The Goal by Eliyahu M. Goldratt: A deeper dive on scalable systems

​What if the secret to building a truly scalable company wasn't found in a dry operations manual, but in a gripping business novel about a plant manager on the brink of shutdown?

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​In my last 5 Minute Growth Tip, I laid out the four practices your executive team needs to build truly scalable operational processes: understanding the whole system, diagnosing constraints, mapping and optimizing key processes, and involving employees in the change. Today I want to point you to a book that goes deeper on this topic.
 
It's called The Goal, by Eliyahu M. Goldratt and Jeff Cox. First published in 1984 and still one of the most important business books ever written, it teaches through the story of a plant manager who has 90 days to save his facility from shutdown. It's a business novel, and a surprisingly compelling one, making the case for the four steps we recommend.

​A Systems Thinking Approach
 
The premise of The Goal is built on the practice we recommend of "Understanding the Whole System."
 
He introduces three core measurements: throughput (the rate the system generates money through sales), inventory (money tied up in what you intend to sell), and operating expense (what you spend to turn inventory into throughput).
 
The goal is to increase throughput while simultaneously reducing the other two. Not one at a time. This combined goal results in both increased revenue and better profitability. Your company is one integrated system, and every executive decision either helps or hurts that goal.
 
Goldratt argues that most companies are destroying their own performance by optimizing individual departments or production stations in isolation, exactly what happens when managers just manage their own turf instead of the integrated flow of the business.
 
The Key Function Flow Map that we recommend, mapping the inputs, outputs and flows between each function at every level of the company, is what helps executive teams maintain this birdseye view.
 
Diagnosing Constraints
 
Goldratt introduces the Theory of Constraints: every system has at least one constraint that governs the throughput of the entire operation.
 
He illustrates this with a boy scout hike. The troop can only move as fast as the slowest hiker, no matter how fast the kids at the front walk. The solution isn't to push everyone harder. It's to put the slowest kid at the front, lighten their pack, and pace the whole group to their speed.
 
Pushing more volume through every department doesn't increase your overall throughput, it just piles more work in front of your bottleneck.
 
So a key first step is to identify the system’s constraint: the process, department or production station that is holding up the hike.
 
Mapping and Optimizing Processes
 
The next step is understanding exactly how the one constraint currently operates and where it's losing capacity. Current-state process mapping helps reveal what steps in the constraint process are causing the bottleneck, through redundant or unnecessary work, inconsistencies, and errors.
 
Once that local process is optimized, every other process should be run in lockstep with its cadence, so as to not overload it. This whole systems approach maximizes the throughput, while minimizing inventory and operating expense, thereby maximizing profits.
 
Once you've squeezed all you can out of that constraint and aligned other processes with it, invest in increasing its capacity so it is no longer the constraint, thereby increasing the whole system’s throughput potential.
 
Once it is no longer a constraint, another constraint will surface. Repeat this approach.
 
One of Goldratt’s most counterintuitive points: a workplace where everyone is always busy is a sign of inefficiency. Non-bottleneck areas running flat out generate cost without generating throughput, because that flow gets backed up at the constraint.
 
That's uncomfortable for executives who equate busyness with productivity. And it's precisely why the focused diagnostic approach we recommend produces results where broad improvement initiatives often don't.
 
Employee-Involved Change Leadership
 
The fourth practice we recommend to strengthen processes for scalability, employee-involved change leadership, is not explicit in The Goal. Goldratt himself acknowledged this later, writing in his follow-up book What Is This Thing Called the Theory of Constraints that The Goal "highlighted but certainly did not address the major problem of changing the nature of a company."
 
Goldratt does however show operators participating in improvements and uses the “people support what they help to create” dynamic implicitly, having the main characters work with their people to find solutions to their problems, thereby securing their commitment to the changes.

The Bottom Line
 
The Goal is a deep dive behind why the systems thinking and constraint diagnostic practices we recommend work. If you want to understand the mechanics at a level no single article can provide, this is the book to read.
 
 
If you want to bring all four of these practices into your executive team, let's talk. Email me or reach out through my website.

If you are a prairie CEO who wants to grow a thriving company, team and life more quickly, more easily and with less stress and headache, please contact me here.