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My Saga to
Improve Production A 14-year journey. In 1982, I was chairman and a major shareholder of a company ranked by Inc. Magazine as the sixth fastest growing company in the United States. And I was extremely frustrated. Many dozens of clients had bought our production scheduling software and, guided by our associated education, had successfully implemented it. I was frustrated that we didn't have thousands of such clients. No, I don't think that I was greedy or overly ambitious. I had very good reasons to expect that every plant would embrace our package with open arms. True, the underlying concepts of our offerings were quite revolutionary at that time. They flew in the face of accepted policies and procedures, but they were obviously correct...at least to me. More importantly, our software worked. I don't just mean that it didn't bump, or that it performed according to the written specifications, or that it was efficient in producing reports. It really worked. Most of our clients were willing to testify that using the software they were able to increase production while decreasing inventory. Many were willing to say that their pay back, on our not exactly cheap product, was less than six months. And we had reputable clients: RCA, GE, GM, Avco, Bendix, Westinghouse, Kodak, Philips, Lucas, ITT... And the market was primed. Every plant was busy installing a computer package - automation was the fad of the time. And the need was there. Like today, every production manager was struggling to increase throughput and improve due-date performance; many even started to pay attention to the desirability of reducing work-in-process. We were the only company that was providing a finite capacity software that could really do it. So why was it so difficult to get more clients? It wasn't for a lack of effort. Our thoroughly educated people* were constantly on the road, giving seminars, presentations, workshops, even doing pilot implementations. In spite of all these efforts our progress was painfully slow. I expected a tidal wave, and what was coming was, in my eyes, just a trickle. Out of desperation, I decided that if conventional presentations were not effective in breaking the dam, maybe a non-conventional approach would. I had an idea: to convey my method through a novel about manufacturing. If people read about lawyers and doctors, why not plant managers? I started to work on The Goal. Nobody liked it. Not even Jeff Cox, the writer that I hired. He hated it to the extent that he refused to share in the royalties and demanded to be paid cash, in full (as far as I know he didn't repeat this enormous mistake with Zapp!, the excellent book he co-authored later). The most opposition came from my own people; most refused to read the drafts. I didn't blame them. I was the chief salesman, the prime presenter, the developer. I was the bottleneck, and here I was, wasting my time writing a novel. No, they didn't like it one bit. I liked it. After thirteen long months of labor, it was finally complete. I was pleased with the results, and thought it was good. The publishers didn't think so. Not the two dozen or so I approached. The most polite rejection I got was from McGraw Hill:
"Dr. Goldratt, if you'd like to write a book about scheduling the shop floor, we'd be delighted to be your publisher. If you want to write a love story, maybe we'll look at it. But a love story about manufacturing?? Forget it! It will never work. We don't even know which shelf to put it on!" Larry Gadd, the owner of North River Press, was the only spot of light, but even he didn't really encourage me either. He claimed that we'd be lucky to sell the first printing (3000 copies), but since he personally liked the book so much, he would print it nevertheless. And he did. We gave one hundred bound galleys as gifts, and the snow ball started to roll. It's a compliment for an author when people praise his book. It's an even bigger compliment when they recommend it to others. But the ultimate compliment is people buying the book, in quantities, to give as gifts. And that's exactly what happened. "We will not sell even 3000 copies..." What a joke! Our prospect list exploded. It was quite amusing to watch the change in my own peoples' attitude toward the book. The enthusiastic response of their prospects embarrassed them to the extent that, finally, they read it. Within two months they all had amnesia - each of them claimed that he always was a big supporter of the idea of a novel. I didn't bother to argue. Fan letters started to arrive; letters from plant managers attesting to the realism of the book, "The Goal is written specifically about our plant. We can even tell you the real names of the characters." Some even accused me of hiding in their factory. It wasn't long before the letters started to detail actual results. One plant manager wrote, "Your book is not a novel anymore - now it's a documentary. We followed Alex Rogo's actions to the letter and we replicated his results exactly. Currently, the only difference between your book and my reality is that my wife didn't come back yet." Many letters included an invitation to come and visit, which I sometimes did. The impact on me personally? It wasn't what one might expect. All of this threw me into the most difficult period of my life. I felt caught between a rock and a hard place. I almost gave up. When I wrote The Goal, I tried to focus on the need to change the paradigm that governs industry. We knew that was the major stumbling block standing in the way of a plant reaching much better performance. To achieve the proper focus in the book, down-played the role of a computerized scheduling package. Not that I thought that it was not needed. On the contrary, I thought that our software, or some variation of it, was a must for most plants. By now the letters, and even more so the visits, forced me to face an unpleasant fact. Reality showed that the software, my cherished baby that I was so proud of, was an impediment to achieving results. The plants that were exposed only to The Goal and succeeded to put it to work, achieved better results and in a shorter time than our clients who had spent so much money on our software and education. How come? It took me some time to figure it out, but at last I couldn't escape the simple explanation: the efforts to install the software distracted the plant people from concentrating on the required changes - the changes in fundamental concepts, measurements and procedures. How could we, with clear conscience, continue to persuade companies to buy our products? You can imagine the magnitude of my dilemma. My responsibility to my shareholders and to my employees demanded that we continue business as usual. My responsibility to my clients and to myself demanded that we stop selling our main product. I was frozen, but reality has a momentum of its own. When people start to have severe doubts about the validity of their product they cannot radiate confidence in it. And radiating confidence is essential to the sale of a revolutionary product. The manual implementation described in The Goal eroded our people's confidence in the absolute need for the software, and when they approached me for answers, I unavoidably increased their doubts. No wonder that in spite of the fact that prospects were now calling us, our actual sales went way down. I was devastated. The software package in which I had invested almost ten years of hard work, the thing that I regarded as my biggest achievement, turned out to be hurting more than helping. My company, my pride and joy, was tumbling down, and the only apparent way to rescue it was to compromise on my integrity. Those were hard times. I think that the only things that kept me going were pride and inertia. A few more months went by and reality tapped on my window, and then started banging on it, with another astonishing phenomenon. It was so strange that we couldn't believe our eyes. Most readers of The Goal agreed with its message to the extent that they called it "common-sense." Nevertheless, they didn't implement it! They continued to ignore the constraints, they continued to try to improve everything they knew how to improve, they continued to justify investments based on cost calculations, they continued to make decisions based on product-cost impact, they continued to ignore the fundamental difference between a transfer batch and a process batch, they even continued to measure efficiencies and variances. And this was done even in companies where the president made The Goal mandatory reading! How come? How come that even though it seemed everybody agreed with what is written in The Goal, only a handful of companies were actually implementing it? It was obvious that something was badly missing. What was it? I started to question the people who were praising my book, listening very attentively to how they explained the lack of its rigorous implementation in their own plants. It wasn't long before the major obstacles standing in the way of putting The Goal to work become clear.
