My Saga to Improve Production

In 1982, I was chairman and a major shareholder of a company ranked by Inc. Magazine as the sixth fastest growing company in the United States. And I was extremely frustrated.

Many dozens of clients had bought our production scheduling software and, guided by our associated education, had successfully implemented it. I was frustrated that we didn’t have thousands of such clients. No, I don’t think that I was greedy or overly ambitious. I had very good reasons to expect that every plant would embrace our package with open arms.

True, the underlying concepts of our offerings were quite revolutionary at that time. They flew in the face of accepted policies and procedures, but they were obviously correct... at least to me. More importantly, our software worked. I don’t just mean that it didn’t bump, or that it performed according to the written specifications, or that it was efficient in producing reports. It really worked. Most of our clients were willing to testify that using the software they were able to increase production while decreasing inventory. Many were willing to say that their pay back, on our not exactly cheap product, was less than six months. And we had reputable clients; RCA, GE, GM, Avco, Bendix, Westinghouse, Kodak, Philips, Lucas, ITT....

And the market was primed. Every plant was busy installing a computer package—automation was the fad of the time. And the need was there. Like today, every production manager was struggling to increase throughput and improve due-date performance; many even started to pay attention to the desirability of reducing work-in-process. We were the only company that was providing a finite capacity software that could really do it. So why was it so difficult to get more clients?

It wasn’t for lack of effort. Our thoroughly educated people* were constantly on the road, giving seminars, presentations, workshops, even doing pilot implementations. In spite of all these efforts our progress was painfully slow. I expected a tidal wave, and what was coming was, in my eyes, just a trickle.Out of desperation, I decided that if conventional presentations were not effective in breaking the dam, maybe a non-conventional approach would. I had an idea: to convey my method through a novel about manufacturing. If people read about lawyers and doctors, why not plant managers? I started to work on THE GOAL.

Nobody liked it. Not even Jeff Cox, the writer I hired. He hated it to the extent that he refused to share in the royalties and demanded to be paid cash, in full (as far as I know he didn’t repeat this enormous mistake with Zapp!, the excellent book he co-authored later).

Most opposition came from my own people, most refused to read the drafts. I didn’t blame them. I was the chief salesman, the prime presenter, the developer. I was the bottleneck, and here I was, wasting my time writing a novel. No, they didn’t like it one bit.

I liked it. After thirteen long months of labor, it was finally complete. I was pleased with the results, and thought it was good. The publishers didn’t think so. Not the two dozen or so I approached. The most polite rejection I got was from McGraw Hill: “Dr. Goldratt, if you’d like to write a book about scheduling the shop floor, we’d be delighted to be your publisher. If you want to write a love story, maybe we’ll look at it. But a love story about manufacturing?? Forget it! It will never work. We don’t even know which shelf to put it on!”

Larry Gadd, the owner of North River Press, was the only spot of light, but even he didn’t really encourage me either. He claimed that we’d be lucky to sell the first printing (3000 copies), but since he personally liked the book so much, he would print it nevertheless. And he did. We gave one hundred bound galleys as gifts, and the snow ball started to roll.

It’s a compliment for an author when people praise his book. It’s an even bigger compliment when they recommend it to others. But the ultimate compliment is people buying the book, in quantities, to give as gifts. And that’s exactly what happened. “We will not sell even 3000 copies...” What a joke!

Our prospect list exploded. It was quite amusing to watch the change in my own peoples’ attitude toward the book. The enthusiastic response of their prospects embarrassed them to the extent that, finally, they read it. Within two months they all had amnesia - each of them claimed that he always was a big supporter of the idea of a novel. I didn’t bother to argue.

Fan letters started to arrive; letters from plant managers attesting to the realism of the book, “THE GOAL is written specifically about our plant. We can even tell you the real names of the characters.” Some even accused me of hiding in their factory.

