The Goal

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come trooping along. By the time I found out what they were doing here, Hilton Smyth is standing at my elbow."

"Didn't anybody here know they were coming?" I ask.

He tells me Barbara Penn, our employee communicator, knew about it.

"And she didn't think to tell anybody?" I say.

"See, the whole thing was re-scheduled on short notice," says Bob. "Since you and Scott weren't around, she went ahead on her own, cleared it with the union, and made all the arrange- ments. She sent around a memo, but nobody got a copy until this morning."

"Nothing like initiative," I mutter.

He goes on to tell me about how Hilton's crew proceeded to set up in front of one of the robots-not the welding types, but another kind of robot which stacks materials. It soon became ob- vious there was a problem, however: the robot didn't have any- thing to do. There was no inventory for it, and no work on its way.

In a videotape about productivity, the robot, of course, could not simply sit there in the background and do nothing. It had to be producing. So for an hour, Donovan and a couple of assistants searched every corner of the plant for something the robot could manipulate. Meanwhile, Smyth became bored with the wait, so he started wandering around, and it wasn't long before he noticed a few things.

"When we got back with the materials, Hilton started asking all kinds of things about our batch sizes," says Bob. "I didn't know what to tell him, because I wasn't sure what you've said up at headquarters and, uh... well, I just thought you ought to know."

I feel my stomach twisting. Just then the phone rings. I pick it up at my desk. It's Ethan Frost at headquarters. He tells me he's just had a talk with Hilton Smyth. I excuse myself to Bob, and he leaves. When he's gone and the door is shut, I talk to Frost for a couple of minutes and afterwards go down to see Lou.

I walk though the door and start to tap dance.

Two days later, an audit team from headquarters arrives at the plant. The team is headed by the division's assistant control- ler, Neil Cravitz, a fiftyish man who has the most bone-crushing handshake and the most humorless stare of anyone I've ever met.

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They march in and take over the conference room. In hardly any time at all, they've found we changed the base for determining the cost of products.

"This is highly irregular," says Cravitz, peering at us over the tops of his glasses as he looks up from the spreadsheets.

Lou stammers that, okay, maybe it wasn't exactly according to policy, but we had valid reasons for basing costs on a current two-month period.

I added, "It's actually a more truthful representation this

way,"

"Sorry, Mr. Rogo," says Cravitz. "We have to observe stan- dard policy."

"But the plant is different now!"

Around the table, all five accountants are frowning at Lou and me. I finally shake my head. There is no sense attempting to appeal to them. All they know are their accounting standards.

The audit team recalculates the numbers, and it now looks as if our costs have gone up. When they leave, I try to head them off by calling Peach before they can return, but Peach is unexpect- edly out of town. I try Frost, but he's gone too. One of the secre- taries offers to put me through to Smyth, who seems to be the only manager in the offices, but I ungracefully decline.

For a week, I wait for the blast from headquarters. But it never comes. Lou gets a rebuke from Frost in the form of a memo warning him to stick to approved policy, and a formal order to redo our quarterly report according to the old cost standards and to submit it before the review. From Peach, there is nothing.

I'm in the middle of a meeting with Lou over our revised monthly report early one afternoon. I'm crestfallen. With the numbers based on the old cost factor, we're not going to make our fifteen percent. We're only going to record a 12.8 percent increase on the bottom line, not the seventeen percent Lou origi- nally calculated.

"Lou, can't we massage this a little more?" I'm pleading.

He shakes his head. "From now on, Frost is going to be scru- tinizing everything we submit. I can't do any better than what you see now."

Just then I become aware of this sound outside the offices that's getting louder and louder.

Wuppa- wuppa-wuppa-wuppa-wuppa-wuppa-wuppa-wuppa.

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I look at Lou and he looks at me.

"Is that a helicopter?" I ask.

Lou goes to the window and looks out.

"Sure is, and it's landing on our lawn!" he says.

I get to the window just as it touches down. Dust and brown grass clippings are whirling in the prop wash around this sleek red and white helicopter. With the blades still twirling down to a stop, the door opens and two men get out.

"That first one looks like Johnny Jons," says Lou.

"It is Johnny Jons," I say.

"Who's the other guy?" asks Lou.

I'm not sure. I watch them cross the lawn and start to walk through the parking lot. Something about the girth and the strid- ing, arrogant swagger of the huge, white-haired second man trig- gers the recollection of a distant meeting. It dawns on me who he is.

"Oh, god," I say.

"I didn't think He needed a helicopter to get around," says Lou.

"It's worse than God," I say, "It's Bucky Burnside!"

Before Lou can utter another word, I'm running for the door. I dash around the corner and into Stacey's office. She, along with her secretary and some people she's meeting with, are all at the window. Everybody is watching the damn helicopter.

"Stacey, quick, I need to talk to you right now!"

She comes over to the door and I pull her into the hallway.

"What's the status on Burnside's Model 12's?" I ask her.

"The last shipment went out two days ago."

"It was on time?"

"Sure," she says. "It went out the door with no problems, just like the previous shipments."

I'm running again, mumbling "thanks" over my shoulder to her.

"Donovan!"

He's not in his office. I stop at his secretary's desk.

"Where's Bob?" I ask her.

"I think he went to the men's room," she says.

I go sprinting in that direction. Bursting through the door, I find Bob washing his hands.

"On Burnside's order," I ask him, "were there any quality problems?"

"No," says Bob, startled to see me. "Nothing I know about."

"Were there any problems on that order?" I ask him.

He reaches for a paper towel and dries his hands. "No, the whole thing came off like clockwork."

I fall back against the wall. "Then what the hell is he doing here?"

"Is who doing here?" asks Bob.

"Burnside," I tell him. "He just landed in a helicopter with Johnny Jons."

"What?"

"Come with me," I tell him.

We go to the receptionist, but nobody is in the waiting area.

"Did Mr. Jons come through here just now with a cus- tomer?" I ask her.

She says, "The two men in the helicopter? No I watched them and they went past here and into the plant."

Bob and I hustle side by side down the corridor and through the double doors, into the orange light and production din of the plant. One of the supervisors sees us from across the aisle and, without being asked, points in the direction Jons and Burnside took. As we head down the aisle, I spot them ahead of us.

Burnside is walking up to every employee he sees and he's shaking hands with each of them. Honest! He's shaking hands, clapping them on the arm, saying things to them. And he's smil- ing.

Jons is walking with him. He's doing the same thing. As soon as Burnside lets go of a hand, Jons shakes it as well. They're pumping everybody in sight.

Finally, Jons sees us approaching, taps Burnside on the shoulder, and says something to him. Burnside dons this big grin and comes striding up to me with his hand extended.

"Here's the man I especially want to congratulate," says Burnside in a growling kind of voice. "I was saving the best for last, but you beat me to it. How are you?"

"Fine, just fine, Mr. Burnside," I tell him.

"Rogo, I came down here because I want to shake the hand of every employee in your whole plant," growls Burnside. "That was a hell of job this plant did on our order. A hell of a good job! Those other bastards had the order for five months and still couldn't get it down, and here your people finish the whole thing in five weeks. Must have been an incredible effort!"

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Before I can say anything, Jons jumps into the conversation and says, "Bucky and I were having lunch today, and I was telling him how you pulled out all the stops for him, how everybody down here really gave it everything they had."

I say, "Ah... yeah, we just did our best."

"Mind if I go ahead?" asks Burnside, intending to continue down the aisle.

"No, not at all," I say.

"Won't hurt your efficiency, will it?" asks Burnside.

"Not one bit," I tell him. "You go right ahead."

I turn to Donovan then and out of the corner of my mouth say, "Get Barbara Penn down here right away with the camera she uses for the employee news. And tell her to bring lots of film."

Donovan goes trotting off to the offices, and Jons and I fol- low Bucky up and down the aisles, the three of us shaking hands with one and all.

Johnny, I notice, is virtually atwitter with excitement. When Burnside is far enough ahead that he can't hear us, he turns to me and asks, "What's your shoe size?"

"Ten and a half," I tell him. "Why?"

"I owe you a pair of shoes," says Jons.

I say, "That's okay, Johnny; don't worry about it."

"Al, I'm telling you, we're meeting with Burnside's people next week on a long-term contract for Model 12's-10,000 units a year!"

The number just about sends me reeling backwards.

"And I'm calling in my whole department when I get back," Jons continues as we walk. "We're going to do a new campaign pushing everything you make down here, because this is the only plant we've got in this damn division that can ship a quality prod- uct on time. With your lead times, Al, we're going to blow every- body out of the market! Thanks to you, we've finally got a win- ner."

I'm beaming. "Thanks Johnny. But, as it turned out, Burn- side's order didn't take any extra effort at all."

"Shhhh! Don't let Burnside know," Johnny says.

Behind me, I hear two hourly guys talking.

"What was that all about?" asks one.

"Beats me," says the other. "Guess we musta done somthin' right."

On the eve of the plant performance review, with presenta-

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tion rehearsed and ten copies of our report in hand, and with nothing more to do except imagine what could go wrong, I call Julie.

"Hi," I tell her. "Listen, I have to be at headquarters for a meeting tomorrow morning. And because Forest Grove is more or less on the way, I'd like to come up and be with you tonight. What do you think?"

"Sure, it sounds great," she says.

So I leave work a little early and hit the highway.

As I head up the Interstate, Bearington is spread out to my left. The "Buy Me!" sign on top of the high-rise office building is still in place. Living and breathing within the range of my sight are 30,000 people who have no idea that one small but important part of the town's economic future will be decided tomorrow. Most of them haven't the slightest interest in the plant or what we've done here-except if UniWare closes us, they'll be mad and scared. And if we stay open? Nobody will care. Nobody will even know what we went through.

Well, win or lose, I know I did my best.

When I get to Julie's parents' house, Sharon and Dave run up to the car. After getting out of my suit and into some "off- duty" clothes, I spend about an hour throwing a frisbee to the two kids. When they've exhausted me, Julie has the idea the two of us should go out to dinner. I get the feeling she wants to talk to me. I clean up a little and off we go. As we're driving along, we pass the park.

"Al, why don't we stop for awhile," says Julie.

"How come?" I ask.

"The last time we were here we never finished our walk," she says.

So I pull over. We get out and walk. By and by, we come to the bench by the river, and the two of us sit down.

"What's your meeting about tomorrow?" she asks.

"It's a plant performance review," I say. "The division will decide the future of the plant."

"Oh. What do you think they'll say?"

"We didn't quite make what I promised Bill Peach," I say. "One set of numbers doesn't look as good as it truly is because of the cost-of-products standards. You remember me telling you about some of that, don't you?"

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She nods, I shake my head momentarily, still angry at what happened as a result of the audit.

"But even with that, we still had a good month. It just doesn't show up as the fantastic month we really had," I tell her.

"You don't think they'd still close the plant, do you?" she asks.

"I don't think so," I say. "A person would have to be an idiot to condemn us just because of an increase in cost of products. Even with screwed-up measurements, we're making money."

She reaches over to take my hand and says, "It was nice of you to take me out to breakfast that morning."

I smile and say, "After listening to me ramble on at five o'clock in the morning, you deserved it."

"When you talked to me then, it made me realize how little I know about what you do," she says. "I wish you had told me more over the years."

I shrug. "I don't know why I haven't, I guess I thought you wouldn't want to hear it. Or I didn't want to burden you with it."

"Well, I should have asked you more questions," she says.

"I'm sure I didn't give you many opportunities by working those long hours."

"When you weren't coming home those days before I left, I really took it personally," she says. "I couldn't believe it didn't have something to do with me. Deep down, I thought you must be using it as an excuse to stay away from me."

"No, absolutely not, Julie. When all those crises were occur- ring, I just kept thinking you must know how important they were," I tell her. "I'm sorry. I should have told you more."

She squeezes my hand.

"I've been thinking about some of the things you said about our marriage when we were sitting here last time," she says. "I have to say you're right. For a long time, we have just been coast- ing along. In fact, we were drifting apart. I've watched you get more and more wrapped up in your job as the years have gone by. And to compensate for losing you, I got wrapped up in things like decorating the house and spending my time with friends. We lost sight of what was important."

I look at her in the sunlight. The awful frosting in her hair which she had when I came home the day the NCX-10 went down is finally gone. It's grown out. Her hair is thick and straight again, and all the same dark brown.

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She says, "Al, the one thing I definitely know now is that I want more of you, not less. That's always been the problem for me."

She turns to me with her blue eyes, and I get a long-lost feeling about her.

"I finally figured out why I haven't wanted to go back to Bearington with you," she says. "And it isn't just the town, al- though I don't like it very much there. It's that since we've been living apart, we've actually spent more time being together. I mean, when we were living in the same house, I felt as though you took me for granted. Now you bring me flowers. You go out of your way to be with me. You take time to do things with me and the kids. Al, it's been nice. I know it can't go on this way forever-I think my parents are getting a little tired of the ar- rangement-but I haven't wanted it to end."

I start to feel very good.

I say, "At least we're sure we don't want to say good-bye."

"Al, I don't know exactly what our goal is, or ought to be, but I think we know there must be some kind of need between us," she says. "I know I want Sharon and Dave to grow up to be good people. And I want us to give each other what we need."

I put my arm around her.

"For starters, that sounds worth shooting for," I tell her. "Look, it's probably easier said than done, but I can certainly try to keep from taking you for granted. I'd like you to come home, but unfortunately, the pressures that caused all the problems are still going to be there. They're just not going to go away. I can't ignore my job."

"I've never asked you to," she says. "Just don't ignore me or the kids. And I'll really try to understand your work."

I smile.

"You remember a long time ago, after we got married and we both had jobs, how we'd come home and just talk to each other for a couple of hours, and sympathize with each other about the trials and tribulations we'd suffered during the day?" I ask. "That was nice."

"But then there were babies," says Julie. "And, later, you started putting in extra hours at work."

"Yeah, we got out of the habit," I tell her. "What do you say we make a point to do that again?"

"That sounds terrific," she says. "Look, Al, I know that leav-

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ing you must have seemed selfish on my part. I just went crazy for a little while. I'm sorry-

"No, you don't have to be sorry," I tell her. "I should have been paying attention."

"But I'll try to make it up to you," she says. Then she smiles briefly and adds, "Since we're walking down memory lane, maybe you remember the first fight we had, how we promised afterwards we'd always try to look at a situation from the other's point of view as well as our own. Well, I think for the past couple of years we haven't been doing that very often. I'm willing to try it again if you are."

"I am too," I say.

There is a long hug.

"So... you want to get married?" I ask her.

She leans back in my arms and says, "I'll try anything twice."

"You know, don't you, it's not going to be perfect," I tell her. "You know we're still going to have fights."

"And I'll probably be selfish about you from time to time," she says.

"What the hell," I tell her, "Let's go to Vegas and find a justice of the peace."

She laughs, "Are you serious?"

"Well, I can't go tonight," I say. "I've got that meeting in the morning. How about tomorrow night?"

"You are serious!"

"All I've been doing since you left is putting my paycheck in the bank. After tomorrow it'll definitely be time to blow some of it."

Julie smiles. "Okay, big spender. Let's do it."

The next morning on the fifteenth floor of the UniCo build- ing, I walk into the conference room at a few minutes before ten o'clock. Sitting at the far end of the long table is Hilton Smyth and sitting next to him is Neil Cravitz. Flanking them are various staff people.

I say, "Good morning."

Hilton looks up at me without a smile and says, "If you close the door, we can begin."

"Wait a minute. Bill Peach isn't here yet," I say. "We're going to wait for him, aren't we?"

"Bill's not coming. He's involved in some negotiations," says Smyth.

"Then I would like this review to be postponed until he's available," I tell him.

Smyth's eyes get steely.

"Bill specifically told me to conduct this and to pass along my recommendation to him," says Smyth. "So if you want to make a case for your plant, I suggest you get started. Otherwise, we'll have to draw our own conclusions from your report. And with that increase in cost of products Neil has told me about, it sounds to me as if you have a little explaining to do. I, for one, would particularly like to know why you are not observing proper pro- cedures for determining economical batch quantities."

I pace in front of them a moment before answering. The fuse to my anger has started a slow burn. I try to put it out and think about what this means. I don't like the situation one bit. Peach damn well ought to be here. And I was expecting to be making my presentation to Frost, not his assistant. But from the sound of it, Hilton may have set himself up with Peach to be my judge, jury, and possibly, executioner. I decide the safest bet is to talk.

"Fine," I say finally. "But before I go into my presentation of what has been happening at my plant, let me ask you a question. Is it the goal of the UniWare Division to reduce costs?"

"Of course it is," says Hilton impatiently.

"No, actually, that is not the goal," I tell them. "The goal of UniWare is to make money. Agreed?"

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Cravitz sits up in his chair and says, "That's true."

Hilton gives me a tentative nod.

I say, "I'm going to demonstrate to you that regardless of what our costs look like according to standard measurements, my plant has never been in a better position to make money."

And so it begins.

An hour and a half later, I'm midway through an explana- tion of the effects of the bottlenecks upon inventory and throughput when Hilton stops me.

"Okay, you've taken a lot of time to tell us all this, and I personally can't see the significance," says Hilton. "Maybe at your plant you did have a couple of bottlenecks and you discovered what they were. Well, I mean bravo and all that, but when I was a plant manager we dealt with bottlenecks wandering everywhere."

"Hilton, we're dealing with fundamental assumptions that are wrong," I tell him.

"I can't see that you're dealing with anything fundamental," says Hilton. "It's at best simple common sense, and I'm being charitable at that."

"No, it's more than just common sense. Because we're doing things every day that are in direct contradiction to the established rules most people use in manufacturing," I tell him.

"Such as?" asks Cravitz.

"According to the cost-accounting rules that everybody has used in the past, we're supposed to balance capacity with demand first, then try to maintain the flow," I say. "But instead we shouldn't be trying to balance capacity at all; we need excess ca- pacity. The rule we should be following is to balance the/ low with demand, not the capacity.

"Two, the incentives we usually offer are based on the as- sumption that the level of utilization of any worker is determined by his own potential," I tell them. "That's totally false because of dependency. For any resource that is not a bottleneck, the level of activity from which the system is able to profit is not determined by its individual potential but by some other constraint within the system."

Hilton says impatiently, "What's the difference? When some- body is working, we're getting use out of him."

"No, and that's a third assumption that's wrong," I say.

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"We've assumed that utilization and activation are the same. Acti- vating a resource and utilizing a resource are not synonymous."

And the argument goes on.

/ say an hour lost at a bottleneck is an hour out of the entire system. Hilton says an hour lost at a bottleneck is just an hour lost of that resource.

I say an hour saved at a non-bottleneck is worthless. Hilton says an hour saved at a non-bottleneck is an hour saved at that resource.

"All this talk about bottlenecks," says Hilton. "Bottlenecks temporarily limit throughput. Maybe your plant is proof of that. But they have little impact upon inventory."

"It's completely the opposite, Hilton," I say. "Bottlenecks govern both throughput and inventory. And I'll tell you what my plant really has shown: it's proved our performance measure- ments are wrong."

Cravitz drops the pen he's holding and it rolls noisily on the table.

"Then how are we to evaluate the performance of our opera- tions?" asks Cravitz.

"By the bottom line," I tell him. "And based upon that evalu- ation, my plant has now become the best in the UniWare Divi- sion, and possibly the best in its industry. We're making money when none of the others are."

"Temporarily you may be making money. But if you're really running your plant this way, I can't possibly see how your plant can be profitable for very long," says Hilton.

I start to speak, but Hilton raises his voice and talks over me.

"The fact of the matter is that your cost-of-products mea- surement increased," says Hilton. "And when costs go up, profits have to go down. It's that simple. And that's the basis of what I'll be putting into my report to Bill Peach."

Afterwards, I find myself alone in the room. Messrs. Smyth and Cravitz have gone. I'm staring into my open briefcase-then with a fist, I slam it shut.

I'm muttering to myself something about their pigheaded- ness as I exit the conference room and go to the elevators. I press the "down" button. But when the elevator arrives, I'm not there. I'm walking back up the corridor again, and I'm heading for the corner office.

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Bill's secretary, Meg, watches me approach. I stride up to her desk, where she's sorting paper clips.

"I need to see Bill," I tell her.

"Go right in. He's waiting for you," she says.

"Hello, Al," he greets me as I enter his office. "I knew you wouldn't leave without seeing me. Take a seat."

As I approach his desk I start to talk, "Hilton Smyth is going to submit a negative report about my plant, and I feel that as my manager you should hear me out before you come to any conclu- sions."

"Go ahead, tell me all about it. Sit down, we're not in a rush."

I continue to talk. Bill puts his elbows on the desktop and his fingers together in front of his face. When I finally stop he says, "And you explained all of this to Hilton?"

"In great detail."

"And what was his response?" he asks.

"He basically refused to listen. He continues to claim that as long as cost of products increase, profits eventually have to go down."

Bill looks straight into my eyes and asks, "Don't you think he has a point?"

"No, I don't. As long as I keep my operating expenses under control and Johnny Jons is happy, I don't see how profits can help but continue to go up."

"Fine," he says, and buzzes Meg. "Can you call Hilton, Na- than, and Johnny Jons in here please."

"What's going on?" I ask him.

"Don't worry, just wait and see," he says calmly.

It's not long before they all enter the room and take seats.

"Hilton," Bill turns to him, "you heard Alex's report this morning. You've also seen all the financial results. As the produc- tivity manager of the division, and as a fellow plant manager, what's your recommendation?"

"I think that Alex should be called to order," he says in a formal voice. "And I think that immediate actions should be taken in his plant before it's too late. The productivity in Alex's plant is deteriorating, cost of products is going up, and proper procedures are not being followed. I think that immediate actions are in order."

Ethan Frost clears his throat, and when we all look at him

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he says, "And what about the fact that in the last two months that plant has turned profits rather than losses, while releasing a lot of cash for the division?"

"That is only a temporary phenomenon," Hilton states. "We must expect big losses in the very near future."

"Johnny, do you have anything to add?" Bill asks.

"Yes, certainly. Alex's plant is the only one that can produce miracles-to deliver what the client needs in a surprisingly short time. You've all heard about Burnside's visit. With such a plant backing up sales, they can really go out and blast the market."

"Yes, but at what price?" Hilton reacts. "Cutting batches to far below optimum size. Devoting the entire plant to one order. Do you know the long-term ramifications?"

"But I haven't devoted the plant to one order!" I can't con- tain my anger. "As a matter of fact, I haven't got any past-due orders. All my clients are pleased."

"Miracles exist only in fairy tales," Hilton says cynically.

Nobody says a word. At last I cannot hold back, "So what's the verdict-is my plant going to be closed?"

"No," says Bill. "Not at all. Do you think we're such bad managers that we would close a gold mine?"

I sigh in relief. Only now do I notice I've been holding my breath.

"As manager of productivity of the division," Hilton says with a red face, "I feel it's my duty to protest."

Bill ignores him, and turning to Ethan and Johnny he asks, "Shall we tell them now, or wait until Monday?"

They both laugh.

"Hilton, this morning I asked you to sit in for me because we were meeting with Granby. Two months from now the three of us are moving up the ladder, to head the group. Granby left it to us to decide who will be the next manager of the division. I think that the three of us have decided. Congratulations, Alex; you will be the one to replace me."

When I return to the plant, Fran hands me a message "It's from Bill Peach. What's going on?"

"Call everybody. I have some good news," I smile.

Bill's message is: "I recommend you use these two months to prepare yourself. You still have a lot to learn, hotshot."

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At last I'm able to reach Jonah in New York and fill him in on the latest developments. Although pleased for me, he does not seem surprised.

"And all this time I just worried about saving my one plant," I tell him. "Now it seems that I'm ending up with three."

"Good luck," says Jonah. "Keep up the good work."

Hurriedly, before he hangs up I ask in a desperate voice, "I'm afraid that luck will not be enough; I'm out of my depth. Can't you come down and help me?" I haven't spent two hours tracking down Jonah just to hear his congratulations. Frankly, I'm terrified at the prospect of my new job. It's one thing to handle a production plant, but handling a division of three plants does not mean just three times the work, it also means responsi- bility for product design and marketing.

"Even if I had the time, I don't think it's a good idea," I hear his disappointing answer.

"Why not? It seemed to work fine so far."

"Alex," he says in a stern voice, "as you climb up the ladder and your responsibilities grow, you should learn to rely more and more on yourself. Asking me to come now will lead to the oppo- site; it will increase the dependency."

I refuse to see his point. "Can't you continue to teach me?"

"Yes, I can," he answers. "But first you should find out ex- actly what it is that you want to learn. Call me then."

I don't give up easily. "I want to learn how to run an efficient division, isn't it obvious?"

"In the past you wanted to learn how to run an efficient plant," Jonah sounds impatient. "Now you want to learn how to run an efficient division. We both know that it will not end here. What is it that you want to learn? Can you spell it out?"

"Actually, I guess that I want to learn how to manage-a plant, a division, a company, any type or size organization." After a second of hesitation I add, "It wouldn't be bad to learn how to manage my life, but I'm afraid that would be asking for too much."

"Why too much?" says Jonah to my surprise. "I think that every sensible person should want to learn how to manage his or her life."

