The Goal – Chapter 06 – Improving Metrics Create Visibility

[Click for a chapter-by-chapter summary of the whole book.] [Video summary of Chapter 6.]

Chapter 6 takes us back to the plant, where our narrator meets with his controller to re-evaluate financial numbers.  Then he returns late to home where he misses his daughter and finds a disappointed wife.  The chapter closes back at the plant.

Rogo knows his plant isn’t healthy – but his numbers don’t tell him that.  If the numbers don’t help, then the numbers are part of the constraint and deserve focus.  Poor financials and reporting – just like the Vanity Metrics of Ries in The Lean Startup – are a constraint in creating real improvement.  Call out the constraint and address it.

Operations Highlight

This chapter has three that are very compelling:

  1. “How can I possibly control what goes on?”

  2. “Producing products is just a means to achieve the goal.”

  3. “The first thing I’m trying to do is get a clear picture of what we have to do to stay in business,” I say.

It requires a great deal of energy to fully control a situation – leaders should create situations where teams can be trusted to execute. If a company can maintain profits without production, it should do so.  Before acting know what you want to accomplish.

Writing Highlight

“She waited by the front window for you all evening until I made her go to bed.”

Plenty of readers of Goldratt deride the family component as a side story – but every time I’ve re-read the book, these are the parts that grow in resonance.

Page by Page

P042 – “You use your people, or lose ’em—you got it?””  Rogo is pushing his people to ‘look busy’ – but activity away from the constraint is not productive.  Often times, such ‘look busy’ activity creates a feedback loop that is tough to get out of – especially if it involves customers.

P043 – “How can I possibly control what goes on?”  Rogo hits on a fundamental truth – it is very hard to force someone to do something.  Instead, we must educate and coach.  Force is rarely effective in creating an outcome.

P044 – “Is there a simplified way to know if we’re making money?”  Keep the business simple. I once had a customer tell me that I was fortunate that my business was simple – they didn’t understand that simplicity had been hard won with difficult decisions and discipline.  Simplicity is earned, but is highly valuable.

P045 – “Producing products is just a means to achieve the goal.”  If a business can generate the same profits without manufacturing – shouldn’t it do so?  This question is at the heart of many outsourcing / in-sourcing initiatives globally.

P046 – “Bad cash flow is what kills most of the businesses that go under.”  Businesses fail when high growth products change the flow of cash and they aren’t prepared for the change.

P047 – ““The first thing I’m trying to do is get a clear picture of what we have to do to stay in business,” I say.”  If you don’t know what to do, spend some time figuring out what the right thing to do is.  In military terms, this is the OODA loop – Observe, Orient, Decide, Act.

Frustration is energy without focus.  Prevent future frustration by focusing your energy now by deciding your strategy.

P048 – “On the paper, I write down the three measurements which Lou and I agreed are central to knowing if the company is making money: net profit, ROI and cash flow.”  Simple, basic financial measures paint a compelling picture when applied consistently over time.

P049 – “To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.”  The Goal!

P050 – “She waited by the front window for you all evening until I made her go to bed.”  But here, Rogo has uncovered the goal for his plant at the cost of time with his family.

P051 – “It’s just that those concerns are not part of his world.”  As with the observation of P043 – Rogo can’t control what his people do, but his people can win if he educates them on what matters to the business.  An educated and motivated team is a powerful tool in growing a business.

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