It wasn’t long before the letters started to detail actual results. One plant manager wrote, “Your book is not a novel anymore - now it’s a documentary. We followed Alex Rogo’s actions to the letter and we replicated his results exactly. Currently, the only difference between your book and my reality is that my wife didn’t come back yet.” Many letters included an invitation to come and visit, which I sometimes did.

The impact on me personally? It wasn’t what one might expect. All of this threw me into the most difficult period of my life. I felt caught between a rock and a hard place. I almost gave up.

When I wrote THE GOAL, I tried to focus on the need to change the paradigm that governs industry. We knew that was the major stumbling block standing in the way of a plant reaching much better performance. To achieve the needed focusing in the book, I down-played the role of a computerized scheduling package. Not that I thought that it was not needed. On the contrary, I thought that our software, or some variation of it, was a must for most plants.

By now the letters, and even more so the visits, forced me to face an unpleasant fact. Reality showed that the software, my cherished baby that I was so proud of, was an impediment to achieving results. The plants that were exposed only to THE GOAL and succeeded to put it to work, achieved better results and in a shorter time than our clients who had spent so much money on our software and education. How come?

It took me some time to figure it out, but at last I couldn’t escape the simple explanation: the efforts to install the software distracted the plant people from concentrating on the required changes—the changes in fundamental concepts, measurements and procedures. How could we, with clear conscience, continue to persuade companies to buy our products?

You can imagine the magnitude of my dilemma. My responsibility to my shareholders and to my employees demanded that we continue business as usual. My responsibility to my clients and to myself demanded that we stop selling our main product.

I was frozen, but reality has a momentum of its own. When people start to have severe doubts about the validity of their product they cannot radiate confidence in it. And radiating confidence is essential to the sale of a revolutionary product. The manual implementation described in THE GOAL eroded our people’s confidence in the absolute need for the software, and when they approached me for answers, I unavoidably increased their doubts. No wonder that in spite of the fact that prospects were now calling us, our actual sales went way down.

I was devastated. The software package in which I had invested almost ten years of hard work, the thing that I regarded as my biggest achievement, turned out to be hurting more than helping. My company, my pride and joy, was tumbling down, and the only apparent way to rescue it was to compromise on my integrity. Those were hard times. I think that the only things that kept me going were pride and inertia.

A few more months went by and reality tapped on my window, and then started banging on it, with another astonishing phenomenon. It was so strange that we couldn’t believe our eyes.

Most readers of THE GOAL agreed with its message to the extent that they called it “common-sense.” Nevertheless they didn’t implement it! They continued to ignore the constraints, they continued to try to improve everything they knew how to improve, they continued to justify investments based on cost calculations, they continued to make decisions based on product-cost impact, they continued to ignore the fundamental difference between a transfer batch and a process batch, they even continued to measure efficiencies and variances. And this was done even in companies where the president made THE GOAL mandatory reading! How come?

How come that even though it seemed everybody agreed with what is written in THE GOAL, only a handful of companies were actually implementing it? It was obvious that something was badly missing. What was it?

I started to question the people who were praising my book, listening very attentively to how they explained the lack of its rigorous implementation in their own plants. It wasn’t long before the major obstacles standing in the way of putting THE GOAL to work become clear.

The list was surprisingly short:

1. Lack of ability to propagate the message throughout the company.

It’s not easy to explain in ten minutes the message of THE GOAL. It’s not easy to do it in an hour... or two...or eight. It’s not easy to explain the message of THE GOAL, period. The alternative was to give a copy of the book. Alas, not all people read books, and those who do are sick and tired of management books.

2. Lack of ability to translate what they learned from the book into workable procedures for their plant.

Usually this obstacle was presented as, “our bottlenecks are constantly moving,” or, “we have a unique situation.” No, these are not pitiful excuses. These people were telling us the truth, as much as I didn’t like to hear it. What they were alluding to was that I’d only done a partial job. In the book I’d exposed the fallacies of the existing paradigm in manufacturing; I’d revealed the essence of the needed paradigm (on those I’d probably done a good job) but I didn’t provide the process of operating in the new paradigm. I provided examples, not a procedure. And examples are not always sufficient to extrapolate the needed procedures.