"Great, when can we start?" I ask eagerly.

"Now. Your first assignment is to find out what techniques are needed for effective management."

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"What?" I ask in a choked voice.

"Come on, I didn't ask you to develop them, just to deter- mine clearly what they should be. Call me when you have the answer. And Alex, congratulations on your promotion."

"I'm really proud of you. Three more steps like that and we will have made it. Shall we drink to it?"

Julie's forced enthusiasm strikes a responding chord inside me. "No, I don't think so." I refuse the toast, an event which, as you can imagine, is not very common.

Julie doesn't say a word. She just slowly lowers her drink, leans slightly forward, and looks directly into my eyes. It's quite apparent that she is waiting for some explanation.

Under the pressure I start to talk slowly, trying to verbalize my rambling thoughts. "Julie, I really don't think that we should toast it, at least not in the way you make it sound, like toasting an empty victory. Somehow I feel that you were right all along- what is this promotion if not just winning a point in the rat race?"

"Hmm," is her only response.

My wife can express herself very clearly without even open- ing her mouth-which is definitely not the case for me. Here I am, rambling all over the place... 'Rat race'... 'Empty vic- tory.' What on earth am I talking about? But still, why do I feel it's inappropriate to toast my promotion?

"The family paid too big a price for this promotion," I finally say.

"Alex you're being too hard on yourself. This crisis was about to explode one way or the other."

She continues, "I gave it a lot of thought and let's face it, if you had given up, the feeling of failure would have spoiled every good part of our marriage. I think you should be proud of this promotion. You didn't step on anybody to get it; you won it fair and square."

A chill goes down my back as I remember it. I was in deep trouble. My plant was under a real threat of being closed down; over six hundred people were about to join the already long un- employment lines; my career was one inch from being kissed by limbo; and on top of all that, the unbelievable hours I was putting in at work had pushed our marriage to the brink of going down the tube. In short, I was about to change from a bright, rising star into an ordinary bum.

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But I didn't give up. Against all odds I continued to fight. And I was not alone. Jonah introduced me to his common-sense (and thus very controversial) approach to managing a company. It made a lot of sense, so my team enthusiastically backed me up. And it was fun, real fun. Let me tell you, the last few months were quite stormy. I think that we violated almost every rule of corpo- rate America. But we made it. We turned the plant around. So much so that it saved the entire division. Now, Julie and I are sitting in this fancy restaurant celebrating. I'm going to head the division, which means relocation-a fact that probably contrib- utes a lot to Julie's supportive mood.

Raising my glass I say confidently, "Julie, let's drink to my promotion. Not as a step toward the tip of the pyramid, but let's drink to what it really means-positive reassurance to our excit- ing, worthwhile journey."

A broad smile is spreading over Julie's face and our glasses make a clear, gentle sound.

We turn to our menus, in a good mood. "It's your celebra- tion as much as it is mine," I say generously. After a while, and in a more somber tone I continue, "Actually, it's much more Jonah's achievement than mine."

"You know Alex, it's so typical of you," Julie says apparently 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 lead- ing 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."

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 defi- nitely 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 dis- turb us any longer."

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

When 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- ments should induce the parts to do what's good for the organiza- tion as a whole. What's become apparent to me is that neither of these two objectives is being met.

"For example, this conversation we just had. We knew very well that the plant had drastically improved, but the distorted measurements have almost condemned us. I'm submitting effi- ciency reports, product-cost reports, and now we both know to what extent they just lead workers and management alike to do what's bad for the company."

I've never heard Lou talk for so long. I agree with every- thing he just said, but I'm totally confused. I don't know what he's getting at.

"Alex, I can't stop here. I can't retire now. Do me a personal favor, take me with you. I want the opportunity to devise a new measurement system, one that'll correct the system we have now, so that it will do what we expect it to do. So that a controller can be proud of his job. I don't know if I'll succeed, but at least give me the chance."

What am I supposed to say? I stand up and stretch out my hand. "It's a deal."

Back at my desk I ask Fran to call Bob Donovan in. With Lou on one side and Bob on the other, I'll be free to concentrate on the two areas I know the least, engineering and marketing.

What am I going to do about marketing? The only person I appreciate in that department is Johnny Jons; no wonder Bill has decided to take him along.

The phone rings. It's Bob.

"Hey Al, I'm sitting with Stacey and Ralph, we're really cook- ing. Can you join us?"

"How long will it take?" I ask.

"No way to tell. Probably 'til the end of the day."

"In that case, I'll pass. But Bob, we need to talk. Can you get away for a few minutes?"

"Sure, no problem."

And in no time, he enters my office. "What's up, boss?"

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I decide to give it to him straight, "How'd you like to be responsible for all production of the division?"

The only thing he manages to say is a long "Wow." He puts his big body in a chair, looks at me, and doesn't say any more.

"Well, Bob, surprised?"

"You bet."

I go to pour us coffee and he starts to talk to my back. "Alex, I don't want that job. Not now. You know, a month ago I would have grabbed the offer with both hands. It's way beyond what I expected."

Puzzled, I turn around, a cup in each hand. "What's the matter Bob, afraid?"

"You know better than that."

"So what happened in the past month to change your per- spective?"

"Burnside."

"You mean he made you a better offer?"

He fills the room with his booming laughter. "No, Alex, nothing like that. What gave me a new perspective was the way we handled Burnside's urgent order. I learned so much from how we handled that case that I would rather stay in this plant and develop it further."

Surprises all around me. I thought I knew these people. I expected it would be impossible to convince Lou, and he almost begged me for the job. I didn't expect any problems with Bob, and he just declined my offer. It's really annoying.

"You'd better explain," I hand him his cup.

Bob's chair squeaks in protest as he fidgets. If I were staying here longer, I would have ordered a more massive chair just for him.

"Haven't you noticed how unique the events of Burnside's order were?" he says at last.

"Yes, of course. I've never heard of the president of a com- pany going to thank the workers of a vendor."

"Yeah, yeah, that too. But look at the whole chain of events. Johnny called you with an impossible client wish. He didn't be- lieve it could be done, and neither did the client. And on the surface, it was impossible. But we looked into it. We considered the bottleneck availability, we considered the vendor limitations, and we came back with something pretty unusual.

"We didn't say a flat no, or a flat yes, and then miss the due

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date by a mile, as we used to do. We re-engineered the deal; we came back with a counter-offer that was feasible and that the client liked even more than his original request."

"Yes," I say, "it was good work. Especially considering what came out after that. But that was a peculiar set of circumstances."

"It was peculiar because normally we don't take the initiative -but maybe there's a way to make it standard. Don't you see? We actually engineered a sale. We-in the plant, in production-en- gineered a sale."

I think about it. He's right. Now I start to see where he's heading.

Bob, probably misinterpreting my silence, says, "For you it's not a big deal, you always looked at production and sales as two links in the same chain. But look at me. All the time I'm buried out on the shop floor, thinking that my responsibility is to put out fires, and viewing the sales department as snake oil salesmen, spreading unrealistic promises to our clients. For me, this event was a revelation.

"Look, we give sales a rigid lead time for each product. So if it's not in finished goods, those are the numbers they should use to promise to clients. Yeah, they deviate from it, but not by much. Maybe there should be another way. Maybe the quoted lead times should be done case by case, according to the load on the bottle- necks. And maybe we shouldn't regard the quantities required as if we have to supply them in one shot.

"Alex, I'd like to look into it more. Actually, that's what Stacey, Ralph, and I are doing right now. We were looking for you, you should join us. It's pretty exciting."

It certainly sounds it, but I can't allow myself to get sucked in right now. I have to continue with preparations for my next job. "Tell me again what you are up to," I finally say.

"We want to make production a dominant force in getting good sales. Sales which will fit both the client's needs and the plant's capabilities like a glove. Exactly as we did in Burnside's case. But you see, for that I have to be here, in the plant. As long as we don't understand it in full, as long we don't develop the new procedures, we have to be intimately involved with all the details."

"So what you want to do is to find those procedures. I see. This is interesting-but Bob, that's not like you. Since when have you been interested in such things?"

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"Since you came and forced us to rethink the way we were doing stuff. Do you think somebody needs better proof than what's happened here in the past months? Here we were, run- ning things like we'd always done it-by the seat of our pants, slowly but surely sinking. And then we took the time and re- examined it from basic principles. And look at how many sacred cows we've had to slaughter! Worker efficiency-whoops, out the window. Optimum batch sizes-there it goes. Releasing work just because we have the material and the people-that's gone as well. And I can go on and on. But look at the result. If I hadn't seen it myself, I wouldn't believe it.

"Yeah, Alex, I want to stay here and continue what you've started. I want to be the new plant manager. You caused us to change almost every rule in production. You forced us to view production as a means to satisfy sales. I want to change the role production is playing in getting sales."

"Fine with me. But Bob, when you nail those procedures," and to myself I add, 'if/ "will you consider taking on responsibil- ity for all the plants in the division?"

"You bet, boss. I'll teach 'em a trick or two."

"Let's drink to it," I say. And we toast with our coffee.

"Who do you suggest should take your place?" I ask him. "Frankly, I'm not impressed with any of your superintendents."

"Unfortunately, I agree with you. The best would be Stacey, but I don't give it much chance she'd take it."

"Why don't we ask her. You know what? Let's call both Stacey and Ralph in and discuss your idea."

"So, at last you found him," Stacey says to Bob, as she and Ralph enter the room, each loaded with papers.

"Yes, Stacey," I answer. "And it definitely looks like a promis- ing idea. But before that, there's another thing that we'd like to discuss with you. We've just agreed that Bob will take my place as plant manager. How about you taking his place as production manager?"

"Congratulations, Bob." They both shake his hand. "That's no surprise."

Since Stacey hasn't answered my question, I continue, "Think about it, you don't have to answer now. We know that you love your job and that you don't want the burden of all the per-

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sonnel problems that go with being a production manager, but we both think that you'd do a fantastic job."

"You bet," Bob adds his two cents.

She looks calmly at me, and says, "Last night I was lying in bed, praying. I was praying that this job would be offered to me."

"Done," Bob shouts quickly.

"Now that you've accepted," I say to Stacey, "can you tell us why you want this job so badly?"

"Looks like being a material manager," Bob booms, "is start- ing to be boring around this plant-not enough expediting, not enough rush calls... I didn't know that you liked that type of excitement."

"No, I didn't, and I don't. That's why I was so happy with our new method, timing the release of material according to the bottlenecks' consumption. But you know my fear, what happens if new bottlenecks pop up?

"What my people and I have done is to examine daily the queues in front of the assembly and in front of the bottlenecks- we call them 'buffers.' We check just to be sure that everything that's scheduled to be worked on is there-that there are no 'holes.' We thought that if a new bottleneck pops up it would immediately show up as a hole in at least one of these buffers. It took us some time to perfect this technique, but now it's working smoothly.

"You see, whenever there's a hole in a buffer-and I'm not talking about just the work that's supposed to be done on a given day, but the work for two or three days down the road-we go and check in which work center the materials are stuck. And then..."

"And then you expedite!" Bob jumps in.

"No, nothing of the sort. We don't break setups, or light a fire. We just point out to the foreman of that work center which job we would prefer he gets to next."

"That's very interesting," I say.

"Yeah. And it became even more interesting when we real- ized that we were visiting the same six or seven work centers every time. They're not bottlenecks, but the sequence in which they perform their jobs became very important. We call them 'capacity constraint resources,' CCR for short."

"Yeah, I know all about it. Those foremen have become al-

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most dependent on your people to prioritize their work," Bob says. "But Stacey, you're not answering our question."

"I'm coming to it. See, these holes have become more and more dangerous lately-sometimes to the extent that assembly has to deviate significantly from their scheduled sequence. And it's become apparent that the foremen of the CCRs have more and more difficulty supplying on time. Ralph was telling me that these work centers still have enough capacity, and maybe on the average he's right, but I'm afraid that any additional increase in sales will throw us into chaos."

So here's a bomb, ticking below our feet, and I didn't even realize it. I'm pressing so hard on marketing to bring more sales, and according to what Stacey's just revealed that might blow up the whole plant. I'm still trying to digest it when she continues.

"Don't you realize that we've concentrated our improvement efforts too narrowly? We tried so hard to improve our bottle- necks, when what we should do is improve the CCRs as well. Otherwise we'll run into an 'inter-active' bottleneck situation.

"See, the key is not in the hands of the materials people. If interactive bottlenecks emerge, chaos is inevitable; we'll have to expedite all over the place."

"So what are you suggesting?" I ask.

"The key is in the hands of production. These techniques to manage the buffers should not be used just to track missing parts while there is still time, they should be used mainly to focus our local improvement efforts. We must guarantee that the improve- ments on the CCRs will always be sufficient to prevent them from becoming bottlenecks.

"Alex, Bob, that's why I want this job so badly. I want to make sure that the material manager's job will continue to be boring. I want to demonstrate how local improvements should be managed. And I want to show all of you how much more throughput we can squeeze from the same resources."

"What about you Ralph, it's your turn to surprise me." "What do you mean?" he says in his quiet voice. "It looks like everyone around here has a pet project. What ace are you hiding up your sleeve?"

He smiles gently, "No aces, just a wish."

We all look at him encouragingly.

"I've started to like my job. I feel like I'm part of a team."

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We all nod in approval.

"It's not just me and the computer anymore, trying to fiddle with inaccurate or untimely data. People really need me now, and I feel like I'm contributing. But you know what? I think that the change, at least as it relates to my function, is very fundamental. What I'm holding in my files is data. What you are usually asking for is information. I always regarded information as those sec- tions of the data which are needed in order to make a decision- and for that, let me admit it, for most decisions my data was simply unsuitable. Remember the time we were trying to find the bottlenecks?" He looks at each of us in turn. "It took me four days to admit that I simply couldn't find the answer. What I started to realize is that information is something else. Informa- tion is the answer to the question asked. The more I am able to do it, the more a part of the team I become.

"This bottleneck concept has really helped me to move along these lines. Let's face it, today the plant obeys a schedule that's. released from the computer.

"What's my wish, you ask? I want to develop a system that'll help in what Bob wants to do, that will help to shrink drastically the time and effort needed to engineer a sale, as he calls it. I want to develop a system to help Stacey manage the buffers, and even to help in managing the local improvements. I want to develop a system to help Lou measure, in a much more beneficial way, the local performance. You see, like everyone else, I have my dreams."

It's quite late, the kids are already fast asleep. Julie and I are sitting in the kitchen; we're each holding a warm cup of tea in our hands. I tell her about what happened today at the plant. She seems to be more than mildly interested; she actually claims that she finds it fascinating.

I love it. Rehashing the day's events with Julie really helps me to digest it all.

"So what do you think?" I ask her at last.

"I'm starting to see what Jonah meant when he warned you about increasing the dependency," she replies.

That makes me think for a while, but I still can't see the connection. "What do you mean?"

"Maybe I'm wrong, but you gave me the impression that you're not too sure that Lou'll be able to come up with a good, new measurement system."

"That's right," I smile.

"Is a new measurement system important for you?"

"Are you kidding? I don't know of another single thing which is as important as that."

"So if it weren't for Jonah's refusal to continue giving you pointed questions, am I right in assuming that you'd be on the phone right now, trying to squeeze more hints from him?"

"Most probably," I admit. "It's certainly important enough."

"And what about Bob's idea," she continues. "Do you regard that as something important?"

"If he pulls it off it'll be a revolution. It'll guarantee that we take a big share of the market. Definitely our problem with get- ting more sales will be over."

"And how much hope do you have that he'll be able to do it?"

"Not much, I'm afraid. Ah. I see your point. Yeah, I would have run to Jonah with these questions as well. And the same with the issues that Stacey and Ralph have raised, each one of them is essential."

"And how many more things will pop up when you start to manage the division?"

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"You're right, Julie. And Jonah is also right. I felt it today as well. When each one of them spelled out their immediate dream in such a tangible form, I wondered what mine is. The only thing that kept popping into my mind is that I must learn how to man- age. But where on earth am I going to find the answer to Jonah's question: What are the techniques needed for management? I don't know, Julie. What do you think I should do now?"

"All the people back at the plant owe you a lot," she says, stroking my hair. "They're proud of you, and rightfully so. You've created quite a team. But this team is going to be broken up in two months when we go to the division. Why don't you spend the time that's left sitting with them and going over your question. They'll have ample time after you're gone to work on their problems. Anyhow, it'll be much easier for them to achieve what they want to achieve if you have the management tech- niques."

I look at her in silence. Here is my real, true advisor.

So I've done what my advisor suggested. I gathered them all together and explained that if each of them wants to be free to concentrate on his pet project the division must be well run, and in order for the division to be well run the division manager must know what he is doing. And since I, frankly, don't have the foggi- est idea of how to run a division they had better put their brains to helping me. Thus, we are going to devote the afternoons- provided of course that no special emergency comes up-to help me analyze how the division should be run.

I decide to start the meeting with the most naive questions. Initially they might think that I've lost all my self confidence, but I must expose to them the magnitude of the problem I'm about to face. Otherwise I'm going to end up, at best, with some frag- mented, vague suggestions.

"What are the first things I should do when I assume my new position?" I ask them.

They look at each other, and then Bob says, "I'd start by visiting Hilton Smyth's plant."

After the laughter dies, Lou says that I should first meet with my staff; "you know most of them but you've never worked closely with them."

"What is the purpose of these meetings?" I innocently ask.

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If this question had been asked under any other circum- stances they would have taken it as a clear indication of a total lack of managerial knowledge. As it is they play the game.

"Basically you should do general fact finding first," Lou an- swers.

"You know," Bob adds, "like where the entrance is, where the toilets are..."

"I do think that meeting the people is important," Stacey interrupts the laughter. "Financial numbers only reveal a small fraction of the picture. You have to find out what the people think is going on. What do they see as problems? Where do we stand vis-a-vis the clients?"

"Who has a grudge against whom?" Bob contributes, and then in a more serious tone. "You also have to get a sense of the local politics."

"And then?"

"And then," Bob continues. "I'd probably take a tour of the various production facilities, visit some of the big clients, and probably even some suppliers. You've got to get the full picture."

Maintaining my poker face I ask, "And then?"

At last I've succeeded to provoke them, since both Stacey and Bob answer vehemently, "And then you'll take it from there!"

How easy it is to give advice when the responsibility is on someone else's shoulders. Okay wise guys, it's time to turn the table, and in a calm voice I say, "Yes, what you suggested just now is the usual line of action one takes when he is told to 'go there and fix it.' Let me play it back for you, but in a more schematic way. Where are the colored markers?"

I grab a red marker and turn to the white board.

"The first step, as you all have pointed out, is fact finding. I hold a staff meeting and what do I find? Oh, here we find fact A," and I draw a nice red circle. "And here are three somewhat smaller circles. And here is a tiny one and there are two which are overlapping. Now let's talk with another manager, this is very helpful. You see, this circle, he claims, is not as big as we were led to believe. And here, in the left upper corner are two more big- gies. Now, someone else reveals to us that some rectangles exist. We check, and yes, he's right. Here there is one and here and here and here. We're making progress, the picture starts to un- fold."

What they actually see is how the white board is getting the

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measles. It looks like one of the drawings my kids used to bring home from kindergarten.

I don't think they got the message, they just seem confused; so I decide to continue a little more bluntly. "It's about time to talk with another manager, we must get a sense of the local poli- tics. Oh, this is very interesting, there are also green circles, and even some green stars. Here's an unidentified shape-never mind, we'll address it later. Now, let's tour the production facili- ties, visit clients, and even some suppliers. We're bound to reveal many more interesting facts." As I talk the board is filled with overlapping shapes.

"Now that we have the full picture, we can take it from here," I finally conclude and put the markers down. "Well?"

The board looks like a nightmare in Technicolor. I take a deep breath and pick up the phone to order more coffee.

Nobody says a word, not even Bob.

"Let's make it less personal," I say after a while. "Suppose that we are a committee that's been given the ungrateful task of 'find out what's going on.' How do you suggest we should start?"

They all smile. Somehow pretending that we're a committee makes us feel much better. "The safety of being part of a herd," I think to myself; the blame will not be aimed at anyone in particu- lar.

"Ralph, will you volunteer to describe the committee's ac- tions?"

"They would probably start in the same way-fact finding. And as you so vividly demonstrated, they would end up in the same colorful ditch. But Alex, is there any other way to start? How can you do anything sensible without knowing what's going on, without having the data?" Ralph is true to his profession; for him, knowing what's going on is equivalent to having the data neatly stored in his computer files.

Bob points to the white board and chuckles, "You call this mess knowing what's going on? Alex, come on. We all know that this nonsense of fact finding will continue until our committee runs out of ideas for gathering further facts."

"Or they run out of time," Stacey adds with a bitter smile.

"Yes, of course," Bob accepts, and turning to everybody he finishes his questions, "What do you think that we, acting as a committee, would do next? We know a committee can't submit this mess."

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They all laugh nervously. I'm really pleased. They've finally started to realize the problem that I'm facing.

"What are they going to do now?" Stacey muses. "They'll probably try to arrange this monstrous pile of facts in some or- der."

"Most likely," Lou agrees. "Sooner or later one of the com- mittee members will suggest organizing the shapes according to their relative size."

"I don't think so," Bob disagrees. "Determining the relative size of different shapes is quite difficult. They will probably de- cide to organize them according to the type of shapes." Lou doesn't seem to accept this, and so Bob explains, "They can ar- range the data by circles, rectangles, and stars."

"What are they going to do with those four arbitrary shapes?" Ralph asks.

"Probably they'll be put in a class of their own, the excep- tions."

"Yes, of course," Ralph agrees. "The major reason for the constant reprogramming are those exceptions that keep popping up."

"No, I have a better idea," Lou says stubbornly. "They'll probably arrange them by color; in this way there will be no ambiguity. Tell you what." He continues when he realizes that Bob is about to object, "Let's arrange them first by color, within color by shape, and within each subclass we'll arrange them by size. This way everybody will be happy." Count on Lou to find an acceptable compromise.

"It's a marvelous idea," Ralph picks up the ball. "Now we can submit our findings in the form of tables and histograms. It will be a very impressive report, especially once I pump up the graphics package. Minimum two hundred pages, guaranteed."

"Yes, an impressive, in-depth survey," I say sarcastically. We all sit silently, absorbing the bitter lesson we've just taught our- selves.

"You know," I say after a while, "It's much worse than just wasting time producing useless, pompous reports. This overcon- cern about the 'proper way to arrange things' manifests itself in other harmful ways."

"What do you mean?" Lou asks me.

"I mean the merry-go-round that we're all too familiar with; arranging the company according to product lines and then

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changing it according to functional capabilities-and vice versa. Deciding that the company is wasting too much money on dupli- cated efforts and thus moving to a more centralized mode. Ten years later, we want to encourage entrepreneurship and we move back to decentralization. Almost every big company is oscillating, every five to ten years from centralization to decentralization, and then back again."

"Yeah," says Bob. "As a president of a company, when you don't know what to do, when things are not going well, you can always shuffle the cards-reorganize." Mockingly he continues, "That will do it! This reorganization will solve all our problems!"

We stare at each other. If it weren't so painfully true, we might laugh.

"Bob," I say at last. "This isn't funny. The only somewhat practical ideas I had in mind for what I should do as the new division manager were all based on reorganizing the division."

"Oh, no," they all groan.

"O.K. then," and I turn back to the white board, which is not so white any more. "What is one supposed to do with this pile of colored shapes, except to arrange them in some order? Dealing directly with the pile is obviously totally impractical. Arranging the facts according to some order, classification, must be the first step. Maybe we can proceed from there in a different way than writing reports or rearranging the company, but the first step definitely must be to put some order into the mess."

As I continue to look at the board, a new question starts to bother me; "In how many ways can one arrange the assembled facts?"

"Obviously, we can arrange them by color," Lou answers.

"Or by size," Stacey adds.

"Or by shape." Bob doesn't give up on his suggestion.

"Any other possibilities?" I ask.

"Yes, of course," Ralph says. "We can divide the board by an imaginary grid and arrange the shapes according to their coordi- nates." When he sees our puzzled looks he clarifies, "It'll give us the ability to construct many different arrangements based on the shapes' relative position on the board."

"What a great idea," Bob says sarcastically. "You know what, I'd rather use the dart technique-throw a dart and start arrang- ing the shapes according to the order in which we nail 'em. All

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these methods have just as much meaning. At least my last sug- gestion offers some satisfaction."

"O.K. fellows," I say firmly. "Bob's last suggestion has really clarified what we're dealing with here. We're dealing with the fact that we haven't got any idea of what we're doing. If we're just looking for some arbitrary order, and we can choose among so many possibilities, then what's the point in putting so much effort in collecting so much data? What do we gain from it, except the ability to impress people with some thick reports or to throw the company into another reorganization in order to hide from the fact that we don't really understand what we're doing? This ave- nue of first collecting data, getting familiar with the facts, seems to lead us nowhere. It's nothing more than an exercise in futility. Come on, we need another way to attack the issue. Any sugges- tions?"

When nobody answers, I say, "Enough for today. We'll con- tinue tomorrow-same time, same place."

