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Eli Goldratt

Interview

MBA in één dag®

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CV Eli Goldratt •

Eliyahu M. Goldratt werd geboren in 1948 in Israël.

Hij studeerde natuurkunde en filosofie aan de universiteiten van Tel Aviv en Bar-Ilan.

Daarna werkte hij een paar jaar in de VS, waar hij ondermeer een bedrijf leidde dat software ontwikkelde voor productieplanning.

Sinds Eli Goldratt in 1984 het boek Het Doel schreef, is hij internationaal vermaard als bedrijfsadviseur en managementgoeroe. In Het Doel introduceerde hij zijn Theory of Constraints die hij in de jaren daarna in verschillende boeken uitwerkte naar allerlei vakgebieden, onder andere ICT, projectmanagement en marketing.

Goldratt verkocht inmiddels meer dan vijf miljoen boeken in meer dan 20 talen.

Een van Goldratts hobby’s is het provoceren van managers. Hij schept er een groot genoegen in om de bestaande ideeën over bedrijfskunde en management op de hak te nemen.

Inmiddels is Goldratt al enkele jaren met pensioen. Hij verlaat zijn woonplaats, een dorpje onder de rook van Tel Aviv, nu alleen nog voor de dingen die hij écht leuk vindt. In Goldratts geval betekent dat het verzorgen van ruim twintig seminars per jaar.

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Eli Goldratt

MBA in ® één dag

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Dr. Eli Goldratt – Unplugged This is part one of SCDigest editor Dan Gilmore’s interview with Dr. Eli Goldratt, father of the Theory of Constraints, and author of “The Goal” and several other influential books on business and supply chain topics. “The Goal,” first published in 1984, is a novel that tells the tale of plant manager Alex Rogo, who factory is a disaster and on the verge of being shut. With the help of a Goldratt-like consultant named Jonah, he turns things around by focusing on eliminating a series of bottlenecks (constraints) that are barriers to efficiency and service.

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Interview

Gilmore: What are the key concepts behind the Theory of Constraints?

Gilmore: Yes, or they lack enough information to know.

Goldratt: There are two pillars to the Theory of Constraints. One is the starting assumption of all the hard sciences, which is that in all real-life systems there is inherent simplicity. If you can just find that inherent simplicity, you can manage, control and improve the system.

Goldratt: No – they believe the change is likely to hurt them.

The other pillar is “that people are not stupid.” Gilmore: (after a pause): I was waiting for some further explanation of that second point (laughter). Goldratt: Have you ever heard the concept “people resist change?” And that the bigger the change, the more the resistance? Doesn’t this in essence say that people are stupid? Let’s do a “for instance.” If someone comes up and suggests a change that is good for you, do you automatically resist it? So, if I say you will resist the change just because it is change, I am actually saying you are not very bright. People certainly do, however, resist change that they have a reason to believe will hurt them.

Sometimes they are wrong because of a lack of information, but usually they are right! Most changes might be right for the company, but are not right for the majority of people from whom they are asking for collaboration. So no wonder there is a lot of resistance. Gilmore: There is a certain logic there, no question. Goldratt: Because of that, it means the emphasis of change must be on win-winwin for all of the parties which you need to collaborate. Gilmore: Well, that sounds great in theory, but for example if you have to do a restructuring… Goldratt: What you are saying is that you don’t think it’s feasible, and what I have tried to demonstrate in my books and hundreds of projects is that it is always possible – always. Let’s take your restructuring example, where a lot of people will get hurt. This means the 5

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solution is wrong! There must be a better way that will get you what you want, but will be a win-win. Gilmore: That would be great, if it is true. Goldratt: Have you read any of my books? Gilmore: Just “The Goal” Goldratt: Did what was said in that book seem true, even simple? Common sense? Gilmore: Yes… Goldratt: Do you want a bigger proof that it is possible? Let’s say there is a manufacturing plant, where everything is against it. It’s on the verge of collapse, it looks impossible to do anything in the time of three months, which is all the time there is to fix it. Nevertheless, it is so possible, providing you find the simplicity, and be careful to look for win-win solutions. The problem is that the win-win solution is usually blocked by erroneous assumptions, and that’s why it’s hard to find it. But when you find it, it’s obvious, because your own reaction and that of everyone else is “Isn’t that obvious. Why didn’t we see it before?” Gilmore: I’d still like a more concrete example… Goldratt: “The Goal” is an example, my other books are examples, because each one of them are based on things that really happened. The real-life validation we have had from the 6 MBA in één dag | Eli Goldratt


the results. The only difference between what’s in “The Goal” and our story is that my wife didn’t come back yet!” [The main character in the novel, Alex Rogo, also has some marital issues.] Everyone who attempts it achieves the results. Every one. It’s amazing. Gilmore: “The Goal” is really plant/ manufacturing focused, and many people associate the Theory of Constraints as dealing largely with production issues. How do we tie this all together, both the factory and the larger company issues and opportunities? Goldratt: Bottlenecks are just a prime example of inherent simplicity. If you are looking at a system, what makes it complex is that if you are touching one place, it has a ramification in other places. In other words, it is the cause and effect relationships that make it seem so complicated. This means that if you realize that the fewer the number of points you have to touch to impact the whole system, it actually has fewer degrees of freedom.

Since they control the entire system, they are the constraints of the system, and therefore also the levers. If you can figure out what they key constraints of the system are, and what are the cause and effect relationships between these constraints and the rest of the system, now you have the key!

Interview

books and our own consulting is huge. One time a top executive from a U.S. company wrote to me and said, “Dr. Goldratt, your book is no longer a novel any more, it is a documentary! Because I’ve done what you propose in the books, and I’ve achieved all

However, what you have to be able to do in order to successfully change the system is to look to the other pillar and recognize that only a win-win solution can be implemented. And in terms of all the options that exist, there is always at least one win-win solution. The key is described in my second book, which in most places is called “The Goal II.” Now, Alex isn’t a plant manager but a vice president, involved not just in production but supply chain, marketing, sales, etc. