The Goal – Chapter 10

Rogo is back in his plant working with his team on the concepts he has talked through with Jonah.  They are simplifying their financial reporting and learning how to focus their resources.

Highlights

“You’re still accounting for it. It’s just that his way is simpler, and you don’t have to play as many games.”

Every time Goldratt writes ‘games’ – readers of The Lean Startup should see ‘vanity metrics’.

“…But if the knowledge pertains to a product which UniCo itself will build, it’s like a machine—an investment to make money which will depreciate in value as time goes on. And, again, the investment that can be sold is inventory; the depreciation is operational expense.”

Goldratt’s detour on pages 75-76 into accounting for intangible goods with a focus on knowledge is unusually thorough. Anything that is invested into, that can be converted into revenue in the future is thereafter inventory.  Education and training often creates inventory – provided you retain the personnel.  For technology and manufacturing entities, the knowledge of trained application engineers is required to unlock sales.  It is part of what Geoffrey Moore would call ‘The Whole Product’ and which is required by the customer to purchase.

“The problem is that everybody—including me until now—has thought these robots have been a big productivity improvement.”

Rogo can’t do anything about the bad decisions that got him here today.  This cost is sunk.  However, he can start making good decisions today.  That will make the difference.  In the complex surroundings of modern production – there are a bewildering array of past bad decisions that could chew up all of your time.  Don’t touch them.  Instead, when new decisions arise – make them as robust and future proof as possible.

Page by Page

P073 – “We’ve got nothing to do with sales; that’s marketing.”

“One measurement for the incoming money, one for the money still stuck inside, inside, and one for the money going out.”

P074 – “All employee time—whether it’s direct or indirect, idle time or operating time, or whatever—is operational expense, according to Jonah.”

“You’re still accounting for it. It’s just that his way is simpler, and you don’t have to play as many games.”

Every time Goldratt writes ‘games’ – readers of The Lean Startup should see ‘vanity metrics’

“How can you account for everything in the whole damn system with three lousy measurements?” Bob Donovan.  [I can feel myself in a meeting saying, “Well, Bob – how many metrics do you need?  Why is 3 a ridiculous number?  Really – it all comes down to profitability…”]

P075 – “Any money we’ve lost is operational expense; any investment that we can sell is inventory.”

Money for knowledge has us stumped for a while. Then we decide it depends, quite simply, upon what the knowledge is used for. If it’s knowledge, say, which gives us a new manufacturing process, something that helps turn inventory into throughput, then the knowledge is operational expense. If we intend to sell the knowledge, as in the case of a patent…

P076 – “…or a technology license, then it’s inventory. But if the knowledge pertains to a product which UniCo itself will build, it’s like a machine—an investment to make money which will depreciate in value as time goes on. And, again, the investment that can be sold is inventory; the depreciation is operational expense.”

Anything that is invested into, that can be converted into revenue in the future is thereafter inventory.  Education and training often creates inventory – provided you retain the personnel.  For technology and manufacturing entities, the knowledge of trained application engineers is required to unlock sales.  It is part of what Geoffrey Moore would call ‘The Whole Product’ and which is required by the customer to purchase.

“He’s operational expense,” says Lou. Granny’s chauffeur.

P077 – “The problem is that everybody—including me until now—has thought these robots have been a big productivity improvement.”

Rogo can’t do anything about the bad decisions that got him here today.  This cost is sunk.  However, he can start making good decisions today.  That will make the difference.  In the complex surroundings of modern production – there are a bewildering array of past bad decisions that could chew up all of your time.  Don’t touch them.  Instead, when new decisions arise – make them as robust and future proof as possible.

P078 – He wanted to talk to you before he left London today, but I’m afraid you’ve missed him.”

Rogo was too wrapped up in discussion (which was needed) and missed Jonah’s call.  Jonah was his constraint, and he missed it.  Although, maybe educating his team was the constraint.  When things are bad it is often because the constraint has spread.  In Rogo’s case, the constraint is knowledge and systems to make good decisions.  Even if Rogo had a framework, he would have to spread it beyond himself to help get his plant on track.

P079 – “He wouldn’t say whether it was important or not.” Fran on Jonah’s call.

How would Jonah know if the call was important or not?  It must not be important to Rogo if he didn’t make time for it!

About flybrand1976

Find me on twitter @flybrand.
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