"Well, anybody got anything good, any breakthroughs?" I try to start the meeting off as cheerfully as possible. It's not ex- actly how I feel; I spent the whole night tossing in my bed, searching for any opening, which I never did find.

"I think that I have one," Stacey speaks up. "Not exactly a breakthrough, but..."

"Wait," says Ralph.

Ralph interrupting. That's new.

In an apologetic tone he explains, "Before we go off on a different angle, I'd like to return to where we were yesterday. I think we were too hasty in our decision that classification of data can't lead to something good. May I?"

"Sure," Stacey says, almost in relief.

"Well," Ralph fidgets, apparently uncomfortable, "as you know, or maybe you don't, I minored in chemistry in college. I don't know much about it, but one story stuck in my mind. Last night I looked back at my notes from class and I think you'll find it interesting as well. It's a story about a remarkable Russian named Mendeleev, and it happened less than one hundred fifty years ago."

Noticing that he grabbed our attention, he becomes more confident. Ralph is a family man and has three little children, so he's probably used to telling stories.

"Right from the start, in the days of ancient Greece, people postulated that underlying the phenomenal variety of materials there must be a simple set of elements from which all other sub- stances are composed."

As he gets into his story his voice becomes rich with under- tones.

"The Greeks naively assumed that the elements were air, earth, water and..."

"Fire," Bob completes the list.

"Correct," says Ralph.

What a wasted talent. He's a real story teller, I think to my- self. Who would have suspected it?

"Since then, as you know, people have proven that earth is

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not a basic element but actually composed of many different more basic minerals. Air is composed of different types of gases, and even water is a composition of more basic elements, hydro- gen and oxygen. The kiss of death to the naive Greece approach came at the end of the eighteenth century, when Lavoisier showed that fire is not a substance but rather a process, the pro- cess of attachment to oxygen."

"Over many years, out of the chemists' mammoth work, the more basic elements emerged and by the middle of the nine- teenth century, sixty-three elements had been identified. The sit- uation actually resembled our colored board. Many circles, rec- tangles, stars, and other shapes, in many colors and sizes filled the area with no apparent order. A real mess."

"Many tried to organize the elements but no one succeeded in offering anything that was not immediately dismissed as a fu- tile arbitrary exercise. It got to the point that most chemists gave up on the possibility of finding any generic order and concen- trated their efforts on finding more hard facts regarding the com- bination of the elements to create other, more complicated mate- rials."

"Makes sense," Bob remarks. "I like practical people."

"Yes Bob," Ralph smiles at him, "But there was one profes- sor who claimed that in his eyes it resembled dealing with the leaves while nobody had found yet the trunk."

"Good point," says Lou.

"So this peculiar Russian professor who, by the way, taught in Paris, decided to concentrate on revealing the underlying or- der governing the elements. How would you go about it?"

"Shape is out of the question," Stacey says, looking at Bob.

"Why? What do you have against shapes?" Bob demands.

"Out of the question," she repeats. "Some of the elements are gases, some are liquids."

"Yeah, you're right." Being Bob he continues, "But what about color? You like colors, don't you? Some gases have colors, like green chlorine, and we can say that the others have transpar- ent colors."

"Nice try," Ralph says, ignoring their apparent attempt to ridicule his story. "Unfortunately some elements do not have a decisive color. Take pure carbon, for example. It appears as black graphite, or more rarely as a sparkling diamond."

"I prefer diamonds," Stacey jokes.

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We all laugh, then responding to Ralph's gesture I give it a try. "We probably have to look for a more numerical measure. This way we'll be able to arrange the elements without being criticized for subjective preferences."

"Very good," says Ralph. He's probably mistaken us for his kids. "What do you suggest as a suitable measure?" he asks me.

"I didn't take chemistry," I reply, "not even as a minor. How would I know?" But since I don't want to offend Ralph I con- tinue, "Maybe something like specific gravity, electrical conduc- tivity, or something more fancy like the number of calories ab- sorbed or released when the element is combining with a reference element like oxygen."

"Not bad, not bad at all. Mendeleev took basically the same approach. He chose to use a quantitative measurement that was known for each element and which didn't change as a function of the temperature or the state of the substance. It was the quantity known as atomic weight, which represents the ratio between the weight of one atom of the given element and the weight of one atom of the lightest element, hydrogen. This number provided Mendeleev with a unique numerical identifier for each element."

"Big deal," Bob can't hold himself. "Exactly as I suspected, now he could organize all the elements according to their ascend- ing atomic weights, like soldiers in a line. But what good does it do? What practical things can possibly come out of it? Like I said, children playing with lead soldiers, pretending that they do very important work."

"Not so fast," Ralph responds. "If Mendeleev had stopped here, I would accept your criticism, but he took it a step further. He didn't arrange the elements in a line. He had noticed that each seventh soldier represents basically the same chemical be- havior, though with increased intensity. Thus he organized the elements in a table with seven columns.

"In this way all the elements were displayed according to ascending atomic weight, and in each column you find elements with the same chemical behavior in ascending intensity. For ex- ample, in the first column of his table stood lithium, which is the lightest of all metals, and which, when put into water, becomes warm. Right below it is sodium, which when put into water, flames. Then the next one in the same column is potassium, which reacts even more violently to water. The last one is cesium which flames even in regular air."

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"Very nice, but as I suspected it's nothing more than child's play. What are the practical implications?" Down-to-earth Bob.

"There were practical ramifications," Ralph answers. "You see, when Mendeleev constructed his table, not all the elements were already found. This caused some holes in his table that he reacted to by 'inventing' the appropriate missing elements. His classification gave him the ability to predict their weight and other properties. You must agree that's a real achievement."

"How was it accepted by the other scientists of his time?" I ask, curious. "Inventing new elements must have been received with some skepticism."

"Skepticism is an understatement. Mendeleev became the laughing stock of the entire community. Especially when his table was not as neatly arranged as I described it to you. Hydrogen was floating there above the table, not actually in any column, and some rows didn't have one element in their seventh column, but a hodgepodge of several elements crowded into one spot."

"So what happened at the end?" Stacey impatiently asks. "Did his predictions come true?"

"Yes," says Ralph, "and with surprising accuracy. It took some years, but while he was still alive all the elements that Mendeleev predicted were found. The last of the elements that he 'invented' was found sixteen years later. He had predicted it would be a dark gray metal. It was. He predicted that its atomic weight would be about 72; in reality it was 72.32. Its specific gravity he thought would be about 5.5, and it was 5.47."

"I bet nobody laughed at him then."

"Certainly not. The attitude switched to admiration and his periodic table is regarded by students of chemistry today as basic as the ten commandments."

"I'm still not impressed," my stubborn replacement says.

I feel obliged to remark, "The biggest benefit was probably the fact that due to Mendeleev's table people didn't have to waste time looking for more elements." And turning to Bob I say "You see, the classification helped in determining, once and for all, how many elements do exist. Putting any new element in the table would have upset the clear order."

Ralph coughs in embarrassment, "Sorry Alex but that's not the case. Only ten years after the table was fully accepted, several new elements were discovered, the noble gases. It turned out that

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the table should have been constructed to have eight columns, not seven."

"Just as I've said," Bob jumps in a triumphant voice. "Even when it works you still can't trust it."

"Calm down, Bob. You must admit that Ralph's story has a lot of merit for us. I suggest that we ask ourselves what's the difference between Mendeleev's classification of the chemical ele- ments and our many attempts to arrange the colored shapes in order? Why was his so powerful and ours so arbitrary?"

"That's just it," says Ralph, "Ours were arbitrary, and his was..."

"Was what? Not arbitrary?" Lou completes his sentence.

"Forget it." Ralph agrees. "That's not a serious answer. I'm just playing with words."

"What exactly do we mean by arbitrary, and not arbitrary?" I raise the question.

Since nobody answers I continue, "Actually, what are we looking for? We're looking to arrange the facts in some order. What type of order are we seeking? An arbitrary order that we superimpose externally on the facts, or are we trying to reveal an intrinsic order, an order that already exists there?"

"You're absolutely right," Ralph is getting excited, "Mende- leev definitely revealed an intrinsic order. He didn't reveal the reason for that order, that had to wait for another fifty years, when the internal structure of the atoms was found, but he defi- nitely revealed the intrinsic order. That's why his classification was so powerful. Any other classification that just tries to super- impose some order, any order, on the given facts is useful in only one sense-it gives the ability to present the facts in a sequence, tables, or graphs. In other words, helpful in preparing useless, thick reports.

"You see," he continues enthusiastically, "we, in our attempts to arrange the colored shapes, didn't reveal any intrinsic order. Simply because in that arbitrary collection there was no intrinsic order to be revealed. That's why all our attempts were arbitrary, all futile to the same extent."

"Yes, Ralph," Lou says in a cold tone, "But that doesn't mean that in other cases, where intrinsic order does exist, like in man- aging a division, we can't fool ourselves in the same way. We can always procrastinate by wasting our time playing with some artifi- cial, external order. Let's face it, what do you think Alex and I

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would have done with the pile of facts that we suggested he gather. Judging by what we've done for so long here in the plant, probably just that-playing a lot of games with numbers and words. The question is what are we going to do differently now? Anybody got an answer?"

Looking at Ralph sunk in his chair I say, "If we could reveal the intrinsic order of the events in the division, that would cer- tainly be of tremendous help."

"Yes," Lou says, "But how does one go about revealing the intrinsic order?"

"How can one identify an intrinsic order even when he stum- bles on it?" Bob adds.

After a while Lou says, "Probably in order to answer this question we should ask a more basic one: What provides the in- trinsic order among various facts? Looking at the elements that Mendeleev had to deal with, they all seemed different. Some were metals and some gases, some yellow and some black, no two were identical. Yes, there were some that exhibited similarities, but that's also the case for the arbitrary shapes that Alex drew on the board."

They continue to argue but I'm not listening any more. I'm stuck on Lou's question, "How does one go about revealing the intrinsic order?" He asked it as if it were a rhetorical question, as if the obvious answer is that it is impossible. But scientists do reveal the intrinsic order of things... and Jonah is a scientist.

"Suppose that it is possible," I break into the conversation, "suppose that a technique to reveal the intrinsic order does exist? Wouldn't such a technique be a powerful management tool?"

"Without a doubt," says Lou. "But what's the point in day- dreaming?"

"And what happened to you today?" I ask Julie, after I've told her the day's events in detail.

"I spent some time in the library. Do you know that Socrates didn't write anything? Socrates' dialogues actually were written by his pupil, Plato. The librarian here is a very pleasant woman, I like her a lot. Anyhow, she recommended some of the dialogues and I've started to read them."

I can't hold my surprise, "You read philosophy! What for, isn't it boring?"

She grins at me, "You were talking about the Socratic

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method as a method to persuade other people. I wouldn't touch philosophy with a ten foot pole, but to learn a method to per- suade my stubborn husband and kids-for that I'm willing to sweat."

"So you started to read philosophy," I'm still trying to digest it.

"You make it sound like a punishment," she laughs. "Alex, did you ever read the dialogues of Socrates?"

"No."

"They're not too bad. They're actually written like stories. They're quite interesting."

"How many have you read so far?" I ask,

"I'm still slaving on the first one, Protagoras."

"It'll be interesting to hear your opinion tomorrow." I say skeptically. "If it's still positive, maybe I'll read it, too."

"Yeah, when pigs fly," she says. Before I can answer, she stands up, "Let's hit the sack."

I yawn and join her. ^

We're getting started a little late since Stacey and Bob have to deal with some problematic orders. I wonder what's really hap- pening; are we drifting back into trouble? Is Stacey's warning about her Capacity Constraint Resources starting to materialize? She was concerned about any increase in sales and, for sure, sales are slowly but constantly on the rise. I dismiss these thoughts; it's just the natural friction that should be expected when your mate- rial manager moves her responsibilities to her replacement. I de- cided not to interfere; if it evolves into something serious they won't hesitate to tell me.

This is not going to be easy. We all are action-oriented and searching for basic procedures is almost against our nature, no matter how much Bob tells me that he's been transformed.

So when, at last, they all take seats I remind them about the issue on the table. If we want the same movement that we've succeeded in starting here to happen in the entire division, we have to clarify for ourselves what we actually have done-in a generic sense. Repeating the specific actions won't work. Not only are the plants very different from each other; how can one fight local efficiencies in sales, or cut batches in product design?

Stacey is the only one who has something to offer and her idea is simple. If Jonah forced us to start by asking, 'what is the goal of the company', Stacey suggests that we start by asking, 'what is our goal'-not as individuals, but as managers.

We don't like it. It's too theoretical. Bob yawns, looks bored. Lou responds to my unspoken request and volunteers to play the game.

With a smile he says, "This is trivial. If the goal of our com- pany is 'to make more money now as well as in the future,' then our job is to try and move our division to achieve that goal."

"Can you do it?" Stacey asks. "If the goal includes the word 'more', can we achieve the goal?"

"I see what you mean," Lou responds, still smiling. "No, of course we can't achieve a goal that is open-ended. What we'll have to do is to try and move the division toward that goal. And you are right, Stacey, it's not a one-shot effort, we have to con-

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stantly strive toward it. Let me rephrase my initial answer." And in his punctuating voice, emphasizing each word, he concludes, "A good job will be to start our division on a process of on-going improvement."

Turning to me, Stacey says, "You asked for an idea of how to tackle the subject? I think that we should proceed from here."

"How?" Donovan echoes the question that everybody is thinking.

"I don't know," is Stacey's answer. When she sees Bob's ex- pression she says defensively, "I didn't claim to have a break- through, just an idea."

"Thank you Stacey," I say, and turning to the rest I point to the white board that nobody has bothered to erase yet. "We must admit that it is a different angle from the one we had so far."

We are stuck. Donovan's question is certainly in place. So I try to gain some momentum by cleaning the board and writing in big letters "A process of on-going improvement."

It doesn't help much. We sit in silence for a while staring at the board.

"Comments?" I ask at last. And, as expected, it's Bob who voices everybody's feeling.

"I'm sick and tired of these big words. Everywhere I go, I hear the same thing." He stands up, goes to the board, and mim- icking a first grade teacher he intones "A process... of... on-going... improvement."

Sitting back down he adds, "Even if I wanted to forget it I can't. Hilton Smyth's memos are all spotted with this phrase. By the way Alex, these memos keep on coming, and more often than before. In the name of savings, at least saving paper, can't you do something to stop it?"

"In due time. But let's keep at it. If nothing comes out of these discussions, then the only useful thing that I will be able to do as the division manager will be to stop some memos. Come on Bob, spit out your frustrations."

It doesn't take much to encourage Bob to voice his true opin- ion. "Every plant in our company, has already launched at least four or five of those pain-in-the-neck improvement projects. If you ask me, they lead only to indigestion problems. You go down there, to the floor, and mention a new improvement project and you'll see the response. People have already developed allergies to the phrase."

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"So, what are you suggesting should be done?" I pour some more fuel on his flames.

"To do what we have done here," he roars back. "We, here, have not done any of these. We have not launched even one formal improvement project. But look at what we have achieved. No talks, no big words, but if you ask me, what we've achieved here is the real thing."

"You're right," I try to calm the volcano that I have awak- ened. "But Bob, if we want to do the same in the entire division we must pinpoint what exactly the difference is between what we have done and what everyone else has tried to do."

"We haven't launched so many improvement projects," he says.

"That is not accurate," Stacey responds. "We have taken many initiatives: in shop floor procedures, in measurements, in quality, in local processes, not to mention the changes that we have made in the way we release material to production." Raising her hand to stop Bob from interrupting, she concludes: "True, we didn't call them improvement projects, but I don't believe the crucial difference is that we didn't bother to title them."

"So why do you think we have succeeded where so many have failed?" I ask her.

"Simple," Bob jumps in. "They talked, we did."

"Who is playing with words now," I shut him off.

"I think that the key," Stacey says in a thoughtful tone, "is in the different way we interpreted the word 'improvement'."

"What do you mean?" I ask her.

"She is absolutely right!" Lou beams. "It's all a matter of measurements."

"For an accountant," Bob speaks to the room, "Everything is a matter of measurements."

Lou stands up and starts to pace the room. I rarely see him so excited.

We wait.

At last he turns to the board and writes:

Then he turns back to us and says, "Everywhere, improve- ment was interpreted as almost synonymous to cost savings. Peo-

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pie are concentrating on reducing operating expenses as if it's the most important measurement."

"Not even that," Bob interrupts. "We were busy reducing costs that didn't have any impact on reducing operating ex- penses."

"Correct," Lou continues. "But the important thing is that we, in our plant, have switched to regard throughput as the most important measurement. Improvement for us is not so much to reduce costs but to increase throughput."

"You are right," Stacey agrees. "The entire bottleneck con- cept is not geared to decrease operating expense, it's focused on increasing throughput."

"What you are telling us," I say slowly, trying to digest it, "is that we have switched the scale of importance."

"That's precisely what it is," Lou says. "In the past, cost was the most important, throughput was second, and inventory was a remote third." Smiling at me he adds, "To the extent that we regarded it as assets. Our new scale is different. Throughput is most important, then inventory-due to its impact on throughput and only then, at the tail, comes operating expenses. And our numbers certainly confirm it," Lou provides the evi- dence. "Throughput and inventory had changed by several tens of percent while operating expenses went down by less than two percent."

"This is a very important lesson," I say. "What you claim is that we have moved from the 'cost world' into the 'throughput world'."

After a minute of silence I continue, "You know what, it re- ally highlights another problem. Changing the measurements' scale of importance, moving from one world into another, is with- out a doubt a culture change. Let's face it, that is exactly what we had to go through, a culture change. But how are we going to take the division through such a change?"

I go to pour myself another cup of coffee. Bob joins me. "You know, Alex, something is still missing. I have the feeling that the entire approach we took was different."

"In what way?" I ask.

"I don't know. But one thing I can tell you, we haven't de- clared any improvement project, they grow from the need. Some- how it was always obvious what the next step should be."

"I guess so."

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We spend good time. We bring up the actions we took and verify that each one actually has been guided by our new scale. Bob is very quiet until he jumps to his feet.

"I nailed the bastard!" he shouts, "I have it!"

He goes to the board, grabs a marker and put a heavy circle around the word 'improvement.' "Process of on-going improve- ment," he booms. "Lou and his fixation on measurements forced us to concentrate on the last word. Don't you realize that the real sneaky SOB is the first one?" and he draws several circles around the word 'process.'

"If Lou has a fixation about measurements," I say somewhat irritated, "then you certainly have a fixation about processes. Let's hope your fixation will turn up to be as useful as his."

"Sure thing, boss. I knew that the way we handled it was different. That it wasn't just a matter of scales."

He returned to his seat still beaming.

"Do you care to elaborate?" Stacey inquires in a soft voice.

"You haven't got it?" Bob is surprised.

"Neither did we." We all looked perplexed.

He looks around and when he realizes that we are serious he asks, "What is a process? We all know. It's a sequence of steps to be followed. Correct?"

"Yes..."

"So, will anybody tell me what the process is that we should follow? What is the process mentioned in our 'process of on-go- ing improvement'? Do you think that launching several improve- ment projects is a process? We haven't done that, we have fol- lowed a process. That's what we have done."

"He's right," says Ralph in his quiet voice.

I stand up and shake Bob's hand. Everybody is smiling at him.

Then Lou asks, "What process have we followed?"

Bob doesn't hurry to answer. At last he says, "I don't know, but we definitely followed a process."

To save embarrassment I hurriedly say, "Let's find it. If we followed it, it shouldn't be too difficult to find. Let's think, what is the first thing we did?"

Before anybody has a chance to answer Ralph says, "You know, these two things are connected."

"What things?"

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"In the 'cost world' as Alex called it, we are concerned pri- marily with cost. Cost is drained everywhere, everything cost us money. We had viewed our complex organization as if it were composed out of many links and each link is important to con- trol."

"Will you please get to the point?" Bob asks impatiently.

"Let him talk," Stacey is no less impatient.

Ralph ignores them both and calmly continues, "It's like measuring a chain according to its weight. Every link is impor- tant. Of course, if the links are very different from each other then we use the principle of the twenty-eighty rule. Twenty per- cent of the variables are responsible for eighty percent of the result. The mere fact that we all know the Pareto principle shows us to what extent Lou is right, the extent to which we all were in the cost world."

Stacey puts her hand on Bob's to prevent him from interfer- ing. ^

"We recognize that the scale has to be changed," Ralph con- tinues. "We choose throughput as the most important measure- ment. Where do we achieve throughput? At each link? No. Only at the end of all operations. You see, Bob, deciding that throughput is number one is like changing from considering weight to considering strength."

"I don't see a thing," is Bob's response.

Ralph doesn't let go, "What determines the strength of a chain?" he asks Bob.

"The weakest link, wise guy."

"So if you want to improve the strength of the chain, what must your first step be?"

"To find the weakest link. To identify the bottleneck!" Bob pats him on the back. "That's it! What a guy!" And he pats him again.

Ralph looks a little bent, but he is glowing. As a matter of fact, we all are.

After that it was easy. Relatively easy. It wasn't too long be- fore the process was written clearly on the board:

STEP 1. Identify the system's bottlenecks.

(After all it wasn't too difficult to identify the oven and

the NCX10 as the bottlenecks of the plant.) STEP 2. Decide how to exploit the bottlenecks.

(That was fun. Realizing that those machines should not

take a lunch break, etc.) STEP 3. Subordinate everything else to the above decision.

(Making sure that everything marches to the tune of the

constraints. The red and green tags.) STEP 4. Elevate the system's bottlenecks.

(Bringing back the old Zmegma, switching back to old,

less "effective" routings...) STEP 5. If, in a previous step, a bottleneck has been broken go

back to step 1.

I look at the board. It's so simple. Plain common sense. I'm wondering, and not for the first time, how come we didn't see it before, when Stacey speaks up.

"Bob is right, we certainly followed this process, and we cy- cled through it more than once-even the nature of the bottle- necks we had to deal with changed."

"What do you mean by the 'nature of the bottlenecks?' " I ask.

"I mean a major change," she says. "You know, something serious like the bottleneck changing from being a machine to being something totally different, like insufficient market de- mand. Each time that we've gone through this five-step cycle the nature of the bottleneck has changed. First the bottlenecks were the oven and the NCX10, then it was the material release system -remember the last time when Jonah was here?-then it was the market, and I'm afraid that very soon it'll be back in production."

"You're right," I say. And then, "It's a little odd to call the market or the system of material release a bottleneck. Why don't we change the word, to..."

"Constraint?" Stacey suggests.

We correct it on the board. Then we just sit there admiring our work.

"What am I going to do to continue the momentum?" I ask Julie.

"Never satisfied, huh?" and then she adds passionately,

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"Alex, why do you drive yourself so hard? Aren't the five steps that you developed enough of an achievement for one day?"

"Of course it's enough. It's more than enough. Finding the process that everybody is looking for, the way to proceed system- atically on the line of on-going improvement, is quite an achieve- ment. But Julie, I'm talking about something else. How can we continue to improve the plant rapidly?"

"What's the problem? It seems that everything is sailing for- ward quite smoothly."

I sigh, "Not exactly, Julie. I can't push aggressively for more orders because we're afraid that any additional sales will create more bottlenecks and throw us back into the nightmare of expe- diting. On the other hand, I can't ask for a major expansion in hiring or machines; the existing bottom line results don't justify it yet."

"My impatient husband," she laughs. "It looks like you sim- ply have to sit tight and wait until the plant generates enough money to justify more investments. In any event darling, very shortly it will be Donovan's headache. It's about time you allowed others to worry."

"Maybe you're right," I say, not totally convinced.

"Something is wrong," Ralph says after we've made our- selves comfortable. "Something is still missing."

"What?" Bob says aggressively, all geared up to protect our new creation.

"If step 3 is right..." Ralph is speaking very slowly, "if we have to subordinate everything to the decision that we made on the constraint, then..."

"Come on Ralph," Bob says. "What's all this 'if we have to subordinate'? Is there any doubt that we must subordinate the non-constraints to the constraints? What are the schedules that you generate on your computers if not the act of subordinating everything to our decision about the bottlenecks' work?"

"I don't doubt that," Ralph says apologetically. "But when the nature of the constraint has changed, one would expect to see a major change in the way we operate all non-constraints."

"That makes sense," Stacey says encouragingly. "So what is bothering you?"

"I don't recall that we did such changes."

"He's right," Bob says in a low voice. "I don't recall it ei- ther."

"We didn't," I confirm after a while.

"Maybe we should have?" Bob says in a thoughtful voice.

"Let's examine it," I say. And then, "When was the first time the constraint changed?"

"It happened when some green-tag parts started arriving at assembly too late," Stacey says without hesitation. "Remember our fear that new bottlenecks were popping up?"

"Yes," I say. "And then Jonah came and showed us it wasn't new bottlenecks, but that the constraint had shifted to being the way we released work to the plant."

"I still remember the shock," Bob comments, "of restricting the release of material, even though the people had practically nothing else to work on."

"And our fear that 'efficiencies' would drop," Lou com- ments. "In retrospect, I'm amazed that we had the courage to do it."

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"We did it because it made perfect sense," I say. "Reality certainly proved us right. So Ralph, in that case at least, we did affect all the non-constraints. Should we move on?"

Ralph doesn't answer.

"Something's still troubling you?" I inquire.

"Yes," he says, "but I can't put my finger on it."

I wait for him.

Finally Stacey says, "What's the problem, Ralph? You, Bob, and I generated the work list for the constraints. Then you had the computer generate release dates for all material, based on that list. We definitely changed the way we operated a non-con- straint, that is, if we consider the computer as a non-constraint."

Ralph laughs nervously.

"Then," Stacey continues, "I made my people obey those computer lists. That was a major change in the way they operate -especially when you consider how much pressure the foremen put on them to supply them with work."

"But you must admit the biggest change was on the shop floor," Bob contributes. "It was very difficult for most people to swallow that we really meant they shouldn't work all the time. Don't forget that the fear of layoffs was hanging heavily above us."

"I guess it's all right," Ralph gives up.

"What did we do with the method we were using?" Lou asks. "You know, the green and red tags."

"Nothing," Stacey replies. "Why should we do anything about it?"

"Thank you, Lou," Ralph says. "That is exactly what was bothering me." Turning to Stacey he adds, "Do you remember the reason for using those tags in the first place? We wanted to establish clear priorities. We wanted each worker to know what is important and must be worked on immediately, and what is less important."

"That's right," she says. "That's exactly why we did it. Oh, I see what you mean. Now-not like in the past when we released stuff just to provide work-now whatever we release to the floor is basically of the same importance. Let me think for a minute."

We all do.

"Oh shit," she moans.

"What's the matter?" Bob asks.

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"I just realized the impact that those darn tags have on our operation."

"Well?" Bob presses her.

"I'm embarrassed," she says. "I've been complaining about our problems with the six or seven capacity constraint resources, I raised all the red flags, I've gone as far as to demand that in- coming orders be restricted. And now I see that I've created the problem with my own hands."

"Fill us in, Stacey," I request. "You're way ahead of us."

"Of course. You see, when do the green and red tags have an impact? Only when a work center has a queue, when the worker has to choose between two different jobs that are waiting; then he always works on the red tag first."

"So?"

"The largest queues," Stacey goes on, "are in front of the bottlenecks, but there the tags are irrelevant. The other place where we have relatively high queues is in front of the capacity constraint resources. These resources supply some parts to the bottlenecks, red-tag parts, but they work on many more green- tag parts, parts that go to assembly not through the bottlenecks. Today they do the red-tag parts first. This naturally delays the arrival of the green parts to assembly. We catch it when it is pretty late, when holes are already evident in the assembly buffer. Then, and only then, we go and change the priorities at those work centers. Basically, we restore the importance of the green parts."

"So what you're telling us," Bob cannot contain his surprise, "is that if you just eliminate the tags, it will be much better?"

"Yes, that's what I'm saying. If we eliminate the tags and we instruct the workers to work according to the sequence in which the parts arrive-first come, first done-the parts will be done in the right sequence, fewer holes will be created in the buffers, my people will not have to track where the material is stuck, and..."

"And the foreman will not have to constantly reshuffle pri- orities." Bob completes her sentence.

I try to confirm what I heard. "Stacey, are you positive that your warning about those constraint resources was just a false alarm? Can we safely take more orders?"

"I think so," she says. "It explains one of my biggest myster- ies, why there are so few holes in the bottlenecks' buffers, while there are more and more in the assembly buffer. By the way

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fellows, the fact that there are more and more holes indicates that eventually we will run into the problem of insufficient capacity, but not right now. I'll take care of those tags immediately. You won't see them tomorrow."

"Well, this discussion was very beneficial," I conclude. "Let's carry on. When was the second constraint broken?"

"When we started shipping everything much ahead of time," Bob answers. "Shipping three weeks earlier is a clear indication that the constraint is no longer in production but in the market. Lack of sufficient orders limited the plant from making more money."

"Correct," Lou confirms. "What do you think: did we do anything different on the non-constraints?"

"Not me," says Bob.

"Me neither," echoes Ralph. "Hey, wait a minute. How come we continue to release material according to the oven and the NCX10 if they are no longer the constraints?"

We look at each other. Really, how come?

"Something even funnier is going on. How come my com- puter shows that these two work centers are still a constraint, that they are constantly loaded to one hundred percent?"

I turn my eyes to Stacey, "Do you know what's going on?"

"I'm afraid I do," she admits. "It's definitely not my day."

"And all this time I wondered why our finished goods were not depleting at a faster rate," I say.

"Will one of you tell us what's going on?" Bob says impa- tiently.

"Go ahead, Stacey."

"Come on fellas, don't look at me like that. After operating for so long with mountains of finished goods, wouldn't anybody do the same?"

"Do what?" Bob is lost. "Will you please stop talking in rid- dles?"

"We all knew how important it was to make the bottlenecks work all the time." Stacey starts at last to explain. "Remember, 'An hour lost on the bottleneck is an hour lost for the entire plant.' So, when I realized that the load on the bottlenecks was dropping, I issued orders for products to be on the shelf, in stock. Stupid, I know now, but at least at the moment our finished goods are balanced to roughly six weeks. No more of that awful

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situation where we hold mountains of some products and not even one single unit of others."

"That's good," Lou says. "It means we can easily deplete it. Alex be careful not to do it too fast, remember the bottom-line ramifications."

It's Stacey's turn to be puzzled. "Why shouldn't we get rid of the finished products as fast as possible?" she asks.

"Never mind," I impatiently say. "Lou can, and should, ex- plain it to all of you later. Right now we should correct our five- step process. Now we all know to what extent Ralph was right, something is definitely missing."

"Can I correct it?" Stacey says sheepishly, and goes to the board.

When she returns to her seat the board has the following:

1. IDENTIFY the system's constraint(s).

2. Decide how to EXPLOIT the system's constraint(s).

3. SUBORDINATE everything else to the above decision.

4. ELEVATE the system's constraint(s).

5. WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system's constraint.

Examining the board, Lou moans, "It's much worse than I thought."

"On the contrary," I'm surprised. "It's much better than I thought."

We look at each other. "You first," I say. "Why do you claim that it's much worse?"

"Because I've lost my only guideline."

When he realizes that we don't get it, he elaborates; "All the changes that we made so far, all the sacred cows that we had to slaughter, had one thing in common, they all stem from cost accounting. Local efficiencies, optimum batch sizes, product cost, inventory evaluations, all came from the same source. I didn't have much problem with it. As a controller I questioned cost accounting validity for a long time. Remember, it's the invention of the beginning of the century when conditions were much dif- ferent from today. As a matter of fact, I started to have a very good guideline; if it comes from cost accounting it must be wrong."

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"Very good guideline," I smile. "But what is your problem?"

"Don't you see, the problem is much bigger; it's not only cost accounting. We put on the green and red tags not because of cost accounting, but because we realized the importance of the bottle- necks. Stacey created orders for finished goods because of our new understanding, because she wanted to make sure that the bottlenecks' capacity will not be wasted. I thought that it takes a lot of time to develop inertia. What I now see is that it takes less than one month."

"Yes, you are right," I say gloomily. "Whenever the con- straint is broken it changes conditions to the extent that it is very dangerous to extrapolate from the past."

"As a matter of fact," Stacey adds, "even the things that we put in place in order to elevate the constraint must be reexam- ined."

"How can we do it?" Bob asks. "It's impossible to question everything every time."

"Something is still missing," Ralph summarizes.

Something definitely is still missing.

"Alex, it's your turn to explain," Lou says.

"Explain what?"

"Why did you claim that it's much better?"

I smile. It's about time for some good news.

"Fellows, what stopped us from once again taking another jump on the bottom line? Nothing, except for the conviction that we don't have enough capacity. Well, now we know differently. Now we know that we have a lot of spare capacity."

How much spare capacity do we actually have?

"Stacey, how much of the current load on the oven and the NCX10 is due to the fictitious orders?"

"Roughly twenty percent," she says quietly.

"Marvelous," I rub my hands together. "We have enough capacity to really take the market. I'd better drive to headquar- ters tomorrow morning and have a heart-to-heart talk with Johnny Jons. Lou, I'll definitely need you. On second thought, Ralph, will you join us? And bring your computer with you, we're going to show them something."

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It is six o'clock in the morning when I pick up Lou and Ralph at the plant. We (I) decided that it will be best, since pick- ing them up at their houses would mean I would have had to leave home close to five. In any event, we're probably not going to spend more than a few hours at headquarters so it's reasonable to assume that we'll be back to work in the afternoon.

We hardly talk. Ralph, in the back seat, is busy with his lap- top computer. Lou probably thinks that he's still in bed. I drive on automatic pilot. That is, my mind is busy constructing imagi- nary conversations with Johnny Jons. I somehow have to con- vince him to get many more orders for our plant.

Yesterday, in the heat of discovering the amount of free ca- pacity that we have, I looked only on the bright side. Now I wonder if I'm not just asking for miracles.

I recheck the numbers in my head. In order to fill our capac- ity Johnny will have to come up with over ten million dollars of additional sales. It is totally unrealistic that he holds so much up his sleeve.

So, squeezing, begging, and pleading techniques will not help. We'll have to come up with some innovative ideas. Well, the truth is that so far I haven't been able to come up with any. Let's hope Johnny has some clever ideas; he's the one who is supposed to be the expert in sales.

"I want you to meet Dick Pashky," Johnny Jons says as we enter the small conference room. "He's one of my best people. Dedicated, professional, and above all he's full of innovative ap- proaches. I thought it would be a good idea for you to get to know him. Do you mind if he joins us?"

"On the contrary," I smile. "We need some innovative ideas. You see, what I want is for you to get my plant additional business -ten million dollars' worth."

Johnny bursts out laughing. "Jokers, all of you in production are wonderful jokers. Dick, what did I tell you? It's not easy to deal with plant managers. One is asking me to persuade his client to pay a ten percent increase in price, another wants me to get rid

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of a pile of old junk for full price, but Alex, you're the best-ten million dollars!"

He continues to laugh, but I don't join in.

"Johnny, put on your thinking cap. You must find more or- ders for my plant, ten million dollars more."

He stops laughing and looks at me, "You are serious. Alex, what's happened to you? You know how tough it is to get more business these days; it's dog eat dog out there. Everybody is cut- ting each other's throats for the smallest order and you're talking about ten million dollars more?"

I don't hurry to respond. I lean back in my seat and look at him. Finally I say, "Listen Johnny, you know that my plant has improved. What you don't know is to what extent it's improved. We're now capable of delivering everything within two weeks. We've demonstrated that we never miss an order, not even by one day. Our quality has improved to the extent that I'm sure we're the best in the market. We are very responsive, very quick, and above all, very reliable. This is not a sales pitch, it's the truth."

"Alex, I know all this. I hear it from the best source, from my clients. But that doesn't mean that I can immediately turn it into cash. Sales take time, credibility is not built overnight, it's a grad- ual process. And by the way, you shouldn't complain; I'm bring- ing you more and more sales. Be patient and don't press for miracles."

"I have twenty percent spare capacity." I say, letting this sentence hang in the air.

From the lack of response I understand that Johnny doesn't see the relevance.

"I need twenty percent more sales," I translate for him.

"Alex, orders are not apples hanging from trees. I can't just go out and pick some for you."

"There must be orders that you decline, because the quality requirement is too high or because the client is asking for unrea- sonably short delivery times or something. Get me those orders."

"You probably don't know how bad the economy is," he sighs. "Today I accept any order, anything that moves. I know that a lot of dancing will be required later, but the current pres- sure is simply too high."

"If the competition is so fierce and the economy is so bad,"

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Lou says in his quiet voice, "then it must be that clients are press- ing for lower prices."

"Pressing is not the word. Squeezing is much more appropri- ate. Can you imagine, and this is just between us, in some cases I'm forced to accept business for practically zero margin."

I start to see the light at the end of the tunnel.

"Johnny, do they sometimes demand prices that are lower than our cost?"

"Sometimes? All the time."

"And what do you do?" I continue.

"What can I do?" he laughs. "I try to explain the best I can. Sometimes it even works."

I swallow hard and say, "I'm ready to accept orders for ten percent below cost."

Johnny doesn't hurry to answer. His peoples' bonuses are based on total sales dollars. Finally he says, "Forget it."

"Why?"

He doesn't answer. I persist, "Why should I forget it?"

"Because it's stupid, because it doesn't make any business sense," he says in a hard voice, and then softer, "Alex, I don't know what tricks you have in mind but let me tell you, all those tricks have a very short life span before they explode in your face. Why do you want to ruin a promising career? You've done an outstanding job, why go and mess it up? Besides, if we lower prices for one client, it's just a matter of time until the others find out and demand the same. What then?"

He has a point. The last argument shows that the light at the end of the tunnel was just a train.

Help comes from an unexpected side.

"Djangler is not connected to our regular customers," Dick says hesitantly. "Besides, with the quantities he's asking for, we can always claim we gave him a volume discount."

"Forget it," Johnny is practically shouting. "That bastard is asking us to give him the goods for basically nothing, not to men- tion that he wants us to ship to France at our expense."

Turning to me he says, "This French guy has chutzpah, it's unbelievable. We negotiated for three months. We established each other's credibility, we agreed on terms and conditions. It all takes time. He asked for every technical detail that you can imag- ine, and we're not talking about one or two products, it's for almost the entire range. All this time not even a peep about

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prices. At the end, just two days ago, when everything is agreed, he faxes me that our prices are not acceptable and sends his counter offer. I was expecting the usual thing, asking for price reductions of ten percent, maybe fifteen percent considering the large quantities that he is willing to buy, but no, these Europeans probably have a different perception. For example, Model Twelve, the one that you pulled such a miracle on. Our price is nine hundred and ninety-two dollars. We sell it to Burnside for eight hundred and twenty-seven dollars; they're a big client and they consume very large quantities of this particular product. The bastard had the nerve to offer seven hundred and one dollars. Did you hear that! Seven hundred and one dollars. Now you understand?"

I turn to Ralph, "What's our material cost for Model Twelve?"

"Three hundred thirty-four dollars and seven cents," Lou answers without any hesitation.

"Johnny, are you sure that accepting this order will not have any impact on our domestic clients?"

"Not unless we go out, and sing it from the rooftops. On this point Dick is right, no impact. But the whole idea is ridiculous. Why are we wasting our time?"

I look at Lou, he nods.

"We'll take it," I say.

When Johnny doesn't respond, I repeat, "We'll take it."

"Can you explain what is going on?" he finally says, between gritted teeth.

"It's very simple," I answer. "I told you that I have spare capacity. If we take this order, the only out-of-pocket cost to pro- duce these products will be the cost of the materials. We'll get seven hundred and one dollars, and we'll pay three hundred and thirty-four dollars. That's three hundred seventy-eight dollars to the bottom line per unit."

"It's three hundred sixty-six ninety-three per unit, and you forgot the freight," Lou corrects me.

"Thank you. How much is the air freight per unit?" I ask Johnny.

"I don't remember, but it's not more than thirty bucks."

"Can we see the details of that deal?" I ask him. "What I'm particularly interested in is the products, the quantities per month, and the prices."

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Johnny gives me a long look and then turns to Dick, "Bring it." "

Once Dick is on his way, Johnny says in a puzzled voice, "I don't get it. You want to sell in Europe for a price that is much less than what we get here, even less than the production cost, and you still claim that you'll make a lot of money? Lou, you're a controller, does it make sense to you?"

"Yes," Lou says.

Seeing the miserable expression on Johnny's face, I jump in before Lou has a chance to explain. Financial calculations, show- ing the fallacy of the 'product cost' concept won't help, it will just confuse Johnny even more than he's confused now. I decide to approach it from another angle.

"Johnny, where do you prefer to buy a Japanese camera, in Tokyo or in Manhattan?"

"In Manhattan, of course."

"Why?"

"Because in Manhattan it's cheaper, everybody knows that," Johnny says confidently, here he's on solid ground. "I know a place on Forty-seventh Street where you can get a real bargain- half price compared to what they asked me to pay in Tokyo."

"Why do you think it is cheaper in Manhattan?" I ask, and then answer my own question, "Ah, we know, transportation prices must be negative."

We all laugh.

"O.K. Alex. You've convinced me. I still don't understand but if it's good for the Japanese, it must be profitable."

We work on the numbers for almost three hours. It's a good thing that I brought both Ralph and Lou.

We calculate the load that this large deal will place on the bottlenecks-no problem. We check the impact on each of the seven problematic work centers-two might reach the dangerous zone, but we can manage. Then we calculate the financial impact -impressive. Very impressive. At last we're ready.

"Johnny, I have one more question. What guarantees that the European manufacturers won't start a price war?"

"What do you care," Johnny brushes the issue aside. "With such ridiculous prices I'm going to lock in Monsieur Djangler for at least one year."

"Not good enough," I say.

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"Now you're really getting difficult. I knew that this was too good to be true."

"That's not the point, Johnny. I want to use this deal as a beachhead to penetrate Europe. We can't afford a price war. We must come up with something else besides price, something that will make it very difficult to compete with us. Tell me, what's the average supply time in Europe?"

"About the same as here, eight to twelve weeks," he answers.

"Good. Promise your Monsieur that if he commits to the quantities per year, we'll deliver any reasonable quantity within three weeks of receiving his fax."

In astonishment he asks, "Are you serious?"

"Dead serious. And by the way, I can start to deliver immedi- ately. I have whatever's needed for the first shipment in stock."

"I guess it's your neck," he sighs. "What the heck, in any event you will have full responsibility very shortly. If I don't hear from you, I'll fax him tomorrow. Consider it a done deal."

Only after we pull out of the parking lot do we let ourselves go; it takes us more than fifteen minutes to settle down. That is, Lou and Ralph dive into polishing the numbers. From time to time they come up with a slight correction, usually not more than a few hundred dollars. Compared to the total deal it's not signifi- cant at all. But Lou finds it relaxing.

I don't let it bother me. I sing at the top of my voice.

It takes us more than half the way home until they are satis- fied. Lou announces the final number. The contribution to the net profit of the plant is an impressive seven digits, a fact that doesn't deter him from specifying it down to the last cent.

"Quite a profitable deal," I say. "And to think that Johnny was about to drop it... What a strange world."

"One thing for sure," Lou concludes. "You can't rely on marketing people to solve the marketing problems. They're cap- tured by old, devastating, common practices to an even larger extent than production.

"Try to imagine," he continues, "the reaction of people when I start to explain to them they are the ones who believe too much in cost accounting."

"Yes, I sigh. "Judging from today I shouldn't expect much help from these guys. Even though, you know, there might be something in Dick."

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"Hard to tell," he comments. "Especially when Johnny is holding him so tightly under his thumb. Alex, how are you going to do it?"

"Do what?"

"Change the entire division?"

That puts an end to my euphoria. Damn you Lou, why did you have to bring it up?

"God have mercy on me," I say. "Yesterday we were talking about inertia. We were complaining about the inertia that we have. Compare it to the inertia that we are going to face in the division."

Ralph laughs, Lou groans, and I feel pity for myself.

This week, even though we made such impressive progress, one thing was definitely proven-I'm still managing by the seat of my pants.

Take yesterday, for example. If it weren't for Ralph's instinct that something was missing, we wouldn't even have noticed the huge, open opportunities. Or today. How close was I to giving up? If it hadn't been for Lou putting us on the right track...

I must find out just what are the management techniques I should master. It's simply too risky not to. I must concentrate on it. I even know where to begin...

Maybe I was holding the key all along. What did I say to Julie in the restaurant? My own words echo in my head: "When did Jonah have the time to learn so much? 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."

And then, the idea of 'scientist' came up again, when Lou and Ralph were arguing about the usefulness of classifying data. And I myself supplied the answer: How does one go about re- vealing the intrinsic order? Lou asked it as if it is a rhetorical question, as if the obvious answer is that it is impossible. But scientists do reveal the intrinsic order of things... and Jonah is a scientist.

Somewhere in the scientific method lies the answer for the needed management techniques. It is obvious. But what can I do? I cannot read a book in physics, I don't know enough mathe- matics to get through even the first page.

But maybe I don't need it. Jonah stressed that he wasn't

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asking me to develop the methods, just to determine clearly what they should be. Maybe popular science books would be sufficient? At least I should give it a try.

I should go to the library and start digging. The first modern physicist was Newton, that's probably the place to start.

I'm sitting in my office, my feet up on the desk and staring blankly into the room.

The entire morning, I got only two calls-both from Johnny Jons. First he called to inform me that the deal with the French is signed. He was very proud of the fact that he negotiated a better deal than expected; in return for the flexibility and immediacy of our response to their future requests, he succeeded in squeezing slightly higher prices.

The second time he wanted to know if he could approach our domestic clients with the same concept. That is, to shoot for a long-term contract where only the overall yearly quantities are fixed, and we promise three weeks' delivery for any specific re- quest.

I assured him that we don't have any problem responding, and encouraged him to go ahead.

He's excited. I'm far from it.

Everybody is busy. Launching this huge new deal has made them really busy. I'm the only one who has nothing to do. I feel redundant. Where are the days of the telephone ringing off the hook, when I had to run from one important issue to the other, when there were not enough hours in the day?

All those calls and meetings were fire fighting. I remind my- self. No fires, no fighting. Now, everything is running smoothly- almost too smoothly.

Actually, what bothers me is that I know what I should be doing. I need to guarantee that the current situation will con- tinue, that things are thought out in advance so fires will not break out. But this means finding the answer to Jonah's question.

I stand up and leave. On my way out I say to Fran, "In the unlikely event that anyone needs me, I'll be at the public library."

"Enough for today," I say and close the book. I stand up and stretch, "Julie, join me for a cup of tea?"

"Good idea, I'll be with you in a minute."

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"You're really into it," I comment as she joins me at the kitchen table.

"Yeah, it's fascinating."

I hand her a steaming cup. "What can be so fascinating about ancient Greek philosophy?" I wonder aloud.

"It's not what you think," she laughs. "These dialogues of Socrates are really interesting."

"If you say so," I don't try to disguise my skepticism.

"Alex, your perceptions are all wrong, it's not at all like what you think."

"So what is it?" I ask.

"Well, It's hard to explain," she hedges. "Why don't you try to read them yourself?"

"Maybe one day I will," I say, "but for the moment I've enough reading to do."

She takes a sip from her cup. "Did you find what you're looking for?"

"Not exactly," I admit. "Reading popular science books doesn't lead you directly to management techniques. But I've started to see something interesting."

"Yes?" she says encouragingly.

"It's how physicists approach a subject; it's so vastly different from what we do in business. They don't start by collecting as much data as possible. On the contrary, they start with one phe- nomenon, some fact of life, almost randomly chosen, and then they raise a hypothesis: a speculation of a plausible cause for the existence of that fact. And here's the interesting part. It all seems to be based on one key relationship: IF... THEN."

Somehow this last sentence causes Julie to straighten up in her chair. "Keep going," she says intensely.

"What they actually do is to derive the unavoidable results logically from their hypothesis. They say: IF the hypothesis is right THEN logically another fact must also exist. With these logical derivations they open up a whole spectrum of other ef- fects. Of course the major effort is to verify whether or not the predicted effects do exist. As more and more predictions are veri- fied, it becomes more obvious that the underlying hypothesis is correct. To read, for example, how Newton did it for the law of gravity is fascinating."

"Why?" she asks, as if she knows the answer but is anxious to hear it from me.

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"Things start to be connected to each other. Things that we never thought were related start to be strongly connected to each other. One single common cause is the reason for a very large spectrum of different effects. You know Julie, it's like order is built out of chaos. What can be more beautiful than that?"

With glittering eyes she asks, "Do you know what you have just described? The Socratic dialogues. They're done in exactly the same way, through exactly the same relationship, IF... THEN. Maybe the only difference is that the facts do not concern material but human behavior."

"Interesting, very interesting. Come to think about it," I say, "my field, management, involves both material and people be- havior. If the same method can be used for each then it's proba- bly the basis for Jonah's techniques."

She thinks about it for a while. "You're probably right. But if you are then I'm willing to bet that when Jonah starts to teach you those techniques you'll find that they are much more than techniques. They must be thinking processes."

We each dive into our thoughts.

"Where do we take it from here?"

"I don't know," I answer. "Frankly, I don't think that all this reading really gets me closer to answering Jonah's question. Re- member what he said? 'I'm not asking you to develop the man- agement techniques, only to determine what they should be.' I'm afraid I'm trying to jump to the next step, to develop them. De- termining the management techniques must come from the need itself, from examining how I currently operate and then trying to find out how I should operate."

"Any messages?" I ask Fran.

"Yes," she answers, to my surprise. "From Bill Peach. He wants to talk to you."

I get him on the phone. "Hey Bill, what's up?"

"I just received your numbers for last month," he says. "Congratulations hotshot, you definitely made your point. I've never seen anything even remotely close to this."

"Thank you," I say pleased. "By the way, what are the results at Hilton Smyth's plant?"

"You must turn the dagger, huh?" he laughs. "As you pre- dicted, Hilton is not doing too well. His indicators continue to improve, but his bottom line continues to sink into the red."

I cannot contain myself, "I told you that those indicators are based on local optimum and that they have nothing to do with the global picture."

"I know, I know," he sighs. "As a matter of fact, I think that I knew it all along, but I guess an old mule like me needs to see the proof in black and red. Well, I think that I've finally seen it."

"It's about time," I think to myself but to the phone I say, "So what's next?"

"This is actually why I called you, Alex. I spent the entire day yesterday with Ethan Frost. It seems that he's in agreement with you, but I can't understand what he is talking about." Bill sounds quite desperate. "There was a time that I thought I understood all this mumbo jumbo of 'cost of goods sold' and variances, but after yesterday, it's obvious that I don't. I need someone who can explain it to me in straight terms, someone like you. You do un- derstand all this, don't you?"

"I think I do," I answer. "Actually it is very simple. It's all a matter of..."

"No, no," he interrupts me. "Not on the phone. Besides, you have to come here anyway-only one month left, you should get familiar with the details of your new job."

"Tomorrow morning okay?"

"No problem," he answers. "And Alex, you have to explain to me what you've done to Johnny Jons. He goes around claim-

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ing that we can make a lot of money if we sell below what it costs us to produce. That is pure baloney." I laugh, "See you tomorrow."

Bill Peach abandoning his precious indicators? This is some- thing I have to tell everyone; they'll never believe it. I go to Don- ovan's office, but he's not there, nor is Stacey. They must be on the floor. I ask Fran to locate them. In the meantime I'm going to Lou to tell him the news.

Stacey reaches me there. "Hey boss, we have some problems here. Can we come in half an hour?"

"No rush," I say. "It's not so important, take your time."

"I don't agree," she says. "I'm afraid that it is important."

"What are you talking about?"

"It probably has started," she answers. "Bob and I will be in your office in half an hour. Okay?"

"Okay," I say, quite puzzled.

"Lou, do you know what's going on?" I ask.

"No." he says. "Unless of course, you're referring to the fact that Stacey and Bob have been busy for the last week, playing expeditors."

"They are?"

"To make a long story short," Bob concludes the briefing of the last hour, "already twelve work centers are on unplanned overtime."

"The situation is out of control," Stacey continues. "Yester- day one order was not shipped on time, today three more will be delayed for sure. According to Ralph, we're going downhill from there. He claims that before the end of the month we'll miss the shipping dates on about twenty percent of our orders, and not by just one or two days."

I'm looking at my phone. It won't take more than a few days and this monster will ring off the hook with furious complaints. It's one thing to be consistently bad; the clients are used to it and they protect themselves by stocks or time buffers. But now we have spoiled them, they are already used to our good perfor- mance.

This is much worse than I've imagined. It might ruin the plant.

How did it happen? Where did I go astray?

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"How come?" I ask them.

"I told you," Bob says. "Order no. 49318 is stuck because of..."

"No Bob," Stacey stops him. "It's not the details that are important. We should look for the core problem. Alex, I think that we simply accepted more orders than we can process."

"That's obvious," I say. "But how come? I thought we checked that the bottlenecks have enough capacity. We also checked your seven other problematic work centers. Did we make a mistake in the calculations?"

"Probably," Bob answers.

"Not likely," is Stacey's response. "We checked and double checked it."

"So?"

"So, I don't know," Bob says. "But it doesn't matter. We have to do something now, and fast."

"Yes, but what?" I'm a little impatient. "As long as we don't know what caused the situation, the best we can do is to throw punches in all directions. That was our old mode of operation. I had hoped that we learned better."

I accept their lack of response as agreement and continue, "Let's call Lou and Ralph and move into the conference room. We must put our heads together to figure out what is really going on."

"Let's get the facts straight," Lou says after less than fifteen minutes. "Bob, are you convinced that you need to keep using so much overtime?"

"The efforts of the last few days have convinced me that even with overtime we are going to miss due dates," Bob answers.

"I see," Lou doesn't look too happy. "Ralph, are you con- vinced that at the end of the month, in spite of the overtime, we are going to be late on many orders?"

"If we don't find a smart way to solve this mess, without a doubt," Ralph answers confidently. "I can't tell you the dollar amount, that depends on Bob and Stacey's decisions of how much overtime to use and which orders to expedite. But it is in the neighborhood of over a million dollars."

"That's bad," Lou says. "I'll have to redo my forecast."

I throw him a murderous look. That is the major damage that he sees? Redo the forecast!

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"Can we address the real issue?" I say in a freezing voice. They all turn to me waiting.

"Listening again to what you're saying, I don't see a major problem," I say. "It is obvious that we tried to swallow more than we can chew. What we have to do is to determine by how much and then compensate. It is as simple as that."

Lou nods his head in approval. Bob, Ralph, and Stacey con- tinue to look at me with poker faces. They even look offended. There must be something wrong in what I've said, but I can't see what.

"Ralph, by how much are our bottlenecks overloaded?" I ask.

"They're not overloaded," he says flatly.

"No problem there," I conclude. "So let..."

"He didn't say that," Stacey cuts me off.

"I don't understand," I say. "If the bottlenecks are not over- loaded then..."

Maintaining an expressionless face she says, "From time to time the bottlenecks are starved. Then the work comes to them in a big wave."

"And then," Bob continues, "we don't have a choice but to go into overtime. That's the case all over the plant. It looks like the bottlenecks are moving all the time."

I sit quietly. What can we do now?

"If it were as easy as determining some overloads," Stacey says, "don't you think we would easily solve it?"

She is right. I should have more confidence in them.

"My apologies," I mutter.

We sit quietly for a minute. Then Bob speaks up, "We can't handle it by shuffling priorities and going into overtime. We've already tried that for several days. It might help save some spe- cific orders but it throws the entire plant into chaos and then many more orders are in trouble."

"Yes," Stacey agrees. "Brute force seems to push us more and more into the spiral. That's why we asked for this meeting."

I accept their criticism.

"Okay, it's obvious that we have to approach it systematically Anyone got an idea where to begin?"

"Maybe we should start by examining a situation where we have one bottleneck." Ralph suggests hesitantly.

"What's the point?" Bob objects. "We now have the opposite.

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We are facing many, traveling bottlenecks." It's apparent that they've had that discussion before.

I don't have any other suggestion, nor does anybody else. I decide to gamble on Ralph's hunch. It worked in the past.

"Please proceed," I say to Ralph.

He goes to the board and takes the eraser.

"At least don't erase the five steps," Bob protests.

"They don't seem to help us much," Ralph laughs nervously. "Identify the system's constraints," he reads. "That is not the problem now. The problem is that the bottlenecks are moving all over the place."

Nevertheless, he puts the eraser down and turns to the flip chart. He draws a row of circles.

"Suppose that each circle represents a work center," he starts to explain. "The tasks are flowing from the left to the right. Now, let's suppose that this one is a bottleneck," and he marks one of the middle circles with a big X.

"Very nice," says Bob sarcastically. "Now what?"

"Now let's introduce Murphy into the picture," Ralph re- sponds calmly. "Suppose that Murphy hits directly on the bottle- neck."

"Then the only thing left to do is to curse wholeheartedly," Bob spits. "Throughput is lost."

"Correct," Ralph says. "But what happens when Murphy hits anywhere before the bottleneck? In such a case, the stream of tasks to the bottleneck is temporarily stopped and the bottleneck is starved. Isn't this our case?"

"Not at all," Bob brushes it away. "We never operated that way. We always make sure that some inventory accumulates in front of the bottleneck, so when an upstream resource goes down for some time, the bottleneck can continue to work. As a matter of fact, Ralph, we had so much inventory there that we had to choke the material release to the floor. Come on," he says impatiently, "that is exactly what you're doing on your computers. Why do we have to regurgitate what we all know by heart?"

Ralph goes back to his seat. "I just wondered if we really know how much inventory we should allow to accumulate in front of the bottlenecks?"

"Bob, he has a point," Stacey remarks.

"Of course I have," Ralph is really annoyed. "We wanted three days' inventory in front of each bottleneck. I started with

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releasing material two weeks before it was due at the bottleneck. Then it turned out that that's too much, so I cut it to one week and everything was okay. Now it's not okay."

"So increase it back," Bob says.

"I can't," Ralph sounds desperate. "It will increase our lead time beyond what we currently promise."

"What's the difference?" Bob roars. "In any event we're slid- ing on our promises."

"Wait, wait," I cut into their quarrel. "Before we do anything drastic, I want to understand better. Ralph, let's go back to your picture. As Bob pointed out, we do hold some stock in front of the bottleneck. Now let's suppose that Murphy hits somewhere before the bottleneck, then what?"

"Then," Ralph says patiently, "the flow of parts to the bottle- neck stops, but the bottleneck, using the stock that accumulated right in front of it, continues to work. Of course that eats into the stock and so, if we don't build enough stock to start with, the bottleneck might go down."

"Something doesn't match." Stacey says. "According to what you just said, we have to guarantee the uninterrupted work of the bottleneck by building stock that will last more than the time to overcome Murphy on the upstream resource."

"Correct," says Ralph.

"Don't you see that it can't be the explanation?" Stacey says.

"Why?" Ralph doesn't get it, and neither do I.

"Because the time to overcome a problem upstream did not change, we haven't faced any major catastrophies lately. So if the stock was sufficient to protect the bottlenecks before, it must be sufficient now as well. No Ralph, it's not a matter of insufficient stocks, it's simply new wandering bottlenecks."

"I guess you're right."

Maybe Ralph is convinced by Stacey's argument, but I'm not.

"I think that Ralph might be right after all," I say. "We just have to carry his line of thought a little further. We said that when one of the upstream resources goes down, the bottleneck starts to eat into its stock. Once the problem is corrected, what do all the upstream resources have to do? Remember, if there is one thing that we can be sure of, it's that Murphy will strike again."

"All upstream resources," Stacey answers, "now have to re- build the inventory in front of the bottleneck, before Murphy hits

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again. But what's the problem? We released enough material for them."

"It's not the material that concerns me," I say. "It's the ca- pacity. You see, when the problem that caused the stoppage is overcome, the upstream resources not only have to supply the current consumption of the bottleneck, at the same time they have to rebuild the inventory."

"That's right," Bob beams. "That means that there are times when the non-bottlenecks must have more capacity than the bot- tlenecks../Vo w I understand. The fact that we have bottlenecks and non-bottlenecks is not because we designed the plant very poorly. It's a must. If the upstream resources don't have spare capacity, we won't be able to utilize even one single resource to the maximum; starvation will preclude it."

"Yes," Ralph says. "But now the question is, how much spare capacity do we need?"

"No, that is not the question," I gently correct him. "Just as your previous question, 'how much inventory do we need?' is not the real question either."

"I see," Stacey says thoughtfully. "It's a trade-off. The more inventory we allow before the bottleneck, the more time is avail- able for upstream resources to catch up, and so, on average, they need less spare capacity. The more inventory the less spare ca- pacity and vice versa."

"Now it's clear what's happening," Bob continues. "The new orders have changed the balance. We took more orders, which by themselves didn't turn any resource into a new bottleneck, but they did drastically reduce the amount of spare capacity on the non-bottlenecks, and we didn't compensate with increased inven- tory in front of the bottleneck."

Everybody agrees. As usual, when the answer finally emerges it's plain common sense.

"Okay Bob," I say. "What do you think you should do now?"

He takes his time. We wait.

Finally he turns to Ralph and says, "We have outstanding promises for very short delivery times on only a small percent of our order intake. Can you identify those orders on an on-going basis?"

"No problem," answers Ralph.

"Okay," Bob continues. "For those orders, continue to re- lease material one week in advance. For all others, increase it to

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two weeks. Let's hope that that will be enough. Now, we have to rebuild the inventory in front of the bottlenecks and in front of assembly. Stacey, take all the necessary steps to put the plant, and I mean all the non-bottlenecks, to work throughout the weekend. Don't accept any excuses, it's an emergency. I'll notify sales that until further notice they should not promise any delivery in less than four weeks from receipt of the order. It will jeopardize their new campaign, but that's life."

Right in front of our eyes the baton has been passed. It's obvious who is the boss now. I feel proud and jealous at the same time.

"Bob has taken over very nicely," Lou says as we enter my office. At least this front is covered."

"Yes," I agree. "But I hate to put him in a position where his first independent actions are so negative."

"Negative?" Lou asks. "What do you mean by negative?"

"All the actions he is forced to take are leading in the wrong direction." I answer. "Of course, he doesn't have any choice, the alternative is much worse, but still..."

"Alex, I'm probably thicker than usual today, but I really don't understand. What do you mean by 'leading in the wrong direction?' '

"Don't you see?" I'm irritated by the whole situation. "What is the unavoidable result of telling sales that they should quote four weeks' delivery? Remember, just two weeks ago we went out of our way to persuade them to quote two weeks. They didn't have much confidence then. Now, it will cause them to drop the entire sales campaign."

"What else can we do?"

"Probably nothing. But this doesn't change the end result; future throughput is down."

"I see," says Lou. "On top of it, overtime is up significantly; putting the plant to work on the weekend will consume the entire overtime budget for the quarter."

"Forget the budget," I say. "When Bob has to report it, I'll be the divisional president. The increased overtime is increasing op- erating expense. The point is that throughput will be down, op- erating expense will be up and increasing the buffers means that inventory will be up. Everything is moving in the opposite direc- tion of what it should."

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"Yup," he agrees.

"Somewhere, I've made a mistake," I say. "A mistake that now is causing us to pull back. You know Lou, we still don't know what we're doing. Our ability to see what's in front of us resem- bles that of moles. We're reacting rather than planning."

"But you've got to agree that we are reacting much better than before."

"That's not a real comfort Lou, we're also moving much faster than before. I feel as if I'm driving looking only in the rear view mirror, and then, when it's almost too late, we make last minute course corrections. It's not good enough. It is definitely not good enough."

I'm driving back from headquarters with Lou. We've been doing this every day for the last two weeks. We are not in what one might call a cheerful mood. Now we know every little detail of what's going on in the division, and the picture doesn't look good at all. The only bright spot is my plant. No, I should get used to the fact that it's Donovan's plant. And it's not a bright spot, that's a gross understatement. It's the real savior.

Donovan succeeded getting everything under control before the clients had any reason to complain. It will take him some time to regain the confidence of our sales people, but with me pressing from the other side it will not take long before it will be okay.

This plant is so good that Lou and I were led astray for some time. The reports on the division gave us the impression that the situation is quite good. Only when we went through the elaborate work of separating out Donovan's plant was the real picture ex- posed. And it's not pretty. It's actually quite disastrous.

"Lou, I think we did the exact thing that we knew we shouldn't do."

"What are you talking about?" he says. "We haven't done anything yet."

"We have gathered data, tons of data."

"Yes, and there's a problem with the data," he says. "Frankly, I've never seen such a sloppy place. Every report is missing at least back-up details. You know what I found today? They don't even have a report on late receivables. The information is there but-can you believe-it's scattered in at least three different places. How can they operate this way?"

"Lou, you're missing the point."

"Am I? Do you know that with proper attention we can re- duce the open receivables by at least four days?"

"And that will save the division," I say sarcastically.

"No," he grins. "But it will help."

"Will it?"

When Lou doesn't answer I continue, "Do you really believe it will help? Look Lou, what have we learned? What did you yourself say when you asked for the job? Do you still remember?"

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Irritated he says, "I don't know what you're talking about. Don't you want me to correct things which are obviously wrong?"

How am I going to explain it to him? I try again.

"Lou, suppose that you do succeed in collecting four days out of the open receivables. By how much will throughput, inven- tory, and operating expense be improved?"

"They'll all be slightly improved," he says. "But the major impact will be on cash. You shouldn't sneeze at four days' cash. Besides, improving the division requires many small steps. If ev- eryone does his share, together we can lift it."

I drive silently. What Lou said makes sense, but somehow I know that he is wrong. Deadly wrong.

"Lou, help me here. I know that improving the division will require many small improvements, but..."

"But what?" he says. "Alex, you are too impatient. You know what they say, Rome was not built in a day."

"We don't have hundreds of years."

Lou is right, I am impatient. But shouldn't I be? Did we save our plant by being patient? And then I see it. Yes, many small actions are needed, but that doesn't mean that we can afford to be satisfied with actions that improve the situation. We must care- fully choose which ones to concentrate on, otherwise...

"Lou, let me ask you. How much time will it take you to change, for internal purposes only, the way that we evaluate in- ventory?"

"The mechanical work is not a real problem, that won't take more than a few days. But if you're referring to the work it'll take to explain the ramifications, to explain to managers how this af- fects their day-to-day decisions, that's a different story. With con- centrated effort, I'd say it'll take weeks."

Now I'm on solid ground.

"What, do you think, is the impact of the way we currently evaluate inventory on the levels of finished stocks that the divi- sion currently holds."

"Significant," he says.

"How significant," I press. "Can you give me a number?"

"I'm afraid not. Not even a meaningful evaluation."

"Let's try to do it together," I say. "Have you noticed the increase in finished goods that the division is holding?"

"Yes, I have," he answers. "But why are you surprised? It's exactly what should be expected. Sales are down and the pres-

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sure to show profits is up, so they build finished goods inventory to generate fictitious inventory profits. I see what you mean. We can take the increase in finished goods as an indicator of the impact of the way we value inventory. Wow, it's about seventy days!"

"Lovely," I say. "Compare it to your four days of receivables. On what should you work? Moreover," I keep on hammering, "what is the impact on throughput?"

"I don't see any," he answers. "I see very clearly the impact on cash, on inventory, and on operating expense, but not on throughput."

"Don't you?" I say mercilessly. "What was the reason that they gave us for not introducing the new models? Can you re- call?"

"Yes," he says slowly. "They are convinced that introducing the new models will force them to declare all the old ones they're holding in stock as obsolete. That would cause a major blow to the bottom line."

"So, we continue to offer the old stuff rather than the new. We continue to lose market share, but it's better than to bite the bullet of write-offs. Do you understand now the impact it has on throughput?"

"Yes, I do. You are right. But Alex, you know what? With some extra effort I think that I can handle them both. I can work on the problem of the way we value inventory and at the same time arrange for more attention to the receivables."

He still doesn't get it but now I think I know how to handle it.

"What about the plant indicators?" I ask him.

"That's a real Pandora's box," he sighs.

"What is the damage there? Slightly bigger than four days? And what about the fact that sales continue to judge opportuni- ties according to the formal 'product cost' and desirable margins. Or even worse, that they will look for anything they can sell above variable cost. What's the damage there? And what about the transfer prices between us and the other divisions; that's a real killer. Do you want more?"

"Stop, stop," he raised his hands. "You made your point. I guess I was inclined to deal with the open receivables issue just because there I know what to do, while in all the others..."

"Afraid?" I ask.

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"Frankly, yes."

"So am I, so am I." I mutter. "Where do we start? Where do we continue? On what should we concentrate first, on what sec- ond? It's overwhelming."

"We need a process," he says. "That's obvious. It's too bad that the five-step process that we developed turned out to be false. No... Wait a minute Alex, that's not the case. At the end, the problem was not wandering bottlenecks. It was insufficient protection for the existing bottlenecks. Maybe we can use that five-step process?"

"I don't see how, but it's worthwhile to check it. Should we head to the plant and give it a try?"

"Certainly. I'll have to make some phone calls, but it's no problem."

"No," I say. "I have some commitments for tonight." "You're right," he says. "It's very important but not urgent. It can wait for tomorrow."

"Identify the system's constraint(s)," Lou reads from the board. "Do we accept it as the first step?"

"I don't know," I say. "Let's examine the logic that brought us to write it. Do you remember what it was?"

"Roughly," he says. "It was something about the fact that we adopted throughput as the number-one measurement."

"I'm afraid that roughly is not good enough," I say. "At least not at such an early stage in our analysis. Let's try again, from first principles."

"I'm all for it," he groans, "But what do you call first princi- ples?"

"I don't know. Something basic that we accept without hesi- tation."

"Fine. I have one for you. Every organization was built for a purpose. We haven't built any organization just for the sake of its mere existence."

"Correct," I laugh. "Even though I know some people in some organizations who seem to forget it."

"Washington, you mean?"

"That too. I thought about our corporation, but who cares. Let's keep going. Another basic fact is that any organization is comprised of more than one person, otherwise it's not an organi- zation."

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"Correct," says Lou. "But I don't see the point in all this. I can give you many more correct statements about organizations in general."

"Yes, you probably can, but look at the conclusion that we can derive already. If any organization was built for a purpose and any organization is composed of more than one person, then we must conclude that the purpose of the organization requires the synchronized efforts of more than one person."

"That makes sense," he says. "Otherwise we wouldn't need to create an organization; the efforts of individuals would suffice. So?"

"If we need synchronized efforts," I continue, "Then the contribution of any single person to the organization's purpose is strongly dependent upon the performance of others."

"Yes, that's obvious." With a bitter smile he adds, "Obvious to everybody except for our measurement system."

Even though I wholeheartedly agree, I ignore his last com- ment. "If synchronized efforts are required and the contribution of one link is strongly dependent on the performance of the other links, we cannot ignore the fact that organizations are not just a pile of different links, they should be regarded as chains." "Or at least a grid," he corrects me.

"Yes, but you see, every grid can be viewed as composed of several independent chains. The more complex the organization -the more interdependencies between the various links-the smaller number of independent chains it's composed of."

Lou doesn't want to spend too much time on that point. "If you say so. But that's not so important. The important thing is you've just proven that any organization should be viewed as a chain. I can take it from here. Since the strength of the chain is determined by the weakest link, then the first step to improve an organization must be to identify the weakest link."

"Or links," I correct. "Remember, an organization may be comprised of several independent chains."

"Yes," he agrees impatiently. "But as you said, the complex- ity of our organizations almost guarantees that there are not many of them. In any event, it is taken care of by the S in paren- thesis that we put at the end of the word 'constraint'. Fine, Alex, what do we do about the measurements?"

"Measurements?," I say in surprise. "Where did they come from?"

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"Didn't we agree yesterday that the distorted measurements are the biggest constraint of the division?"

Bob Donovan is right. Lou certainly has a fixation on mea- surements. "They are definitely a big problem," I say carefully. "But I'm not convinced that they are the constraint . "

"You're not?" Lou is astonished.

"No I'm not," I say firmly. "Do you think that the fact that most of our products are already outdated in comparison to what the competition is offering is not a major problem? Don't you realize that the attitude in engineering, claiming that the basic rule of nature is that a project never finishes on time, is an even bigger problem. And what about marketing, have you seen any marketing plan that has any chance of turning the situation around?"

"No," he grins. "As a matter of fact everything that I've seen of long term planning should be more appropriately categorized under 'long term bullshitting.' '

I'm on a roll. Today asking me about problems is like open- ing a dam. "Wait Lou, I haven't finished. What about the mental- ity that is so prevalent in headquarters, the mentality of covering your ass. Haven't you noticed that whenever we asked about something that doesn't go so well, everyone almost automatically started to blame everybody else?"

"How could I not notice. Okay, Alex, I get your point. There are major problems all over. It seems that in our division there is a whole herd of constraints, not just a few."

"I still claim that there are only few constraints. Our division is too complex to have more than a very few independent chains. Lou, don't you realize that everything we mentioned so far is closely connected? The lack of sensible long-term strategy, the measurement issues, the lag in product design, the long lead times in production, the general attitude of passing the ball, of apathy, are all connected. We must put our finger on the core problem, on the root that causes them all. That is what actually is meant by identify the constraint. It's not prioritizing the bad ef- fects, it's identifying what causes them all."

"How are we going to do that? How are we going to identify the divisional constraints?"

"I don't know," I say. "But if we succeeded in doing it here, in our plant, it must be possible to do in the division."

He thinks about it for a minute and then says, "I don't think

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so. Here we were lucky. We were dealing with physical con- straints, with bottlenecks, that's easy. But at the divisional level we'll have to deal with measurements, with policies, with proce- dures. Many of them are cast already into behavioral patterns."

"I don't see the difference," I disagree. "Here we had to deal with all of the above. Come to think about it, even here the con- straints were never the machines. Yes, we called and still call the oven and the NCX10 bottlenecks, but if they were true bottle- necks how come we succeeded to squeeze almost twice as much out of them as before? How come we increased throughput so much without buying more capacity?"

"But we changed almost every aspect of how we operate them, and how we operate everything around them."

"That is exactly my point," I say. "What aspect of operation did we change?" Mimicking his voice I answer, "The measure- ments, the policies, the procedures. Many of them were cast into behavioral patterns. Lou, don't you see? The real constraints, even in our plant, were not the machines, they were the policies."

"Yes, I do see. But still there are differences," he says stub- bornly.

"What differences? Name one."

"Alex, what's the use of pushing me to the corner? Don't you see that there must be major differences? If there weren't, how come we don't even have a clue of what the nature of the divi- sional constraint is?"

That stops me dead.

"Sorry. You're right. You know, Lou, maybe we were lucky here. We had physical constraints that helped us to focus our attention, to zoom in on the real policy constraint. That isn't the case in the division. Over there we have excess capacity going through our ears. We have excess engineering resources that we succeed so brilliantly in wasting. I'm sure that there is no lack of markets. We simply don't know how to put our act together to capitalize on what we have."