3. Lack of ability to persuade decision makers to allow the change of some of the measurements.

This last obstacle was more profound in plants that were part of large companies. This highlighted that I had done a sloppy job in explaining performance measurements.

So why didn’t these obstacles block everybody? All the companies who made it based on the book alone had something in common: they all were led by a charismatic and very analytical plant manager. This person achieved the needed buy-in using mainly his/her charisma, and then their enthused group, using their experience and intuition, worked out the needed procedures.

I started to frantically develop the answers for the above obstacles—it was invigorating. Within less than three months we had the essentials; the precise verbalization of the need to change the measurements, and the rules of the logistical procedures – the Drum-Buffer-Rope and Buffer-Management. That was easy. What was less easy was teaching it to my people. They resisted the change in emphasis with all their might. The Sunday that I devoted to educating them to give the resulting new, one-day presentation, they called “Bloody Sunday.”

But it was an unfair fight; I had the logic and they were less than two hundred. Not before long the enthusiastic response of the market caused a return of the amnesia epidemic. They all fell in love with the new presentation. Bob Fox helped me to turn that presentation into a book - THE RACE. Larry Gadd went out of his way to expeditiously provide it. This went a long way toward resolving the second and third obstacles. I turned my attention to solving the first one.

And once again I used the computer. No, not a modified scheduling package but using the computer in what it’s so effective at - games. I started to develop addictive educational games which led people to invent the needed procedures. If there is something more powerful than a novel, it’s a computer game. But it was too late. We’d run out of time.

Our shareholders were far from being pleased with the financial results of our company. From a money-making machine we had turned into a bottomless pit. When they realized that my plans did not include any real actions to boost our software sales, they decided that I had turned from an asset into a liability. They showed me the door. And then, one by one, they showed the door to our best people; they were “contaminated” by my ideas.

I founded the Avraham Y. Goldratt Institute, named after my late father, and we frantically developed the educational games. In less than two months, we were profitable. But much more importantly, we could deliver results to our clients at speeds that matched the story in THE GOAL. Life looked bright again.

I was careful not to repeat the same mistakes. This time we didn’t have any external shareholders and in the incorporation papers it was clearly stated that the goal of the institute was “to generate and disseminate knowledge,” and that our decisions were not going to be based on financial considerations.

During that period I verbalized what should have been the starting point; I verbalized the steps of the process of ongoing improvement—which I later published in the second, more extended, edition of THE GOAL.

These five focusing steps turned out to be extremely helpful. They helped our clients to constantly improve their performance, and they helped me to develop the solution for two other functions that suffer from chronic logistical problems; project management and distribution.* Our body of knowledge expanded by leaps and bounds. It became so broad and powerful that it deserved to be called a theory. We started to call it the Theory Of Constraints (TOC).

But that’s not the end of the story. We didn’t live happily ever after. A new devastating problem developed. Successful plants, plants having performance unmatched by anybody in industry, started to suffer a sudden deterioration, some even closed down.

I should have predicted it, but I didn’t. Not until after the first few cases. In retrospect, it is so obvious. You improve production, and the constraint of the company moves outside production. What happens when it moves into an area where the constraint is not physical, but an erroneous policy? How do you then identify the constraint? How do you elevate it? How do you cause the needed changes in behavior? We didn’t have any answers. And as a result....

The result is that the throughput of the company stagnates. All the additional improvements in production do not lead to an increase in throughput but to an increase in excess manpower. And then it is just a matter of time until the market takes one of its downturns and the corporate tendency to cut costs kicks in. Where is the natural place to look for cost reduction opportunities? In the places where there is apparent excess manpower, in the areas that have improved the most. Punish people for their improvements and the process of ongoing improvement comes to a grinding halt. Morale, and thus performance, rapidly deteriorates. But at that time the clients have been spoiled by the excellent performance and they are not willing to accept any deterioration. Sales plummet, in some cases, to the extent that the financial viability is no longer there.

As a first reaction, we limited our business to plants where it was apparent that doubling the rate of production would still not cause the constraint to move into the market. Then the real work started.

It was apparent that everything that had been done until then was dealing with a specific case—the case where the constraint is physical. I needed to develop the generic thinking processes that would: 1. enable people to rapidly identify the core erroneous policy—the constraint; 2. enable construction of new policies that will not bring with them new devastating problems; and 3. enable construction of a feasible implementation plan that would not be hampered by resistance to change.

This swallowed most of our attention for five years. Once again we had to leave behind familiar territories and venture into unknown waters. By the end of 1992, the thinking processes were complete. It was a saga of its own. I didn’t lose my institute, but I did lose many excellent people (not as excellent as the ones who made it).

What was needed now was to develop the generic procedures for using these thinking processes for the two common constraints - marketing and human relationships. I published the results of this work in my book, IT’S NOT LUCK.

Now that the danger of punishing people for doing what is right had been removed, the time had come to complete the work on production—to supply even better, effective tools to enable people to overcome the obstacles to implementation. This became more urgent then ever since the effectiveness of the solutions for marketing created situations where production had to jump their performance not in six months or three but in one.

I re-examined the obstacles.

1. Lack of ability to propagate the message throughout the company.

We knew that a book was not effective enough; too often people do not like to read books. But they do like (or at least do not resist) seeing a good movie. To turn THE GOAL into a movie we joined forces with American Media Incorporated, one of the best companies in the field of training videos. It was quite an undertaking. We spent a lot of time polishing the script to make it true to the book. And the movie did come out true to the book. A mistake.

As I’ve already mentioned, when THE GOAL was written I was ignorant of the five focusing steps. The result is that in the book the actions to identify, exploit, subordinate and elevate are all mixed and therefor it’s quite difficult to transfer the knowledge into workable procedures. Why not correct it in the movie? Isn’t it too late? We decided to bite the bullet. We rewrote the script, walking the fine line between keeping the spirit of the original work and outlining clearly the steps that Alex Rogo and his gang followed.

The result? Due to AMI’s efforts the result is a touching, educational movie. The best combination. In my eyes, the movie THE GOAL; The How-to Version, is better than the book. Now, at last, there is the means to expose the message to everybody within less than an hour. Obstacle # 1 is overcome.... But maybe I’m too subjective. Time will tell.

What about the next obstacle?2. Lack of ability to translate what they have learned from the book into workable procedures for their plant.

This was relatively easy to overcome. I had an excellent starting point—our two-day production workshop–the workshop that is based on a computer game, and was tested on literally tens of thousands of people. I invested the time to turn this workshop into a self-learning kit. Going through the self-learning kit, Drum-Buffer-Rope and Buffer-Management become intuitive. Moreover, I think a person who goes through it rigorously will be in a position to use it to teach others who do not have the stamina to work it out by themselves. This is an excellent springboard for plant personnel to construct the detailed, logistical procedures for their specific situation.

Obstacle #3: Lack of ability to persuade decision makers to allow the change of some of the measurements.

With the years, this obstacle has been severely eroded. TQM and JIT have done a lot to change upper management’s outlook. The movie will also help. But the ultimate weapon was supplied by an unexpected ally. The Institute of Management Accountants sponsored a survey on actual implementations of TOC in industry. The 200-page report was published in 1995. Here is a quote from their conclusions:

The accounting in TOC should be familiar territory to management accountants. While the terms used in TOC are different from those we commonly use, variable costing, use of scarce resources, and responsibility accounting have been topics in management accounting textbooks for decades. From a theoretical viewpoint, little in TOC is new to accounting. The difference is that some topics—particularly, use of scarce resources—are far more important than we thought and are given more prominence in TOC. The companies involved in TOC are different from most companies in that they actually put into practice much of the advice found in the textbooks. Surveys over the last several decades have revealed consistently that most companies do not follow many of the practices advocated in management accounting textbooks. Absorption costing routinely is used for internal decision making, corporate headquarters expenses are allocated to divisions in performance reports, product profitability calculations ignore constraints, and so forth. For those of us who teach management accounting, it is reassuring that an identifiable collection of companies practice what we preach.What does the future hold for TOC? The most obvious applications are found in job shops, and managers of such shops will undoubtedly continue to mimic Alex Rogo’s actions in The Goal. These efforts usually will be rewarded with almost immediate improvements in operations and in profits at virtually no cost. However, such efforts ultimately will lead to failure unless management outside of manufacturing is willing to embrace TOC or to evaluate manufacturing performance using TOC measures.Looking beyond the elements of TOC found in The Goal, our crystal ball becomes murkier. The Thinking Processes may be the most important intellectual achievement since the invention of calculus.

In the past fifteen years I’ve seen hundreds of implementations. I’ve heard of many more. They all seemed to be unique, yet they shared more than one common thread. I’m not talking just about the results: “These efforts usually will be rewarded with almost immediate improvements in operations and in profits at virtually no cost,” or the actions: Identify, Exploit, Subordinate, etc. I’m talking about the common threads in the dynamics of the group.

I think that everybody would agree that the biggest obstacle to successful implementation is to overcome the resistance to change. The key is in knowing how to steer the dynamic of the interaction between people with different agendas and different levels of understanding.

Is there a generic way to do it? A proven path to reach a true consensus on the required change and on the actions to accomplish the change?

The common threads between the successful implementations caused me to suspect that there is. I started by looking for a specific dynamic in the resistance to change—looking to see if the type of reservations a person raises changes as his resistance erodes. It wasn’t too difficult, I’ve had ample experience dealing with resistance to change (not always good experience—my numerous scars attest to that).

The first layer of resistance: raising problems having one thing in common—its out of our hands: vendors do not always deliver, clients change their mind at the last minute, workers are not properly trained, corporate forces on us....

[As long as this layer is not removed you are talking to the wall.]

The second layer of resistance: arguing that the proposed solution cannot possibly yield the desired outcome.

[Your proposed solution looks obvious to you, yet it doesn’t to others. When you succeed to peal this layer, the real frustration starts. You clash smack into the next one.]

The third layer of resistance: “Yes, but...” Arguing that the proposed solution will lead to negative effects.

[You must have a lot of stamina and patience to fight this one. Or you’re lucky to be born with tons of charisma. But when you pass it you haven’t yet won the war.]

The forth layer of resistance: raising obstacles that will prevent the implementation.

[Succeed to remove this layer and the person is now on your side, but...]

The fifth layer of resistance: raising doubts about the collaboration of others (or worse, not raising their doubts).

No, it’s not easy to overcome resistance to change. But, it’s possible. Peeling, in sequence, all these layers turns resistance to change into the enthusiasm of an inventor.

Where do I stand in my research in production? Quite a while ago (1986-87) I found exactly how to move a person through the first two layers. I used this know-how in constructing the self-learning kit. It is possible now to peal the first two layers without the mandatory need for a knowledgeable instructor. As for the latter three layers, the situation might not be as satisfactory, it depends on the magnitude of the resistance. I hope that in most cases, the know-how contained in the self-learning kit will be enough.

For the tough cases I found a generic method that, in our experience, always works, but its translation to a specific plant requires a thorough knowledge of how to properly use the negative branches, the prerequisite tree and the transition tree of the thinking processes. Knowledge that I don’t yet know how to satisfactorily teach through books. At least there are more and more people who have learned how to do it.

Overcoming resistance to change is still time consuming. Under ideal circumstances (all the relevant people are gathered in one room) it takes about five days. More research is needed, but for production, at last, there is a proven way to accomplish the mental change in one week and realize results in one month.

With the obstacles removed I do hope that we’ll witness a sharp jump in plants performance. Production is the heart of industry. Industry is the heart of a nations’ wealth. When I retire, I would like to think that I’ve contributed something to strengthening it. ~