405 of 416 people found the following review helpful
The Theory of Constraints (TOC) will change the way you think,
This review is from: The Goal: A Process of Ongoing Improvement (Paperback)
Eliyahu Goldratt's "The Goal" is an entertaining novel and at the same time a thought provoking business book. The story is about a plant manager, Alex Rogo, whose plant and marriage are going downhill. He finds himself in the unenviable position of having ninety days in which to save his plant. A fortuitous meeting with an old acquaintance, Jonah, introduces him to the Theory of Constrains (TOC). He uses this new way of thinking to ...
TOC postulates that for an organization to have an ongoing process of improvement, it needs to answer three fundamental questions:
1. What to change?
2. To what to change?
3. How to cause the change?
The goal is to make (more) money, which is done by the following:
1. Increase Throughput
2. Reduce Inventory
3. Reduce Operating Expense
Goldratt defines throughput (T) as the rate at which the system generates money through sales. He also defines inventory (I) as everything the system invests in that it intends to sell. Operating expense (OE) is defined as all the money the system spends in order to convert inventory into throughput.
The author does an excellent job explaining his concepts, especially how to work with constraints and bottlenecks (processes in a chain of processes, such that their limited capacity reduces the capacity of the whole chain). He makes the reader empathize with Alex Rogo and his family and team. Don't be surprised if you find yourself cheering for Alex to succeed.
The importance and benefits of focusing on the activities that are constraints are clearly described with several examples in "The Goal". One example from the book is the one in which Alex takes his son and a group of Boy Scouts out on a hiking expedition. Here Alex faces a constraint in the form of the slowest boy, Herbie. Alex gets to apply two of the principles Jonah talked to him about - "dependent events" (events in which the output of one event influences the input to another event) and "statistical fluctuations" (common cause variations in output quantity or quality). He realizes that in a chain of dependent processes, statistical fluctuations can occur at any step. These result in time lags between the processes that accumulate and grow in size further down the chain. This leads to the performance of the system becoming worse than the average capacity of the constraint.
It is interesting to note that TOC practitioners often refer to TOC concepts in terms of references from this book. For example, a constraint is often called a Herbie.
The Goldratt Institute (goldratt dot com) has illustrated TOC Analysis in the form of five steps used as a foundation upon which solutions are built:
1. Identify the constraint
2. Decide how to exploit the constraint
3. Subordinate and synchronize everything else to the above decisions
4. Elevate the performance of the constraint
5. If, in any of the above steps the constraint has shifted, go back to Step 1
Although this book is excellent in the context of Operations, the "Goal" to "make (more) money by..." is limited in its focus. It is concerned with the cost centers internal to a business. Business performance in today's increasingly competitive market depends on a variety of factors that exist outside the business. These include competitors, external opportunities, customers and the non-customers. Executives need to focus on these in order to see the bigger picture.
This book is necessary reading at the best MBA programs. In addition to being a review, this write-up was intended to serve as a summary of the core concepts of this book and TOC. If you are reading this as part of your coursework, please feel free to share the link with your fellow students.
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Showing 1-7 of 7 posts in this discussion
Initial post: Feb 22, 2010 10:21:30 AM PST
Michael A. Dalton says:
Any interest in reviewing the latest TOC book on applying the focusing steps to new product innovation?
Simplifying Innovation: Doubling speed to market and new product profits - with your existing resources
If so, please let visit the book website (http://www.SimplifyingInnovation.com) and contact me via the link in the sidebar
Posted on Jun 21, 2010 9:16:52 AM PDT
Last edited by the author on Jun 21, 2010 9:25:22 AM PDT
B. Tweed DeLions says:
In response to Avinash Sharma:
I hope you will come back and respond to my comment.
First, I like the idea of using a novel as a means of promoting a system of thought. There are so many things that I want to learn that I am sometimes overwhelmed by the learning curve and the jargon wall that must be scaled in order to have a general working-understanding of many very worthwhile systems of thought. Putting it in an easy to read novel is a great idea. It makes basic acquisition of the terminology and key concepts more fun.
Second, I would like you to try and answer a question will appear at the bottom of my comment.