Pacified he says, "That brings us to the real question, how does one go about identifying the system's constraint? How can we zoom in on the most devastating erroneous policies. Or, to use your term, how does one go about identifying the core problem, the one that is responsible for the existence of so many undesir- able effects?"

"Yes," I agree, "That's the question, no doubt."

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Looking at the board I add, "What's written here is still valid. Identifying the system's constraint is the first step. What we now understand is that it also translates into a mandatory de- mand for a technique by which to do it. Lou, that's it. We found it."

The excitement causes me to stand up. "Here it is," I an- nounce, "here is the answer to Jonah's question. I'm going to call him right now. You can imagine my first sentence: Jonah, I want you to teach me how to identify the core problem."

As I turn to leave I hear Lou, "Alex, I think that it might be a little premature."

"Why?" I ask, my hand on the doorknob. "Do you have any doubt that that is what I must learn first?"

"No," he says. "On that I'm quite convinced. I just think that maybe you should ask for more. Knowing the core problem ex- actly might be far from sufficient."

"You are right again," I calm down. "It's just that I was look- ing for the answer for so long."

"I understand, believe me, I understand," he smiles.

"Okay Lou." I sit down. "What else do you think I should ask Jonah to teach me?"

"I don't know," he answers. "But if the five steps are valid, maybe what you should ask for are the techniques required to enable us to carry those steps out. We already found the need for one technique, why don't we continue to examine the other four steps?"

"Good idea," I say enthusiastically. "Let's proceed. The sec- ond step is," I read from the board, "decide how to exploit the system's constraints. That doesn't make any sense to me. What is the point in trying to exploit an erroneous policy?"

"It makes sense only if the constraint is physical, but since we do deal with policy constraints, I guess we'd better move to the next one," Lou agrees with me.

"Subordinate everything else to the above decision," I read. "Same reservation. If the constraint is not physical this step is meaningless. The fourth step is, 'Elevate the system's con- straint^).' Hmm, what are we going to do with this one?"

"What's the problem?" Lou asks. "If we identify an errone- ous policy we should elevate it, we should change the policy."

"How lovely. You make it sound so simple," I say sarcasti-

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cally. "Change the policy! To what? Is it so simple to find a suit- able replacement? Maybe for you, Lou, not for me."

"For me neither," he grins. "I know that cost accounting is erroneous, but that doesn't mean I've completely figured out what to replace it with. Alex, how does one go about correcting an erroneous measurement or any other policy?"

"First, I think that you need the light-bulb idea, the break- through. The management techniques that Jonah talks about must include the ability to trigger such ideas, otherwise those techniques can't be used by mere mortals. You know, Lou, Julie predicted that as I come to it I'll recognize that we are not dealing just with techniques but actually with thinking processes."

"It started to look like it," Lou agrees. "But triggering break- through ideas by itself is not enough. An even bigger obstacle is to verify that this idea really solves all the resulting bad effects."

"Without creating new ones," I add.

"Is it possible at all?" Lou sounds very skeptical.

"It must be, if we want to plan rather than just react." As I talk I find a much better answer. "Yes, Lou, it must be possible. Look what happened to us with our solution of getting more sales. As a direct result of the French order we threw the plant into a very unpleasant two weeks and we killed or at least delayed a good marketing campaign. If we just thought systematically be- fore we implemented it, rather than after the fact, we could have prevented many problems. Don't tell me that it was impossible. All the facts were known to us, we simply didn't have a thinking process that would force and guide us to examine it early in the game."

"What do we change to?" Lou says.

That throws me off balance. "Pardon me?"

"If the first thinking process should lead us to answer the question 'what to change?' the second thinking process should lead us to answer the question 'what to change to?' I can already see the need for a third thinking process."

"Yes, so can I. 'How to cause the change.' " Pointing to the fifth step I add, "with the amount of inertia that we can expect in the division, the last one is probably the most important."

"So it seems," Lou says.

I stand up and start to pace. "Do you understand what we are asking for?" I cannot contain my feelings. "We are asking for

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the most fundamental things and at the same time we are asking for the world."

"I've lost you," Lou says quietly.

I stop and look at him. "What are we asking for? For the ability to answer three simple questions: 'what to change?', 'what to change to?', and 'how to cause the change?' Basically what we are asking for is the most fundamental abilities one would expect from a manager. Think about it. If a manager doesn't know how to answer those three questions, is he or she entitled to be called manager?"

Throughout Lou signals that he is following me.

"At the same time," I continue, "can you imagine what the meaning is to being able to hone in on the core problem even in a very complex environment? To be able to construct and check solutions that really solve all negative effects without creating new ones? And above all to cause such a major change smoothly, with- out creating resistance but the opposite, enthusiasm? Can you imagine having such abilities?"

"Alex, that is what you have done. That's exactly what you have done in our plant."

"Yes and no," I answer. "Yes, that's what we have done. No Lou, without Jonah's guidance all of us would be looking for new jobs today. Now I understand why he refused to continue advis- ing us. Jonah said it to me in the clearest way. We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I'm doing my job."

"We should and can be our own Jonahs," Lou says and stands up. Then this reserved person surprises me. He puts his arm around my shoulder and says, "I'm proud to work for you."

AN INTERVIEW WITH ELI GOLDRATT AND OTHERS

by David Whitford, Editor at Large, Fortune Small Business.

DW: The Goal was published 20 years ago. Since then a lot has changed in operations. New, powerful methodologies to im- prove operations, such as LEAN and Six Sigma, are widespread. The emphasis on reducing lead time and improving due-date performance has become the norm. Even The Goal's subtitle - a process of ongoing improvement - is a statement that is now taken for granted by every organization.

So, my first question: Is The Goal still relevant?

EG: How does a scientist go about judging the relevancy of a particu- lar body of knowledge? I believe that the decisive way is to choose an organization where all the competing knowledge is implemented. We should choose a large company that is already using all the new methodologies you mentioned; an organization that is using these methodologies so extensively that there is an institutionalized orga- nizational structure - like a formal "black-belt" central office. The next step is to choose a significant section of that organization, and properly implement in it the body of knowledge in question. In our case it will mean implementing TOC in one of the plants of that large company. Then, compare the performance of the chosen plant with the performance of the rest of the organization. Now we are able to reach a conclusion: if no real difference is detected then the conclusion will be that the examined body of knowledge in question is not relevant. But, if there is a decisive difference, then the conclusion must be that the examined body of knowledge has relevancy; the bigger and more significant the difference, the more relevant it is.

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DW: Did you conduct such an experiment? And if so can you tell us about the results?

EG: Fortunately, I don't have to initiate such experiments, since many readers of The Goal are kind enough to write to me and share their experiences. From the letters that I received over the years let's pick one that fits our conditions. Since we are discussing relevancy, it must be a recent letter. It should be from a person who implemented TOC in a plant that is part of a large enough organization, an organization that is using black-belts. And it should contain comparisons between that plant and all other plants of that company.

Judge for yourself if this letter fits our bill perfectly.

Dow Corning Corporation

Healthcare Industries Materials Site 635 N. Gleaner Road Hemlock, MI 48626

May 20, 2004 Dear Dr. Goldratt:

I wanted to share with you what we have accomplished within our organization by using the tools presented in your books, "The Goal" and "It's Not Luck."

When a colleague gave me a copy of "The Goal," the plant at which I work was in a similar situation as Alex's plant in the book. At that time, in 1998, our plant's on-time delivery was approximately 50%. We were carrying over 100 days of inventory and we had customers on allocation because we could not meet the demand for orders. In addition, our man- agement had given us six months to turn things around, or else. I was the new production team leader for approximately thirty percent of the plant sales and forty percent of the plant production employees. My units performance was similar to the plant's overall performance.

As I read "The Goal" I quickly realized one person alone could

not solve the problems within my unit, or within our plant. I ordered several copies of "The Goal," and my colleague and I distributed them to our production manager, plant manager and manufacturing and quality engineers. Everyone was eager for a solution to our problems.

Within my unit we identified the bottleneck and began to focus our resources there. Our plant is a non-union facility and many of the workers were also interested in what we were doing. I ordered copies of "The Goal" for everyone who worked for me. By the time the six-month ultimatum came, my unit and another had started to make significant changes, and the plant was spared any ill recourse. However, the expectation was that we would continue to improve. For the five years that followed, we continued to work on breaking our bottlenecks. When one moved, we attacked it again. We got pretty good, and could determine where the bottleneck would occur next. Eventually, the bottleneck moved outside our plant as depicted in "The Goal." However, we knew this would happen ahead of time and had already begun the indoctrination of our sales and marketing group.

I recently moved out of production, but before I left, the results within my unit were: cycle time reduction of ~85 /o. Operator headcount reductions of 35% through attrition; no layoffs were needed. Work in process and finished goods inventory down ~70%. On-time delivery went from ~50% to ~90% and the number of material handling steps were cut by over half. Our plant, and business unit have done very well too. And me, I received a promotion while in that position, and a compensa- tion award. Dow Corning, like many other corporations, has downsized multiple times in the past five years. During each one, our plant, and business unit were affected very little or completely passed over. I am convinced that if we hadn't read and followed the methods in "The Goal" and "It's Not Luck" the situation would be much different today. There is still much to do, as our business unit is the only one to really have embraced "The Goal." I am hoping in my new role in Six Sigma that I can further share your tools and methods.

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Thank you for signing the book Dr. Sirias has forwarded to you on my behalf. I am honored.

Sincerely,

Robert (Rob) Kain P.E.

Six Sigma Black Belt

Dow Corning Corporation

Life Sciences/Specialty Chemical Business

DW: Impressive, but why is only one business unit of Dow Corn- ing using TOC? What bothers me is that this person is talking about a span of over five years. If it worked so well, why didn't it spread to the other business units? Is it the Not-Invented-Here (NIH) syndrome?

EG: Before we dive into speculation about psychology of organiza- tions, let's examine the facts. We are talking about a middle manager who works in one corner of a large company. Why should we be surprised that, in five years, this person was not yet able to take his whole company through a major paradigm shift? And, by the way, as you read in his letter, he is making nice progress; he has already moved into a much more influential position.

DW: Still, even with enough time, is it possible for a middle manager to influence his whole company?

EG: Yes. But of course, such a person will need a lot of stamina and patience.

DW: What makes you so sure that it is possible at all?

EG: What evidence will convince you that it is possible?

DW: Give me an example of a middle level manager working for a large company who has succeeded in institutionalizing the usage of the know-how written in The Goal. I mean institu- tionalizing it across the board.

EG: Given that General Motors is the largest manufacturing company in the world, you should get an outstanding proof by interviewing

Kevin Kohls. (Eli Goldratt interview to be continued.)

Interview with Kevin Kohls General Motors

Director of Throughput Analysis and Simulation for North American Assembly Plants.

DW: What drove you to seek help from The Goal?

KK: It goes back almost 15 years, when I was starting off as a controls engineer at the Cadillac Detroit-Hamtramck assembly plant, just re- turning from Purdue University after completing a masters degree in electrical engineering. When I left a year and half earlier, the plant was just starting production. When I returned, they had yet to hit their production targets; in fact they were far short. As you might imagine, everyone was frustrated about not hitting these targets, and there was a lot of effort being expended to improve the system, with minimal results.

I was frustrated as well. The solutions I was putting in place rarely had a significant impact on the production of the plant, and it wasn't clear why. About that same time, Dave VanderVeen from GM Research made a presentation to Larry Tibbetts, who was then plant manager. Dave was promoting a research tool that he said would help improve throughput in the plant. Larry was very impressed, and asked me to go see Dave to find out if we could use this tool at Hamtramck. When I went down to the Research Building at the GM Tech Center in Warren, Dave explained what a bottleneck was and how his tool identified it. He handed me a copy of The Goal and said if you want to understand bottlenecks and how to improve throughput, this is the book to read.

I took the book home and started to read it right away. The first thing that surprised me was that it was written in novel format. The second was how much I could identify with what was happening in Alex's plant. I finally had to put it down at 2 A.M. so I could get some sleep, but I finished it the next day. I wanted to apply the concepts immedi- ately, so I began collecting data from the systems we had, and putting it into the bottleneck program. After about a week of effort, I was fairly certain I had found the bottleneck. The scary part is that it was not 20 feet away, on the production line right outside my office!

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DW: What was the problem?

KK: It was an operation where they were installing the fuzzy, felt-like material that goes in the ceiling of the car-very big and very clunky. Our data said that the mean cycles between failures was about five minutes, and the mean time to repair was about a minute. I was amazed that the line was stopping that often, and thought maybe the data was wrong, so we went and looked for ourselves. Sure enough, we watched the operator run for five cycles, stop the line, walk away, pick up five more of these big, bulky items-they weren't heavy but they were big-drag them back, restart the line, and continue to install them. Every five cycles she would stop the line. Was it considered a major problem before we looked at it? No. It's not like we were losing an hour straight of production because something had broken down. We were only losing one minute. But it was happening every five cycles.

We could see immediately why the material wasn't closer to the line. There was a supervisor's office in the way. We found out there had been a request made some time ago to move the office, but it was considered very low priority and it wasn't getting done. So I got the office moved, and lo and behold, throughput of the entire plant went up, which was a surprise, because my experience told me that I couldn't expect that. Then we used the software to find the next bottleneck and continued on with that process until we were making our throughput goals very steadily, every day. That was a real change in the way that plant operated.

DW: Did you take your insights to other GM plants?

KK: Yes. We demonstrated the process when central office manage- ment visited the plant, and it became apparent a lot of plants in GM weren't hitting their throughput targets. Eventually, I left Detroit- Hamtramck and went to a central office position to help start a divi- sional group to implement this solution. Seventeen years later, I'm an executive at GM who owns the process for all of the North American plants, and it has been expanded to include the simulation of future manufacturing designs.

DW: And this is all TOC related?

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KK: Yes, but there are other disciplines involved. You have to un- derstand simulation, and how it predicts throughput, and why it's important to understand where the bottleneck will be for a future design. But TOC is the basis for what we do. I still teach a two-day course. We might go to a plant and train the whole staff in how to use TOC concepts. I always give out copies of The Goal ahead of time and ask them to read it before the training. It's gotten to the point in manufacturing, however, where there are not that many people left to go through the training. My internal customers are usually very savvy now about TOC, bottlenecks, data collection and analysis. So I rarely have to sell the concept anymore. Demand for data collection imple- mentation to drive the bottleneck software, for example, exceeds our ability to install. And while I'm responsible for GM North America, this week alone I have people in China and in Europe working on these kinds of issues.

DW: How has your use of TOC concepts changed over the years?

KK: What we found when we first started out is that we were dealing with the low-hanging fruit. You look at that first example I told you about, and it was very obvious that the office was in the way, and the solution was just to move it. Over time, the solutions to the problems have become a lot more difficult to find. This doesn't mean you can't solve them, it just means you might have to use more scientific tech- niques. Now I might have to apply statistical methods as opposed to simple observation to understand what's driving the problem at a work station.

Another thing we're doing lately is applying what we've learned from The Goal to the design of new plants and production lines. In -effect, we're solving problems before they arise. Eli Goldratt hasn't spent a lot of time talking about using TOC in that way, but we've taken his concepts and adopted them to our needs. That's been the beauty of it for me. If you understand the logic and the reason behind the methodology, then you can apply that stuff continuously.

DW: It's interesting that a way of thinking about production problems that you found useful 15 years ago you still find useful today. Does that surprise you?

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KK: Yes and no. The Theory of Constraints is a very scientific, logical process. And because of that, when the game changes you can always go back to the logic. Originally we just had to find the bottleneck, walk out there, ask three or four questions, and we knew what to go and do. Now we can change the way we design whole manufactur- ing processes to make sure they're better from the start. But the logic behind TO C-the conflict clouds, the current reality trees, the way we ask questions to uncover the constraint-all that still applies.

I think the problem with too many other approaches is that once the first layer of problems goes away, and the crisis no longer exists, then it's, "Phew! We're done!" In the TOC world, you find yourself asking, "Where has the constraint gone, and what can I do to help break it?" So you're never done.

I'd like to be able to tell you that as soon as I started telling people about these concepts, the whole organization immediately changed to the new paradigm. The fact is that it has taken years to get the process going, and the leverage to make improvements is still significant, es- pecially in a company as large as General Motors. It's much like the flywheel concept discussed in Good to Great, by Jim Collins. It's taken a while to get the flywheel turning, but it's starting to go at a pretty good clip right now!

Interview with Eli Goldratt continued...

DW: At Dow Corning it took about 5 years for TOC to spread from one section to a whole business unit In General Motors it took over ten years to be institutionalized throughout North America. Does it always take years to spread from the origin to the whole company?

EG: Not necessarily. It depends on who took the initiative. If the ini- tiative was taken by a middle level manager, it naturally takes much longer compared to the many cases where the initiative was taken by a top manager. What is amazing is that the complexity of the organiza- tion is playing almost no role. In very large and complex organizations it takes TOC about the same time to become the dominant culture as it takes in small, relatively simple organizations.

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DW: Can you give an example?

EG: In order to prove my point let's take an extreme example. An example of an operation that is not only large and complex but also dominated by large uncertainties - a repair depot of the United States Marine Corps. This depot is overhauling helicopters. It's very large - several thousand people. It is very complex - the helicopters are disassembled to the smallest pieces. Even the paint is sandblasted off. Whatever has to be repaired is repaired. Whatever has to be replaced is replaced. And then you reassemble the whole airplane. One has to make sure that certain parts which were taken from the original airplane go back on the same airplane. What makes it even more complex is the fact that two intrinsically different modes of operation have to be synchronized. The disassembly/assembly lines are a multi-project environment. The repair shops that feed the lines are a production environment, and the two must work in tandem. The real challenge is the fact that the whole operation is dominated by high uncertainty - one doesn't know the content of the work until the helicopter is disassembled and inspected. Surprises all over the place. A real nightmare. Still, it took the commander less than a year to implement TOC. An implementation that was so solid that the process of on-going improvement continues with his successors.

Interview with Robert Leavitt, Colonel, United States Marine Corps retired.

Manager, Sierra Management Technologies

DW: You were responsible for implementing a TOC-based program in the Marine Corps?

RL: Yes, when I was commanding officer at the Naval Air Depot in Cherry Point, North Carolina. I started the implementation there, which they have continued. As a colonel I had in essence a $625 million company and 4,000 people working for me. Everybody says the government is always the last to get the message. I don't know if that's true. My personal belief is that the government gives guys like me the opportunity to try things a little differently.

DW: Tell us about your implementation.

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RL: We had problems delivering H-46s on time. The H-46 is a 25-to 30-year-old Boeing helicopter used extensively in the Marine Corps as part of their assault support role. Because the airplane is so old and in frequent need of maintenance, anything over a single-digit number of airplanes on our hangar deck meant that you took a shadow off the flightline. If you took a shadow off the flightline, that meant they didn't have an airplane to do their mission. Our negotiated norm for turnaround time was 130 days, and on average we were somewhere between 190 and 205 days.

DW: Sounds like you had a problem.

RL: A problem, yes. So we implemented critical chain, and ultimately cut the number of airplanes in flow from 28 to 14. We were able to sell that to our customers. And the turnaround time went from 200 days to about 135. Now that in and of itself is probably a significant improvement. But at the same time we were starting the process, they added 30 days more worth of corrosion work to be done to the cabin. We accommodated the 30 days within that 135-day delivery. So we went from what would have been about 230 or 240 days to 135.

DW: Why did this approach work where others had failed?

RL: We had looked at a lot of the project management solutions, including material resource planning (MRP). TOC was the one that worked from all dimensions; building teamwork, understanding vari- ability, and with a grounding in scientific thought. It was a holistic approach to solving the problems. It looked at the entire system and said, hey, once you find the key leverage point you'll get some sig- nificant returns. And then you can go back and find the next leverage point, or constraint.

DW: Did it take you a long time to find the constraint?

RL: No, it didn't. And within about 120 days we were already begin- ning to see the results.

DW: What was the constraint that you found?

RL: It was the schedule-the way the schedule was developed. The

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biggest thing was the way we applied available resources; it didn't make any sense. The estimators and evaluators really had about two days worth of work and they were taking about 14. We figured out what was going on-why that was a problem, why the scheduler set that up-and then reorganized.

DW: Bottom line?

RL: Well, the way it worked with the government, we were funded for a certain number of airplanes each year. We started burning through the backlog and we actually produced a few extra airplanes. I know from talking to the new commanding officer down there that they've increased the amount of product every year as they've gone forward.

DW: And you had another example?

RL: I also implemented TOC in the tail rotor blade cell at Sikorsky Aircraft, the overhaul and repair division. We were averaging some- where between 15 and 19 tail rotor blades a month. It took us about 73 days to finish a tail rotor blade and we had as many as 75 or 80 tail rotor blades in flow. Well, we changed the flow to more than 30 tail rotor blades in process, which means our turnaround time actually was about 28 days.

DW: How quickly did this improvement occur?

RL: Three months. Now you can understand why I'm trying to build a consulting practice around TOC.

Interview with Eli Goldratt continued...

DW: I'd say almost everybody I've talked to who has read The Goal agrees with its messages. It also seems clear that many readers believe TOC to be founded on solid common sense. So why doesn't everybody implement TOC right away? Is it because TOC demands that cost accounting be discarded? Do the financial managers block the implementations?

EG: Not at all. The notion that financial managers try to protect cost

accounting is completely false. As a matter of fact, financial managers are the only type of managers that knew, much before TOC, the fal- lacies of cost accounting. Moreover, in almost any company, the VP of finance is one of the few managers who sees the overall picture and is extremely frustrated to witness so many devastating local optima decisions which do not view the organization as a whole. What we see in reality is the exact opposite; the financial managers rarely oppose TOC. On the contrary, in many (if not most) implementations, they are the driving force.

DW: That's hard to believe. Can I interview such an enlightened financial manager ?

EG: As many as you want. As I said, such financial managers are the norm rather than the exception.

Interview with Craig Mead, Book Manufacturing

Vice President Finance, Thomson-Shore, Dexter, Michigan. DW: Tell me about Thomson-Shore.

CM: We're in Dexter, Michigan, just outside Ann Arbor. Approxi- mately 40% of our customers are university presses. We would be considered a short-run printer, meaning we print runs of between 200 and 10,000 copies. We're also an ESOP company-98% of the stock is owned by the employees. We've had as many as 300 employees. Right now we're at 280.

DW: I understand that everybody in your company has read The Goal.

CM: We made it mandatory reading for all our employees. DW: Top to bottom? CM: Yes.

DW: So what was the problem you were trying to correct with the help of The Goal

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CM: Our main problem was with on-time delivery. We also had problems with a department-type mentality at the company. People had a hard time looking beyond their departmental responsibilities. Everybody was functional in thought.

DW: Were you able to turn things around?

CM: Yes. Before we started, we were at around a 70% on-time deliv- ery. After implementing the TOC policies and practices, we got up to around 95%.

DW: Your first step was to have everyone read The Goal?

CM: Yes, that was the first step. The next step was to bring in a TOC consultant. We put 30 people through a three-day training course on Theory of Constraints. From there the leadership group identified what we thought was the constraint and began to follow the Five Steps.

DW: What was the constraint you identified?

CM: In our business we have two areas of major investment One is in the press room and one is in the bindery. We basically settled on the press room as the constraint and began to manage the business with that in mind. As we focused on the constraint and began to subordi- nate everything else to that, we began to break down departmental barriers. It took a lot of education and training. We developed our own internal course for employees. Basically we took the three-day course, pared it down to about an hour, and had every employee go through that. The course dealt with the major concepts of constraint management, subordination, flowing work, and removing localized thought processes.

DW: What changes did you make in the press room?

CM: We chartered some teams to look at the various products that we made and began to challenge assumptions on how we use the presses. We make two types of books, a perfect-bound paperback book and a casebound hardcover book. We have sheet-fed and web presses. We began to devise rules on what type of books went on what pieces of equipment, to maximize the capacities of the equipment and to meet

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customers' needs. By creating new standards we eliminated an incred- ible amount of waste. Before, we were constantly reworking jobs to meet what we thought were customer needs. In reality it was forever putting us farther and farther behind. Rethinking all our assumptions forced us to discipline ourselves and to maximize each component in the press room. That allowed us to flow the work more consistently.

DW: How did you involve the employees?

CM: Employees at Thomson-Shore have the ability to influence the standards and the way work moves within their area of expertise. When you're strictly localized in your thinking, every person wants the job designed to benefit themselves. And that creates chaos. Before we did our TOC implementation, we could never agree on anything without a long, involved discussion. If we wanted to make a change we had to get 12 people in a room and then try to reach a compromise on everything. We could never please everybody. Having everyone read The Goal helped everyone understand that the basis for everything we do wasn't localized thinking anymore. So, for example, if a job had to spend a little more time in the bindery, that's okay, as long as that's what's most effective for the press, which we had identified as the major constraint. In the end we got the throughput that we needed.

DW: As a finance guy, what was your specific contribution?