The list was surprisingly short:
So why didn't these obstacles block everybody? All the companies who made it based on the book alone had something in common: they all were led by a charismatic and very analytical plant manager. This person achieved the needed buy-in using mainly his/her charisma, and then their enthused group, using their experience and intuition, worked out the needed procedures. I started to frantically develop the answers for the above obstacles--it was invigorating. Within less than three months we had the essentials; the precise verbalization of the need to change the measurements, and the rules of the logistical procedures - the Drum-Buffer-Rope and Buffer Management. That was easy. What was less easy was teaching it to my people. They resisted the change in emphasis with all their might. The Sunday that I devoted to educating them to give the resulting new, one-day presentation, they called "Bloody Sunday." But it was an unfair fight; I had the logic and they were less than two hundred. Not before long the enthusiastic response of the market caused a return of the amnesia epidemic. They all fell in love with the new presentation. Bob Fox helped me to turn that presentation into a book - The Race. Larry Gadd went out of his way to expeditiously provide it. This went a long way toward resolving the second and third obstacles. I turned my attention to solving the first one. And once again I used the computer. No, not a modified scheduling package but using the computer in what it's so effective at - games. I started to develop addictive educational games which led people to invent the needed procedures. If there is something more powerful than a novel, it's a computer game. But it was too late. We'd run out of time. Our shareholders were far from being pleased with the financial results of our company. From a money-making machine we had turned into a bottomless pit. When they realized that my plans did not include any real actions to boost our software sales, they decided that I had turned from an asset into a liability. They showed me the door. And then, one by one, they showed the door to our best people; they were "contaminated" by my ideas. I founded the Avraham Y. Goldratt Institute, named after my late father, and we frantically developed the educational games. In less than two months, we were profitable. But much more importantly, we could deliver results to our clients at speeds that matched the story in The Goal. Life looked bright again. I was careful not to repeat the same mistakes. This time we didn't have any external shareholders and in the incorporation papers it was clearly stated that the goal of the institute was "to generate and disseminate knowledge," and that our decisions were not going to be based on financial considerations. During that period I verbalized what should have been the starting point; I verbalized the steps of the process of ongoing improvement-which I later published in the second, more extended, edition of The Goal. These five focusing steps turned out to be extremely helpful. They helped our clients to constantly improve their performance, and they helped me to develop the solution for two other functions that suffer from chronic logistical problems; project management and distribution.* Our body of knowledge expanded by leaps and bounds. It became so broad and powerful that it deserved to be called a theory. We started to call it the Theory Of Constraints (TOC). But that's not the end of the story. We didn't live happily ever after. A new devastating problem developed. Successful plants, plants having performance unmatched by anybody in industry, started to suffer a sudden deterioration, some even closed down. I should have predicted it, but I didn't. Not until after the first few cases. In retrospect, it is so obvious. You improve production, and the constraint of the company moves outside production. What happens when it moves into an area where the constraint is not physical, but an erroneous policy? How do you then identify the constraint? How do you elevate it? How do you cause the needed changes in behavior? We didn't have any answers. And as a result.... The result is the throughput of the company stagnates. All the additional improvements in production do not lead to an increase in throughput but to an increase in excess manpower. And then it is just a matter of time until the market takes one of its downturns and the corporate tendency to cut costs kicks in. Where is the natural place to look for cost reduction opportunities? In the places where there is apparent excess manpower-the areas that have improved the most. Punish people for their improvements and the process of ongoing improvement comes to a grinding halt. Morale, and thus performance, rapidly deteriorates. But at that time the clients have been spoiled by the excellent performance and they are not willing to accept any deterioration. Sales plummet, in some cases, to the extent that the financial viability is no longer there. As a first reaction, we limited our business to plants where it was apparent that doubling the rate of production would still not cause the constraint to move into the market. Then the real work started. It was apparent that everything that had been done until then was dealing with a specific case-the case where the constraint is physical. I needed to develop the generic thinking processes that would:
This swallowed most of our attention for five years. Once again I demanded we leave behind familiar and fertile territories and venture into unknown waters. Once again, I lost many excellent people (not as excellent as the ones who perservered). But this is a saga of its own. What was needed now was to develop the generic procedures for using these thinking processes for the two common constraints - marketing and human relationships. I published the results of this work in my book, It's Not Luck. Now that the danger of punishing people for doing what is right had been removed, the time had come to complete the work on production-to supply even better, effective tools to enable people to overcome the obstacles to implementation. This became more urgent then ever since the effectiveness of the solutions for marketing created situations where production had to jump their performance not in six months or three but in one. I re-examined the obstacles.
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