Humanity is an incredibly vast and complex network of social systems. Humanity is the meta-system of which all other human social systems are sub-systems. Humanity is the mega-society of all human mega-societies. Because of globalization, no human society is entirely independent of other human societies. We are connected through a virtually infinite network of exchanges of goods, services, and information, all facilitated by the great facilitator of such things: currency!
Besides the network of international currency exchange, all human societies are also connected through other overarching systems, like the solar system, the weather system of Earth, our immune systems, our biosphere, our system of oceans, the systems of agriculture and weaponry, etc.
A massive solar storm could devastate various Earth technologies, therefore humanity is a sub-system of the solar system. All of humanity is dependent on the weather systems of Earth, albeit to differing degrees, therefore humanity is a sub-system of the Earth's climate. Humans are mostly susceptible to the same diseases and are vulnerable to epidemics. Therefore, we are all part of the same host system for a variety of viruses and bacteria and the like. The oceans are all connected, so all depend ultimately on the same system of oceans. And because of the destructive power of nuclear weapons, we are all equally vulnerable to that threat, should all-out nuclear war ever occur.
In short, we are far more interconnected than we usually notice or admit. Yet virtually all of us suffer under the illusion that we are independent, as individuals, as families, as neighborhoods, as towns and cities, as counties and states, as nations, as nationalities, as religious believers, as races, as ethnicities, and as business interests. All of these sub-systems tend to convince us that we can place our own immediate needs above the needs of other groups. This reinforces the illusion that we can focus on the problems that threaten our narrow special interests to the exclusion of problems that threaten all of humanity. In other words, what is in the best interest of a given person, family, neighborhood, town or city, county or state or nation, business or corporation, etc., might ultimately be in the worst interest of humanity as a whole and thus us as a sub-system of humanity.
If Goldratt's theories are truly universal, then they should be equally useful for any system and at for levels of any system---from sub-systems on up to the overarching meta-system that they are a part of.
My question is this:
If we define the system as *all of humanity*, then can Goldratt's ideas help us find out how to avoid destroying ourselves as a species? Because it is becoming abundantly clear that there are an increasing number of problems that threaten all humanity equally, or nearly equally. And if we can't figure out how to make the solution of these problems a common *goal*, then all of the goals of all of the sub-systems of humanity may eventually become unreachable due to meta-system-wide failures.
Can Goldratt's ideas help us with that problem?
Posted on Oct 28, 2011 11:51:19 AM PDT
Priya Venugopal says:
i think his friend mentor jonah must be his own inner voice.
In reply to an earlier post on Dec 11, 2011 11:29:06 AM PST
Stephen Marino says:
I have not read this book in many years, thinking about redownloading it now. From what I remember about the book, it was all about optimizing production and constraining inventory. I think, if anything, optimizing production would be a bad thing for our world. If anything, we need more bottlenecks on consumption.
In reply to an earlier post on May 28, 2013 7:42:58 AM PDT
Last edited by the author on May 28, 2013 7:44:01 AM PDT
Mike Reeder says:
Like so many books meant for MBAs, these ideas SEEM practicle and make sense, BUT and it's a BIG BUT, the stated goal is to help companies make MORE MONEY. Why not spend more time creating value? Take the automotive industry a s an example. They've used virtually every new "trick" that's come out of the best MBA schools in the world. We now have vehicles that cost so much they have to be financed as long as houses, the manufacturers have their own financing (
In reply to an earlier post on May 28, 2013 8:07:10 AM PDT
Mike Reeder says:
Like so many books meant for MBAs, these ideas SEEM practicle and make sense, BUT and it's a BIG BUT, the stated goal is to help companies make MORE MONEY. Why not spend more time creating value? Take the automotive industry a s an example. They've used virtually every new "trick" that's come out of the best MBS schools in the world. We now have vehicles that cost so much they have to be financed as long as houses, the manufacturers have their own financing (
In reply to an earlier post on Dec 15, 2013 11:46:23 AM PST
Mathew B. Andresen says:
Value is subjective, you can tell you are providing value to a customer when the purchase your product (IE the value was higher than the purchase price to them). If a business is making money they are thus providing more value to customers than their own costs. The amount of that value they are able to capture is the difference between price and cost.
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