CM: The Theory of Constraints is built on the premise of breaking the barriers of the cost model of accounting, and we were a heavily cost-driven organization, as a lot of manufacturing companies are. Everything in the company was designed as the cost-system would dictate. That's where I began to add value-by helping to develop dif- ferent measurement tools that we could use instead of the traditional cost tools. And that's what I believe began to drive real change in the organization. We are still struggling on the sales side but we've made progress in breaking away from the cost method of sales and estimating.

DW: How does that work?

CM: The cost method of accounting creates departments and it al- locates indirect overhead expenses. TOC, however, says you're one

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big happy family, you have fixed expenses and you have variable expenses. Your variables are your materials and your fixed is every- thing else. And sitting around spending all your time trying to figure out how much electricity and square footage of air conditioning and cooling goes to the press room, how much to the bindery and the prepress and how much to the office doesn't help you manage your business.

DW: Because it distracts you from the goal.

CM: Yes! Of meeting the needs of the customer. And flowing the work in a timely fashion. When we began to concentrate on making the work flow, that is, maximizing the capacity of the press room, and subordinating everything else to that, we began to improve our on- time delivery. The critical issue is how you measure the performance of the organization. We use two methods.

DW: And they are?

CM: Eli Goldratt talks about developing a constraint management tool. Ours is called TCP, for throughput contribution per press hour. When the market isn't a constraint, you choose which products and which customers to bring in based on that number. That's how you build profitability. Assuming, of course, that the constraint is not in the market.

DW: And when the constraint is in the market?

CM: For that we came up with another internal measure. We call it CRH, for contribution margin per resource hour. We try only to capture hours that represent value that customers pay for. We take the contribution-which is sales less materials-and we divide by the hours consumed and come up with a relative measure that has validitv across the whole organization. It has taught us an immense amount about what we do here.

DW: By confirming what you already suspected or by

revealing what you hadn't known before?

CM: Both. It confirms that certain types of customers, certain types of

work, are difficult and cost us more to manufacture-it clearly pointed that out. And then it also began to show us how technology affects our margins. I mean, we get most of our books on PDF files now, and the cost difference between working with a PDF file and working with what I'll call the old conventional way is incredible. What was happening was that we were being forced by the market to reduce our prices across the board, but then any job done the old way was not very profitable. Hah! Not profitable at all! People were expecting PDF pricing for conventional work, and that just doesn't work. Bot- tom line: In a harsh business climate, in which the market is the new constraint, and sales are declining, we've actually built profitability. Significantly.

DW: Does it help that you're an ESOP company? Does that make it easier for employees to align their interests with the goal?

CM: It depends on the individual. Someone who is ten years from retirement is more interested in the value of the stock. Someone who's been here three or four years, they're looking at the individual-based bonus. So we actually began to implement team bonuses instead of individual-based bonuses. Today we're working on disconnecting the link between compensation and performance feedback. Feedback is going to be all team-based.

DW: You said you had 300 employees before and now you're at 280. Is that the fault of a bad business climate or a benefit of being more efficient?

CM: It's both. The business climate has not been healthy. But at the same time, some of the changes we made freed up capacity, and as people quit we didn't replace them, which built profitability. No layoffs. We just didn't replace everyone who left. And we moved individuals around.

DW: Is the constraint still in the presses?

CM: Well, it shifted to the bindery. DW: What about market constraints?

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CM: Yeah, we have more capacity than the market's willing to give. That's an issue. I think we're prepared to meet the market when and if it comes back. And in order to do that we have to do three things. We have to fulfill the requirements of speed and delivery. We have to stay profitable to maintain our equipment and provide the quality that customers expect from us. And then, three, we have to have em- ployees who are participating fully, who want to come to work every day, and who understand why they're here and why they're doing what they're doing. TOC has allowed us to do all three.

Interview with Eli Goldratt continued. ...

DW: I'm back to my previous question. How come most readers of The Goal do not rush to implement TOC?

EG: TOC is built on the realization that every complex environment/ system is based on inherent simplicity and the best way to manage, control and improve the system is by capitalizing on this inherent sim- plicity. That's why the constraints are the leverage points. That's why the five focusing steps are so powerful. But, what we have to bear in mind is that such an approach is a major paradigm shift. And people will do almost anything before they will shift their paradigm.

From observation, I can tell you that readers of The Goal proceed to implement it mainly when three conditions are met. First, there is a real pressure to improve. But that by itself is far from being enough. The second condition is that it is obvious to them that there is no remedy within their existing paradigm. In other words, they had already tried everything else. And the third condition is that something helped them to do the first step. This something might be a "how to" book, like Production The TOC Way, a course, a simulator, or a consultant.

DW: Can you guide me to a case where all the three condi- tions exist?

EG : Frankly, once the three conditions had crystallized in my mind it became easy to detect them in every case. It is just a matter of asking the right questions and the pattern is apparent. Actually, there is no need even to ask guiding questions, you just have to listen.

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Interview with Stewart Witt, Ongoing Improvement

A consultant

DW: I understand that your introduction to The Goal came be- fore you became a consultant

SW: Right. I was VP of operations at the time for a small manufactur- ing company, Ohmart/Vega Company, in Cincinnati, Ohio. Someone gave me the book with the recommendation to read it. And I read it, and it was very entertaining and made a lot of sense, and I promptly put it right back on the shelf.

DW: I've heard stories like that before.

SW: Right. I just wasn't ready yet. This company had hired me specifi- cally to improve their operations and prepare them for growth and make them more efficient, all that stuff. I had talked the president into hiring a consulting firm, saying, "I can do these things but we can get it done that much quicker with some help," and he was fine with that. So we hired Grant Thornton, and they came in. We rear- ranged everything, streamlined everything. They took a look at the software we were using and made some other recommendations. We paid them about $120,000 and in about 6-8 months we started to see some results. Everyone was very happy because we took lead times down from, like, two weeks to one week. It was, wow, that's pretty good! The problem was that the same improvements were happening in sales and marketing. So here comes 40% more orders in the same time frame, and as it trickled out into the shop, so trickled away my improvements. The capacity I had freed up was now being doubled up by all these extra orders and I was back in the same boat that I was in before.

DW: What were you manufacturing?

SW: Nuclear measuring devices for the oil industry. Essentially, it's a non-contact measuring system, kind of like a Geiger counter.

DW: So, you were back in the same boat

SW: Yeah, I spent all this money, all this time. All the things I knew how to do I had done. I couldn't rearrange everything again. I couldn't look at the software and come up with any new ideas. I had already employed the best consultants that I knew.

DW: Right So what did you do?

SW: I signed up for Porsche mechanic school in California. It must have been a weak moment in my life. I do amateur racing and there's a saying that goes: you didn't make any mistake when you spun the car and flew off the track; what you did was you went into the corner and ran out of talent. That's how I looked at it-I must not be cut out for this job, there must be something I'm missing. I couldn't figure it out

DW: How old were you?

SW: That was ten years ago; so, early 30s. Mechanic school wasn't a waste of time. I still use what I learned. I save 600 bucks doing my own tune-ups. But right before I left to go out there, someone said: "You know, in San Jose there's a software company that has been cre- ated to support the rules that are stated in The Goal, and by the way, the Goldratt Institute has just issued a self-learning kit that you might be interested in." So I went to my mechanic class, that was very fun. Then afterwards I stopped in San Jose, took a look at the software, and completed the workbook on the way home. I was so excited that on Monday morning I got my staff together and I said: "This is what we're going to do. We've got nothing to lose. It looks like it's possible. It almost looks too simple. Let's give it a try." They weren't very con- vinced. In fact they were pretty skeptical. I'd put them through a lot already. One more thing, huh?

DW: This was their first exposure to TOC?

SW: Yes. Short story is, it took us about a month to go through the training materials, which came with a tutor guide and a workbook for all the participants. I went through the tutor guide step by step, they went through the workbook, and eventually they said: "I think you're right, we can do this." So we started, and about two weeks later we began to see some things improve. Lead times were starting to come

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down, our on-time deliveries were starting to go up. At first I thought it was just a fluke.

DW: What changed your mind?

SW: Well, a month later here comes one of my welders and he says: "Boss, I think my numbers are wrong. The lead time I've been mea- suring is now about a day and a half." I said: "How can that be?" We were still running more orders. I had even had to fire a guy in the meantime, so we were down resources. And we hadn't bought any new equipment. So I said, "Okay, fine, let me check and I'll let you know what I find out."

DW: What did you find when you examined the numbers?

SW: I told my welder: "You know what? You're right, the numbers are wrong. The lead time is less than a day." Same resources, 40% more orders, a fraction of the lead time. Took us two months to do that. Cost us $500. The company was a hundred years old and they had the best two quarters that they've ever had. One division that was losing a million dollars a month was now making a million dollars a month. If I hadn't seen it with my own eyes, I would never have believed it.

DW: What was the constraint you exploited to make such

a huge difference?

SW: We actually worked through about three of them. One of them had to do with the fact that we were sending everything out to put a protective coating on the pipes that held the measuring equipment. It was a step that had been added at some point by the marketing department, and it had developed into a constraint. So we had to go and find one or two more suppliers to handle the load.

DW: And there were others?

SW: One was the saws that cut the pipes. We offloaded some of the work to another machine that was just sitting there doing nothing. That saw ran at half the speed of the other saw, no one ever wanted to use it. But we identified just the right materials to run on it, which built just enough capacity to eliminate the saw as a constraint. And then the

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paint department was next, we did a couple of things there. At which point the constraint shifted to engineering. We were waiting for some new products to come out, and that's kind of where it ended up.

DW: Do you believe that TOC is an infinite process? In other words, is there always going to be another constraint you can find and exploit?

SW: Theoretically, it can go on forever. But from what I've seen, it goes through one or two cycles within a facility, and then you've kind of broken the constraint in the production operation. Then it may move to, say, engineering. Then you can apply Critical Chain to the engineering group and eliminate that as a constraint, and then the next constraint usually is the market, and typically it's the existing market. Unless you're Coke or GE or whoever, you probably don't have a dominant position in your market. So you can still find room to grow. Finally, there are plenty of cases where, using the same capabilities that you generated using TOC, you can attack new markets that you never thought you could compete in. At that point, you're probably doing all you can handle anyway.

Or maybe it goes back to manufacturing again. Could be, yeah, and you definitely know how to deal with that by then.

DW: Alright So then you moved on?

SW: I actually went to Grant Thornton for two years and worked on developing other TOC skills and applying what I knew to an ERP [enterprise resource planning] implementation at a plant in Mexico, working with Navistar International. I did that for about two years. Traveled to Mexico a lot, gained about 40 pounds, got no exercise. But it was kind of fun. Then I went to work for a consulting firm. Within about a month I was put on my first project, involving TOC, at a manufacturing facility in Clarksville, Tennessee, where they made graphite electrodes for the steel industry. It was a big plant, had been there quite a while, and it was already their best plant of that kind in the world. They made it a challenge for us, saying, "If you can improve things here, then we'll consider applying your methods elsewhere."

DW: This was a large-scale implementation?

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SW: Huge. The plant covered half of Tennessee, it seemed like, way out in the middle of nowhere. So we put a small team together. It was me and another guy and about half a dozen folks at the site, and we went through the exact same training I had done the first time at Ohmart/Vega. Was exactly the same concept, exactly the same ideas. The only thing different was the context. We had software systems we had to integrate-five different software systems that had the data in it we needed. We identified the constraint, and did all the usual things, like making sure there was a buffer in front of it, making sure the maintenance guys were giving it top priority so if there's any trouble they could fix things right away. We put a quality check in front of it so that we weren't wasting time processing any bad electrodes at that point in the process.

DW: What was the upshot?

SW: No change whatsoever in on-time delivery. The company already had an excellent record in that regard and by the time we had fin- ished, it still had an excellent record. But the only reason they could deliver on time before was because they had more inventory than they really needed. They just stuffed the shelves full of electrodes, had them sitting all over the place. So you see, we didn't disrupt their delivery performance at all, they continued to deliver 100% on-time. But in the end they did it with about 40% less inventory. And they were very satisfied with that because that essentially freed up almost $20 million that they could now use elsewhere to run their business. Based on those results, the CEO stood up at a big meeting one day and said that this is what we're going to do worldwide. We brought representatives from Spain, Brazil, Italy and South Africa to Clarksville as part of a worldwide implementation team. It's become a classic case of phenomenal improvement and a very satisfied client.

DW: So this is what you do now? TOC-based consulting gigs?

SW: Yes.

DW: Do you offer TOC as one option among many, or is

this your primary approach to problem-solving?

SW: Maybe there's a third way. If I'm invited to participate in some of

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the initial meetings with the client, I may approach it differently than some of my colleagues. They'll come in and say: "We have this line of services, which one do you want?" What I do is ask questions, like Jonah does in the book. That helps me decide if there is a fit for what I do. Basically, I try to help clients understand that if you address the core problems rather than the symptoms so many people focus on, you can almost promise good results.

Interview with Eli Goldratt continued...

DW: What are the limits of TOC? Can it be applied also to service-based organizations?

EG: Yes, but... And in our case the "but" is quite big.

Let me start with the "Yes." Yes, any system is based on inherent simplicity, in this sense there is no difference between a manufactur- ing organization and any other organization, including service orga- nizations. Yes, the way to capitalize on the inherent simplicity is by following the five focusing steps; identify the constraint, decide how to exploit it, etcetera.

The "but" revolves around the fact that it might not be a triviality to figure out how to actually perform each of the five steps; to figure out the detailed procedures. In The Goal, I introduced the overall concept and, through the detailed procedures for production, proved its valid- ity. In It's Not Luck, I've explained the thinking processes needed to develop the detailed procedures to perform each of the five steps. As teaching examples, I showed how the thinking processes are used to develop the detailed procedures for sales of several different cases of manufacturing organizations. So, as a result, manufacturing organi- zations are not presented only with the approach and the concepts but also with the detailed procedures. Detailed procedures are not available for most types of service organizations. Therefore, in order to implement TOC in a service organization, one has to follow this generic knowledge and first develop the specific procedures. This is, of course, a much bigger task.

DW: So why didn't you write another book for service orga- nizations ?

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EG: As you know, we use the term service organization for a very broad spectrum of totally different types of organizations. Organiza- tions that are different from each other no less than they are different from manufacturing. You are not talking about another book, you are talking more of a library.

DW: Can you give me an example of a TOC implementation in a service industry? Any type of service industry?

EG: Let's start with a company that does not design or manufacture anything, and therefore is called a service organization. Still they deal with physical products; something that you can touch. An office supply company.

DW: A distributor of office supply products?

EG: Correct. But before you go and interview them, let me stress one point. All the TOC detailed procedures for the logistical aspects of distribution had long been developed and tested in many companies. But this particular company still had to use heavily the thinking pro- cesses to properly develop the detailed procedures needed to properly position itself in the market.

Interview with Patrick Hoefsmit, Office Supply

Former managing director, TIM Voor Kantoor, 100-year-old office supply company in the Netherlands .

DW: What was your first exposure to The Goal?

PH: I was one of the owners of a printing company. Pretty big com- pany. Couple of hundred people, 40 presses. I was taking a course from someone who was explaining to me the difference between debit and credit-I'm a technical engineer, so I needed some explanation. And I was such a pain in the ass during the course that he gave me a book, The Goal. He said, "This is something for you because all the other books are nothing for you." I read it with great pleasure. I thought finally I have found someone who can explain to me the meaning of business.

DW: That seems to be a large part of the appeal of The Goal, it's accessibility.

PH: Yes, The Goal doesn't go really deep into the financial difficulties of running a company. As a matter of fact it completely makes it ir- relevant. So for me it was also a great message that I could just ignore all these economist Ph.D. people-if they couldn't explain to me what was going on, then forget about it! So that was my first experience with the Theory of Constraints. Then somebody gave me an article that said Eli Goldratt was in Holland to give a seminar. So I went there. At the seminar Eli told us that he just increased the price for his Jonah courses from $10,000 to $20,000 because otherwise top management wouldn't come; something like that. So I said to him, "I promise I will come, even at the old price!" He said he had a better deal for me. If I was to do the course, I could do so and I only had to pay him after the results were of such magnitude that the price of the course was irrelevant.

DW: Good deal.

PH: Yeah, it was a perfect deal. So I went to New Haven, to America. He had an institute there. Did the course, couldn't do anything with it. So a year later I went to ajonah upgrade workshop; it was in Spain. Eli has a very good memory, so when he ran into me he said, "Hey, did you pay for your course yet?" I said, "No, no, I didn't see any reason why I should." So he invited me for a private session. Some people warned me about that! On Monday morning I had a private session here in Rotterdam. That was a hefty morning. All my homework and all the things I did were to him completely irrelevant. The point was, I was looking at my own company and looking for a production bottleneck when there was so much excess capacity and the constraint was obviously in the market! But for me that was thinking outside the box. It had never occurred to me that Theory of Constraints would apply also outside the company's walls.

DW: That's understandable, since The Goal describes a produc- tion problem.

PH: Yes. So I was one of those stupid people who couldn't see the whole picture. So then Eli explained the bigger picture and the bigger

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application of it. He slowly forced me to think-sometimes by yelling at me, "Think!" It was a hefty morning. And this story is described by him in It's Not Luck-the candy wrappers case. We finally made some money over there. Actually, a lot of money. Later I discovered that my nephew, who was the other 50% owner of the company, wasn't doing much and was taking out more money than we had agreed upon, so we decided to split the company in two. I did the split and he chose which part he wanted. I never imagined that he would keep the printing business, which I had been running, and leave me with the office supply business, which had been his responsibility.

DW: Did you know anything about the office supply?

PH: No, nothing at all. The company was pretty big, it was number four or five in the Netherlands. It was making an awful loss. Com- petition was suddenly fierce and only concentrated on price. Other companies were very subtly sending brochures to every small business in the Netherlands with prices on the front cover that I couldn't get for myself as a wholesaler. This was really awful. All our good custom- ers became suddenly more and more interested in price. They said, "How is it possible that we pay twice as much as what's on the front cover of this brochure?"

DW: It sounds like an impossible situation .

PH: Well, it was, it was really awful. We had something like four or five thousand customers, 20 sales people. The only thing we could think of was to also lower prices, and do it only on items where we had to. That was not a long-term solution but that was what every- body else was doing. So the conventional way of doing business in office supplies was pretty soon completely gone. We got tenders for office supplies-which was unheard of-where you had to fight with three or four competitors. In the past, orders for office supplies were just given to a local good-performing company. Now everybody was focusing on price.

DW: So what did you do?

PH: We started to build, as Eli calls it, the current reality tree. And of course this time I didn't make the mistake of making it about our

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company but I made it about the customers' situation: Why is this customer complaining so heavily about price? After long thought and a lot of discussions with my sales people, the only thing we could come up with is that he's thinking this is the only way that he can decrease the total cost of office supplies; that he can't do anything about the tremendous cost of having to stock supplies, and store them, and the cost of bringing the stuff to the right people in the building. Well, I know what kind of a mess customers can make out of it. In most of- fices where you open drawers, there's more stock in the office than anybody can imagine. While at the same time they are screaming for a specific item which has to be brought to them by taxi in crazy short delivery times. In Rotterdam we are down to four-hour delivery times! Not even 24, just four-hour delivery times, which is completely crazy for office supplies. I mean, we're not saving lives here.

So this is what we offered our customers: That we would take over all this hassle of supplying everybody in the office with the right equip- ment, the right articles, at the right time. We offered them cabinets with office supplies in them. We owned both the cabinets and the contents. The supplies were for a specific working group. Whatever they took out was considered sold, whatever was left was still ours. We replenished these cabinets every week. We made it very easy for them to check on us. And more importantly, we could give specific data about each department, explaining that certain items were consumed fast. For instance you might need a new pair of scissors once in three months, but not every week.

DW: So you could discover theft?

PH: Well, we didn't call it theft, we called it overconsumption. But of course it was theft, yes. So suddenly this guy who was responsible for office supplies had much better tools to go after his dishonest personnel. He's not interested in how many pencils someone uses. Everybody knows that people take pencils home; you do that by ac- cident and it doesn't cost anything. Toner cartridges, that's a bigger problem. So when the theft of these ink-jet cartridges went up very much, we advised them to buy bigger printer machines, which we could also supply, to make them different than the machines people had at home. Things like that. But those cabinets were a big, big invention. While our customers might have paid 20%-25% more for

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the actual articles, the total cost of providing office supplies for their workers dropped by 50% because they didn't have the internal hassle of misplacements, overstocking, and things like that. So they didn't care that much anymore about the original price we charged. When I sold my company a couple of years ago, the due diligence took a long time because they couldn't believe our added value.

DW: What were the numbers?

PH: Normal gross margins in the industry were very much below 20%. Above 20% was suspicious. We were above 30%, which makes a lot of difference. And we were not ripping people off. They were extremely satisfied with our service.

DW: How did you go about selling the concept to your

customers?

PH: We had a department which was making appointments with financial directors, not the guy normally responsible for purchasing office supplies. That other guy was scared for his job when you came with this solution. And we made a short movie to show the current situation in their office and how people were screaming for office supplies and things like that, and how great it would be if we could take over their stock and their responsibility and solve this problem. And this worked really great. Something like 30% of the sales visits were successful sales. Again, the prices we were charging for supplies was no longer an issue

DW: For anyone?

PH: Not exactly. We still had some customers who were focused on price. We didn't chase them away. We just gave them completely different conditions. We told them that if price is what matters most, you have to buy big quantities and you shouldn't care about delivery times: "You can get the lowest price possible but you have to stand in line." Now a good thing for us about the cabinet system was that we had one-week advance notice on our purchasing needs. I mean, what the customer used last week I didn't bring the day I was checking. I would bring it the week later. So I hardly needed any stock anymore. My suppliers could deliver in a day but I had a week. So now I could

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start buying on price. And I could combine my orders with those of the bigger customers who still wanted to do business just on price.

DW: Those must have been a very satisfying couple of years for you as you explored this new way of doing business.

PH: Well, yes, for a couple of years it's really fun. Because you're winning a race. Of course at the beginning I was relatively small; I was number four or five in the country. I was really afraid the bigger companies would copy my cabinet system.

DW: Did they?

PH: Yes, a little bit. But they didn't get the message. It was actually really funny. They were prepared to deliver cabinets but the customer had to buy the cabinet and the content as well. They were never willing to do it on consignment terms, which is what made it work. So that was a big difference to start with. Secondly, they didn't understand my replenishing system of stuffing the cabinets full enough that you could survive a couple of weeks. What they offered was so different that we could immediately show the customer that with our competi- tors, you'll still have to do it yourself, you'll have to take responsibility. Whereas in my case, when you change a printer, for example, and you don't tell me, I will find out you don't use this cartridge any more and I'll adjust. These cartridges are very expensive, do you want the responsibility? That's the main difference of consignment.

DW: Later were you able to discover new constraints that opened the way to new growth?

PH: Ultimately the constraint moved back inside the company. The new constraint became; how quickly can we measure or install a new cabinet? At first we could only do something like two or three cabi- nets a day. People were standing in line for cabinets. We had waiting lists for three months. So we put a second person on the job. Not a big deal. But we were fully in charge. We could grow at the pace we wanted to grow. That's kind of funny in a race where everybody was yelling about price! There are other businesses in that situation. For example, if you go to a really good restaurant, they don't care about prices. They are booked for the next three or four months; they be-

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come arrogant. And we had the same situation! It was great! And to think that we had started with all those competitors, all the problems, and 20 sales guys who were really discouraged, they didn't know what to do. And here we came with this really simple solution. I'm amazed that to this day nobody's really copying it.

DW: Would you have discovered this breakthrough had you not been exposed to Goldratt's theories?

PH: First of all, I wouldn't have known how to attack the problem Since I was working at the printing company and my nephew was working at the office supplies company, I never expected that we would change roles. Nevertheless, I knew how much loss they made. And by then I was so convinced that just by applying Theory of Constraints, I would figure out a way to solve the problem. It took me something like three or four weeks to see the light and understand what was go- ing on and how to solve it. I survived that month by sitting back and saying, "Okay, no panic, no panic, let's not be hasty. As long as we don't have a breakthrough idea I'm not going to make any changes " I was just sitting back and thinking and discussing with people how we could solve the problem, until we solved it. And that's one of the good things about theory of constraints. You know in these cases that eventually you will come up with a breakthrough idea.

DW: You have only to find it

PH: Yes, and I became better and better at it. It takes Eli about five minutes to find the constraint and how to brake it. In most cases, I can find the same within a week. Compare it to just doing more of the'same. I very often use this funny story about two guys on a safari. And after a couple of days they hear the first tiger and they think, well, great! So they go for their guns and discover they forgot their bullets. So one of them puts his pack down and grabs his running shoes, and the other guy starts laughing: "Do you think you can outrun the tiger?" He says, 'I don't need to outrun the tiger, I only have to outrun you!"

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Interview with Eli Goldratt continued...

DW: Can you give me another example? Of a service company that does not deal with physical products?

EG: To demonstrate how different one type of service company is from another, I suggest you interview both a bank and a financial advisors company. Then interview another, obviously different, type of service industry, a hospital

Interview with Richard Putz, A Midwest Bank

Former CEO of Security Federal Bank.

