. Something

  doesn't match.

  "Alex, if that's the case, it seems that you should ask Jonah to

  teach you something more than just the Socratic method."

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  33

  Lou is my first and most important target. If I'm unable to

  persuade him to join me, I'm basically lost. It's not going to be

  easy. He's very close to retirement and I know to what extent he's

  involved in his community. I take a deep breath and walk into his

  office. "Hey Lou, is it a good time?"

  "Good as any. How can I help you?"

  Perfect opening, but somehow I don't have the guts to go

  straight to the point. "I was just wondering about your forecast

  for the next two months," I say. "Do you see any problem in us

  reaching and maintaining the fifteen percent net profit? Not that

  it's crucial any more," I hurriedly add, "but I'd hate giving

  Hilton Smyth even the slightest opening to hiss, 'I told you so.' '

  "You can sleep tight. According to my calculations we'll easily

  cross the twenty percent net profit for the next two months."

  "What!" I can hardly believe my ears. "Lou, what's the mat-

  ter with you? Since when do you believe marketing's chronically

  optimistic outlook?"

  "Alex, a lot has happened to me recently, but believing mar-

  keting is not one of them. Actually, my forecast is based on a

  slight decline in incoming orders."

  "So how did you pull this rabbit out of your hat?"

  "Have a seat, it'll take me some time to explain. I have some-

  thing important to tell you," he says.

  It's clear that I'm going to hear about another devious ac-

  counting trick. "All right, let's hear it."

  I make myself comfortable while Lou shuffles papers. After

  two minutes I lose my patience, "Well, Lou?"

  "Alex, we blamed the distorted way in which product costs

  are calculated for giving the appearance that our net profit was

  only twelve point eight percent, rather than over seventeen per-

  cent as we believed was the case. I know that you were furious

  about it, but what I've found out is that there's an even bigger

  accounting distortion. It's tied to the way that we evaluate inven-

  tory, but it's hard for me to explain. Maybe I'll try to do it

  through the balance sheet."

  He pauses again. This time I wait patiently.

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  "Maybe I should start with a question," he says . "Do you agree that inventory is a liability?"

  "Of course, everybody knows that . And even if we didn't

  know it, the last few months have shown to what extent inventory

  is a liability. Do you think we could have pulled off this fast re-

  sponse to orders if the floor had been as jammed up as before?

  And haven't you noticed that quality has improved, and overtime

  has gone down—not to mention that we hardly ever have to ex-

  pedite today!"

  "Yeah," he says, still looking at his papers. "Inventory is definitely a liability, but under what heading are we forced to report

  it on the balance sheet?"

  "Holy cow, Lou!" I jump to my feet. "I knew that the finan-

  cial measurements were remote from reality, but to that extent—

  to report liabilities under the heading of assets? I never realized

  the full implications . . . Tell me, what are the bottom line

  ramifications?"

  "Bigger than you think, Alex. I've checked and rechecked it,

  but the numbers do talk. You see, we're evaluating inventory ac-

  cording to the cost to produce the goods. These costs include not

  only the money we pay for the raw materials, but also the value

  added in production.

  "You know what we have done in the last few months. Dono-

  van has worked only on things that we have orders for. Stacey has

  released material accordingly. We've drained about fifty percent

  of the work in process from the plant, and about twenty-five per-

  cent from finished goods. We've saved a lot by not purchasing

  new materials to replace this excess inventory, and the cash fig-

  ures show it clearly. But on our books, the assets represented by

  inventory went down, since they were only partially compensated

  for by the cash we didn't have to pay out. In this period, when we

  were reducing inventory, all the difference between the product

  cost and the material cost of the reduced inventory showed up as

  a net loss."

  I swallow hard. "Lou, you're telling me that we were penal-

  ized for doing the right thing? That reducing the excess inven-

  tory was interpreted by our books as a loss?"

  "Yes," he replies, still looking at his papers.

  "Well tell me, what was the impact—in numbers?"

  "Our actual net profit was well over twenty percent in each

  of the last three months," he says flatly.

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  I stare at him. I can't believe my ears.

  "But look at the good side," he says sheepishly, "now that the inventory has stabilized at a new, low level, this effect won't disturb us any longer."

  "Thank you very much," I say sarcastically and turn to leave.

  Wh
en I reach the door I turn around and ask him, "When

  did you discover this phenomena? When did you find out that we

  were turning much more profit than the targeted fifteen per-

  cent?"

  "A week ago."

  "So why didn't you tell me? I could have used these facts

  very effectively in the plant review."

  "No Alex, you couldn't have used them at all, it just would

  have confused your story. You see, everyone evaluates inventory

  this way, it's even required by the tax authorities. You didn't

  stand a chance. But I did discuss it at length with Ethan Frost;

  he understood it perfectly."

  "So that's what happened, you fox. Now I understand why

  Ethan became so supportive," I say, sitting back down.

  When we've finished grinning at each other, Lou says in a

  quiet voice, "Alex, I have another issue."

  "Another bomb?"

  "You might call it that, but it's sort of a personal matter.

  Ethan told me that he's going with Bill Peach to the group. I

  know that you will need a good divisional controller, someone

  who has experience in the more diverse subjects that are dealt

  with at the division level. I'm just one year from retirement; ev-

  erything that I know is old-fashioned. So ..."

  Here it comes, I say to myself. I must stop him before he

  states that he doesn't want to come with me. Once he says it, it'll

  be much harder to change his mind.

  "Lou, wait," I interrupt him. "Look at the work that we've

  done in the last few months. Don't you think . . ."

  "That's exactly what I was about to bring up," he interrupts

  me in turn. "Look at it from my point of view. All my life I've

  gathered numbers and compiled reports. I've seen myself as

  somebody who has to supply the data, as an impartial, objective

  observer. But the last few months have shown me to what extent

  I was wrong. I wasn't an objective observer; I was following, al-

  most blindly, some erroneous procedures without understanding

  the far-reaching, devastating ramifications.

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  "I've given it a lot of thought lately. We need financial mea-

  surements for sure—but we don't need them for their own sake.

  We need them for two different reasons. One is control; knowing

  to what extent a company is achieving its goal of making money.

  The other reason is probably even more important; measure-