DW: How did you conceive of applying the principles outlined in The Goal to the banking industry?

RP: I was flying back from Los Angeles one night. And I was re- membering my days as a consultant at Coopers Lybrand, working with the folks who were handling the manufacturing engagements. That's where I was first exposed to The Goal. And I began to think that when you look at how a bank operates-for example, how it moves through the process of putting loans together-it's really no different than manufacturing. Why couldn't I use something that worked in manufacturing and apply it to a bank? The process is the same, we just give it different labels. So I started testing that out.

DW: How did that go over with the staff?

RP: In the beginning they were skeptical. I got all of the people who report directly to me into the board room, we sat down, I passed out copies of The Goal, and I said: "Guys, we're going to come together ev- ery week on Friday. We'll have fun, we'll have food, the whole bit, but we're going to discuss how to translate The Goal into banking terms." I'm looking over there at my CFO, he has this constipated look on his face. I said, "Jim, is there something wrong?" He says, "Yeah." I said "What?" He says, "There's no index in the back of the book. How do we find anything?" I said, "You read it, it's a novel." He eventually became our biggest advocate. But he was totally skeptical.

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DW: So how did you approach the problem?

RP: Traditionally the tough issue within banking is how you manage all the regulatory constraints that you're faced with. Banks are just immersed in regulations. And if you actually tried to manage accord- ing to the regulatory measurements, your bank would fail. You bring that up to the regulators and they laugh. There's just this whole slew of things, some of which contradict themselves. Some of them were created when lawmakers added them onto banking legislation because they looked good, or else to fit a particular situation at the time.

DW: You're talking about regulations that keep banks out of certain businesses?

RP: Right, as well as those that mandate certain loan mixes, how you approach a market, that type of thing.

DW: Preservation of asset ratios and so forth?

RP: You got it. We took a slightly different approach. We decided we had to figure out what our real market constraint was. Using TOC, we found it had to do with service levels and how we were solving problems for our customers, not with the specific products we were offering. So we ended up gearing the whole bank toward solving prob- lems for our customers. Part of the solution-the injection that broke the conflict-was the creation of personal banking for everybody, not just for wealthy people. Banks normally assume it's not worth spend- ing time with you if you have only $100,000 when they can spend that time with a guy who's got $10 million. We discovered that a guy who only has $ 100,000 isn't really going to spend a lot of time with you anyway; he's just not there very often. So we stopped worrying about that and began focusing on how to better manage our customer relationships across the board. People ended up coming to our bank- ers anytime they had a financial problem. If we couldn't solve it for them, then at least we could refer them to someone else, and we could give them good advice because we didn't have an ax to grind. All we asked is that they let us manage their cash flow. Most people gave us everything in that regard, plus all their loans.

DW: You had a large mortgage business, too?

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RP: Right. We had more than 300 correspondent banks, all over the country. National City and Bank of America would sell us mortgages. What we discovered-also using TOC, and this is how we expanded this business-is that most people with a loan viewed the bank that serviced the loan as their bank. So, whether Freddie Mac or Fannie Mae or PNC or any other investor actually owned the loan, we wanted to own the servicing asset. It was more valuable in terms of building customer relationships than the loan itself.

Also, these days it's a lot easier, but it used to take forever to get a mortgage approved. That's because there are all these things you have to have in place-again, to satisfy the regulators. We looked at that and said, "Okay, what's the conflict here?" We built our conflict clouds, and we built a current reality tree, and we discovered there are only three things that end up deciding whether a loan is a go or a no-go. If we just focus on doing those three items, and worry about plugging everything else into the file later, we can speed things up. In fact we were able to cut the approval time almost in half. That made us really popular with realtors and mortgage brokers, which brought us more business.

DW: What effect did TOC have on customers' ordinary day-to- day interactions with tellers?

RP: Most of the tellers said they wanted to do this TOC thing, too. Well, what do they really need to do? They really don't need to know how to do future reality trees because their everyday life is not involved in future reality trees. But a teller is often dealing with conflict resolu- tion. Tellers represent the frontline defense, especially at savings and loans. People come up to them and say: "This doesn't work, this is out of balance, they screwed this up," and it's the tellers who have to solve the problem. So we taught them how to do conflict clouds. We created conflict-cloud worksheets for them, pads of 50 sheets, eight and a half by eleven. On the back side were the instructions, just in case they forgot how to do it. And the teller could actually fill in the cloud as he or she was talking to the customer, work out the prob- lem, then rip off the sheet and do the next one. We had that going throughout the bank.

DW: It sounds like one of the main conclusions you reached

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was that the perceived constraint-the regulatory climate-was not the actual constraint

RP: Correct. I would walk into the office of my compliance officer and I'd say, 'Jeff, I got this idea." And he would just automatically point to this poster on his wall that basically said: If you can dream it, there's a regulation for it.

DW: And yet even in that environment, you found ways to grow.

RP: We did things in the banking industry that were totally unheard of. We actually had regulators visit us more often than other banks because those other banks kept calling them and saying: "They've got to be doing something illegal, you need to check them out."

Interview with David Harrison, Administrative Ser- vices, Founder, Positive Solutions, Newcastle, U.K.

DW: Tell me about Positive Solutions.

DH: We provide management and administrative services to inde- pendent financial advisors. At present we have 755 of those people who rely upon us to help them with such things as compliance with financial services regulations, collection of commissions, and so forth. That's the company we built, 60% of which we sold recently to the Aegon group, one of the world's largest insurers.

DW: How have you made use of The Goal?

DH: In a couple of ways. First and foremost we use the five focus- ing steps almost instinctively now, in that we seek to identify the constraint in any problem before we do anything else. That's sort of been my mantra, if you like-before we go any farther, let's identify the constraint.

Beyond that, a big part of what we do is acquire new independent financial advisors-we want people to join our organization, and the people we use to recruit them we call our business consultants. Oded

RP: In a couple of ways. First and foremost we use the five focussing steps almost instinctively now, in that we seek to identify the con- straint in any problem before we do anything else. That's sort of been my mantra, if you like-before we go any farther, let's identify the constraint.

Beyond that, a big part of what we do is acquire new independent financial advisors-we want people to join our organization, and the people we use to recruit them we call our business consultants. Oded Cohen, of Goldratt UK, helped us build a process for that. He broke it down into very discrete steps and helped us program software which helps us track how each of our business consultants is succeeding, or not. At any point in time they may have 150-200 people they're hav- ing conversations with about joining Positive Solutions. We've got them to think of each of those people as a project. That streamlined the process and also got our business consultants to think in a more logical fashion.

DW: What distinguishes Theory of Constraints from other man- agement techniques you've looked at?

RP: I think it can be very easily applied in a simple process. As I have said, the one I use more than anything else is the five focussing steps. A lot of the problems which arise in business are about lacking focus. I guess if people were to describe Positive Solutions, it would be as a very focussed organization. We don't seek to be all things to all people. We stick to what we know will be the most profitable areas to us at any point in time. We've been working on the same constraint for five years.

DW: And that is?

RP: Our ability to recruit the right people at a pace which fits our business plan. The more people we have, the more profitable we become. A lot of companies by now would have given up at about 300 advisors, something of that nature. And they'd say the constraint is no longer recruiting people, what we should be doing is trying to improve the productivity of those people, or trying to get a better deal out of the manufacturers of financial products. But we've kept the focus on the fact that as long as the people that you are recruiting

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are profitable, then why stop recruiting them? Just because it's not getting any easier? Well, it's not actually getting any harder, either. It's just another day at the office. But we can work all of our financials back to simply the number of advisors that we have. Therefore, we don't go any farther.

DW: That's your focus?

RP: That's our focus. We've identified the constraint, now let's ex- ploit it, make the most of it. Therefore we have easily one of the best recruiting machines in the UK in this sector. We approach recruit- ment very differently from all our competitors. Our competitors will advertise, they'll try to acquire businesses, for example, rather than the approach that we have, which is to recruit people one by one. Our rate of growth might at first appear to be slow. But because our advisors have been recruited in the right way, we don't lose many of them. That's the beauty of TOC: As you really dig in to identify the constraints, you begin to understand these things.

DW: Have you thought about what the next constraint will be?

RP: Of course, at present there is still a market for further indepen- dent financial advisors to join us. There are about 25,000 of these people in the UK and we have less than 1000 of them. Now the qual- ity of some of those 25,000, and the fact that not everybody will join us in any case, means at some point the effort needed to increase the capacity just won't be worth it versus the energy we could put into something else. At that point, you say, "We've now changed our plan. What is the constraint in our new plan?" Frankly, it's about retaining the clients' money. At present what we do is introduce clients to a variety of manufacturers of financial services. The money goes to the manufacturers and they give some of it back to us in the form of commissions or fees. The next step really is for the clients to give us the money, and for us then to give some of it to the fund managers and the life insurers. So once we're a certain size, the constraint will begin to move. We'll have a brand, and the revenue needed to com- municate that brand, so there won't be quite as much effort to get people to join us. At that point the constraint shifts.

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Interview with Dr. Antoine Van Gelder A South African Hospital

University of Pretoria

DW: You're not a typical Eli Goldratt disciple, are you?

AV: I'm a university professor with a dual appointment, head of the department of internal medicine at the University of Pretoria and head of the department of internal medicine at Pretoria Academic Hospital. In 1992 I got an invitation to attend one of Eli Goldratt's courses in Pretoria. Not one run by him himself but by a subsidiary of the Goldratt Institute. At that time I knew nothing about theory of constraints and I had not read The Goal. I got myself into this out of curiosity more than anything else.

DW: Why? What kind of help were you looking for?

AV: Let me put it this way. I was literally sitting in my office, with mv head in my hands, highly frustrated, with piles of paper all around me, going through correspondence. I opened a letter, saw that it was another invitation to a course, threw it away, and as I threw it in mv wastepaper basket my eye caught the price of this particular course. It was the South African equivalent of about $18,000. That caught mv attention. I thought if any course was worth that amount it was worth looking at. This was a two week course in production management, the invitation was addressed to the engineering faculty. It had gotten to the medical faculty by mistake. The course was actually offered free to university professors. So because of my deep frustration with some of the management issues I had in my department, and because I had some time off the next week, I phoned. I planned to only go for the first week, because this was the time I had available. I was told that I had to attend the full two-week course. I said, "Yeah, we'll see about that."

DW: But you went?

AV: I went the first week. The course was taught with reference to a production environment and the logic around it. Now you don't find much of this logic-the reality trees and that sort of thing-in The Goal.

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Quite a lot of that is in It's Not Luck, which was published later. But the logic grabbed me because I was this frustrated man who was run- ning a department of medicine and I had not been trained to do that. I had no insight into management issues. Suddenly I saw that here was a potential way of analyzing my department.

DW: What were the parallels?

AV: My department was in chaos, total chaos. Everything coming and going, not knowing what was what-much as things were in the factory that is the setting of The Goal. During the course, The Goalwas mentioned. I bought it, read it through in one night, and I thought to myself, that's my environment. A chaotic system is not necessarily a factory. It could be a hospital with people coming and going. It could be a department with a whole lot of prima donnas-the doctors-that need to be managed. That parallel struck me.

Now if I can answer your question a bit more precisely. When one is introduced to theory of constraints, the first thing you see is a system where the causality is hidden. In other words, it's chaotic. Things happen, you have no control. Suddenly, though, it becomes a system that can be analyzed in terms of certain key points-leverage points. And one learns that addressing these key points-rather than launch- ing a symptomatic firefight-is the way to exert control over these systems. Remember, this was in the early 1990s, before frameworks like systems theory had moved to the forefront and become part of the main buzz. Though the theory of constraints doesn't talk about systems theory, already it was offering an approach by which a com- plex system could be managed in terms of a few key leverage points.

DW: Did you wind up attending both weeks of the course?

AV: Correct. Then I came back to the hospital. There are two points I want to make. The first was that I underwent a mental change. In- stead of thinking that things were too complicated, too complex and not manageable, I now saw that if I could analyze the system cor- rectly, it was manageable. That was the first important breakthrough that I had, and many people I've taught this to subsequently have had the same breakthrough. There is a way-find it!

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Second, our outpatient clinic, like most hospital outpatient clinics at that time, and even now in many parts of the world, was plagued by inefficiencies and long waiting lists. The more we fought the ineffi- ciencies, the more money we poured into the system, the longer the waiting lists seemed to become. This is the problem with the national health system in Britain as we speak. Now in my department, it seemed to me as though the processing of patients by doctors could really be viewed as a production line, just as in The Goal. The times are differ- ent, and obviously people aren't machines. All of those issues I ac- knowledged. But I saw that parallel.

DW: How did you attack the problem?

AV: The manager in charge of that clinic and I sat down and I told her about the principles used in The Goal Between the two of us-with her doing most of the work-we identified our constraint. We realized that we lost a tremendous amount of capacity whenever patients or doctors wouldn't show up for scheduled appointments. That time lost was not recoverable. So we developed a call-in list, which we called the patient buffer. A day or two before a scheduled appointment we would phone patients and make sure that they would be coming into the clinic. If not, we would find substitute patients. The result was less loss of capacity. Our waiting list at that time was about eight or nine months long, which is common for this type of waiting list. As a mat- ter of fact in the UK now some of these waiting lists are over one year. In about a six month period we got our waiting list below four months, which was roughly half of what most other hospitals were doing in South Africa at that time.

DW: Yours is a public hospital?

AV: Yes, we're part of the state health system. In other words, not for profit. Patients pay only a small amount for services. Later on, after I started consulting with the Goldratt Institute in South Africa, we looked at a large private hospital, 600 beds, a flagship hospital with neuro- surgery and all the high-tech stuff. The issue there was loss of capac- ity in the operating rooms. The spin-off effect of that was that sur- geons were leaving the hospital and going to other private hospitals. It was a serious situation. We found that instead of focussing on local optima-making sure that my little department comes first-the real

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question people should be asking is, what can I do to achieve the larger goal of the hospital, which is to throughput new patients? It's a simple concept but implementing it took about two months of meet- ing with staff. Each person then developed an action plan aimed at making sure more patients moved through the system more efficiently. In a period of a year, this hospital moved from a 20% shortfall on its budget to where it began showing a profit.

DW: So you've become a Goldratt consultant yourself?

AV: Yes. I presented the results from our hospital's outpatient clinic at one of the Goldratt symposia in the early 1990s. This was the first report of a medical implementation of the theory of constraints. Eli Goldratt was there to hear my presentation, and afterwards he in- vited me to join the Goldratt Institute as an academic associate. I was based at the university but involved in the implementations of his consulting company. I did quite a bit of work in the mining industry- nothing to do with medicine! It was pure theory of constraints, straight out of the book. It allowed me to develop my own skills.

DW: What's a doctor doing advising mining companies?

AV: It's interesting that you say that. I'm a physician, not a surgeon, In other words I'm a thinker, not a doer. I say that facetiously but as a physician, it's all about diagnosis. And the whole process of diagno- sis, whether it's a patient or an organization, is the application of the scientific method. Eli Goldratt says that his theory of constraints is simply the application of the scientific method. So it's almost natural that an advisor to a mining company-in terms of diagnosing what's wrong and what to do about it-could be a physician. In fact some of the teaching materials that the Goldratt Institute uses refer to the medical model. It asks trainee consultants, How does a doctor ap- proach the problem? It gives them a parallel for how you diagnose problems in organizations.

DW: That's interesting. Eli has said that his overriding

ambition in life is to teach the world how to think.

AV: Right. And nothing he has done in the almost 14 years that I have known him suggests to me that that is a facetious statement. The

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theory of constraints is about thinking processes, it's a subset of logic. In other words, the scientific method.

DW: Has any of this made you a better teacher of physicians?

AV: Absolutely. Absolutely. I've told you that diagnosing a patient and diagnosing a business is the same thing. But a doctor learns to diagnose by watching other doctors. It's not taught as a science. The processes of diagnosis are taught but what might be called the phi- losophy of diagnosis is not taught as it is in the theory of constraints. The traditional approach is, watch what I do. The approach that I've since followed is, let's look at how the scientific method works, then let's see if we can apply this to a patient. Most students take to this very well.

Interview with Eli Goldratt continued... DW: That will do it

EG: Please, one more. The jewel in the crown, at least in my eyes, is the usage of TOC in education. Yes, in kindergartens and elementary schools. Don't you agree that there is no need to wait until we are adults to learn how to effectively insert some common sense into our surrounding?

Interview with Kathy Suerken, CEO TOC For Education,

An international nonprofit dedicated to teaching TOC think- ing processes to schoolchildren.

DW: You're a middle school teacher, not a plant manager. How does The Goal fit with the work you do with children?

KS: Well, it all started almost 15 years ago. I was kind of a new teacher at a middle school but I had been a parent volunteer for a while. I was running a voluntary math program for kids and my husband was giving me advice on how to manage it. The program was already a success, we had 100% participation. I asked him, "Well, what do I do

now? Go to a different school?" And he said, "Kathy, you'll have to find another goal." Six months later he said, "There's a book you have to read, we're passing it around at our office and everyone's signing the back if they recommend it." That was my introduction to The Goal. Within six months, I wrote a letter to Eli Goldratt that be- gan, "Dear Dr. Goldratt, if you were to walk into the office of Frank Fuller, Ruckle Middle School's principal, on his desk you would find a copy of The Goal... and thereby hangs a tale." I went on to say how I was using the ideas and concepts to run this project.

DW: Did you hear back from Eli?

KS: Within four days, with a copy of his newly revised book. And then within about a week or so I heard from Bob Fox, who was presi- dent of the Goldratt Institute at that time, and they offered to send me to Jonah school on scholarship. So I went through the course. Later I went through a facilitator program on how to become a trainer of Jonah processes. And then I went back and taught a pilot course to kids. By the end of the year my kids were using the thinking pro- cesses, which they learned brilliantly. They were the most Socratic learners and teachers of other kids that you ever saw. It was pretty convincing evidence to me that this stuff works with kids, and it launched me into the role I have now.

DW: Was it a course about TOC or a course that used TOC methods to teach other content?

KS: It was a class on world cultures-basically a class on perspectives, which of course this is so aligned with. We used methods derived from TOC to advance the curriculum. Later I taught a critical think- ing skills course that was pure TOC. In that course I was teaching cause and effect as a skill. We used concepts like the conflict cloud to analyze conflicts in real-life situations.

DW: What evidence do you have that the kids were absorbing the concepts?

KS: Here's an example. One day I read to the students the section about the hike from The Goal, and then I gave them an evaluation sheet. I asked them, "How is this relevant to real life? What's the

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weakest link?" Stuff like that. It wasn't a test. I just wanted to know if they were getting it. That night I looked at their answers and I real- ized maybe half of them got it and half of them didn't. So I went back the next day and I asked them again, "What determines the strength of the chain?" I called on one boy-let's say his name was Mike-who I knew was struggling. He was rambling on and on. He did not get it. And I did not know what to ask Mike to get the answer out of him. So then I looked at my other students. And I knew if I called on John, for example, who did get it, he would just tell Mike the answer, and that's not what I wanted. So I said, "No one can give Mike the answer. You can ask Mike a question to help him think of the answer." And that is when one of my other students raised her hand. She said, "Remem- ber when we were doing the cloud on teach fast, teach slow? The problem of making sure everyone understands but the fast ones don't get bored?" That's when I saw what was happening. As the other students began asking Mike questions designed to draw the answer out of him, I could see that everyone was engaged. It was a wonderful example of cooperative learning. Because everyone had to think. Even if they already knew the answer, they were thinking hard about how to guide others to the answer.

DW: How do you introduce TOC to schools where it has never been taught before?

KS: We usually start with teaching TOC as a generic process, then figure out how to apply it to a specific curriculum. Initially it was easier to get it in through the counseling element of the school-the behavior application. That seemed to be the most obvious way in.

DW: How do counselors use TOC?

KS: Let's say the child is sent in to the guidance office with a behav- ioral problem. The counselor who's been trained in TOC will use tools like the negative and positive branch: "What did you do? Why were you sent here?" And then they go into the cause and effect con- sequences of the behavior, and how that leads to negatives for the student. The student will say, "If I do this, I get in trouble, I get grounded, I get sent up here, my parents get called." It's almost pre- dictable, this branch. Then the counselor asks, "Okay, what would happen if you didn't do these things?" Then the student writes the

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other branch, the positive one. Then the counselor asks, "Okay, which would you prefer? It's up to you."

One of the first teachers that was using this in a classroom in Califor- nia was working with at-risk students. They were at risk of failing academically and behaviorally. She was teaching the process outright, as a skill. And she had her students do cause and effect branches. One boy did it on, "I'm going to steal a car, go on a joy ride." She went to help him, because he couldn't get the branch started. "She said, "What's the problem?" He said, "This is the first time I've ever thought of something ahead of time." In the end he had to go to the driver education teacher and get some information to finish the branch, which is great. He found out what would happen to him if he got caught, because he didn't really know. How do you quantify the re- sults of something like that?

DW: You've since developed other applications?

KS: Yes, and they're interconnected. Because behavior changes atti- tudes. Or maybe I should say that attitudes impact behavior. If a stu- dent can make a more responsible decision, and he gets a favorable impact, his attitude toward the teacher and what he's doing in school changes. That's bound to have some impact on his learning. But ad- ditionally, we have, in the past two years, really worked on how to deliver the TOC learning process through curriculum content. Or, again, maybe it's the other way around: How to teach content using the TOC processes. Because teachers do not want to interrupt class to teach a life skill. They have to teach the curriculum.

DW: I understand you've introduced TOC to young people in prison settings.

KS: I went into a juvenile jail in California about five years ago. I spoke to a new group of juvenile offenders, this was their first day. They were all gang members. Later the teacher who invited me told me he had been very worried because I was female and most of them had been abused by their moms. He was afraid they would back me into a corner and be quite rude. There I stood there in a polka dot dress, from Niceville, Florida, looking like the person who had put them in jail. I'm sure I didn't look very empathetic. But I tried to get

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them to tell me what they wanted out of life. They said things like. "We just want to get out of here, lady." I said, "Do you think that's enough to keep you out of here?"

Finally, one boy said to me, "I just want a better life for my kids." These were 16 to 19-year-old old black and Hispanic males. I looked at this guy and I said, "I'm sorry I don't understand, what do you mean? You have kids?" He said, "Yes, I have a two-year-old and a baby."

Anyway we had this goal on this rickety old chalkboard, "A better life." I said, "Okay, what is preventing you from having a better life?" They said, 'Jealous people." I turned around and I said again, "I'm sorry, I don't understand what you mean by jealous." Because I'm thinking to myself, and not facetiously, "who could be jealous of them, they're in jail?" And that's when they said, "Oh, but if you go back and try to get out of the gang they'll be jealous, they don't want you to leave the gang, you can't leave," and all this.

They also mentioned prejudice as an obstacle. And as I'm making this list I am thinking, "I am in over my head." There was nothing I could think of that would overcome the obstacles these kids were facing. But I didn't need to worry about it. Because they had the answer. They went down the list and they added more obstacles like, "my past," and "criticism," and about halfway through they gave me something brilliant: "Me. Myself. I have to change my- self. Right away."

I later received letters from some of those kids. One of them said, "Before we had that talk, even making it to 21 was hard to see in my future. But you gave me hope." Now I ask you, did I give him the hope? No! It came from him! But he wrote, "You gave me hope that I can make it if I just follow those steps." That last part is so impor- tant. This is not just wishful thinking. It's giving somebody a process they can use, so that when the person who's giving them the attaboys isn't there, they have the know-why, not just the know-how to keep going.

DW: Does TOC have the same relevance to kids who don't have such severe obstacles to overcome?

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Absolutely. What it helps people do is to make sense of things. Many times, even in affluent communities, students are motivated only be- cause their parents want them to achieve. But learning does not make sense to them. It doesn't seem relevant. They're doing it only be- cause they have all the right environmental factors. What could be unleashed from those children if we could present information to them in such a way that they could derive their own answers instead of providing answers that were simply memorized? It's all about un- leashing people's potential. I have felt many times as a teacher that disruptive behavior comes from the high achievers as well as the low achievers-because the high achievers are bored! In TOC we have a way to differentiate instruction with one learning process. To bring them all with you.

DW: What is your goal for TOC For Education?

KS: I see empowered learners, enabled learners, and the real joy of lifelong discovery. All those platitudes that we aspire to, I see them being practically achieved. As well as people being kinder to each other. I see this as the real language of civility. Once I had to give a presentation about TOC to a group of teachers. We put on a play with some of my students. And afterwards the students were saying, "Mrs. Suerken, what's going to happen? This is so effective, there won't be any problems left." I thought, that will probably never hap- pen! But that's the way they saw it. I wish you could come to our conference in Serbia in May! We're going into Thailand this month through an organization called the Girl's Brigade, like the Girl Scouts. We have somebody in Singapore that's taking it into the sports coun- cil, into sports applications. We're in Malaysia. My new director in the United States, he's going to start a private school next fall and he's writing all of the curriculum based on TOC. Really, I think we've just touched the tip of the iceberg.

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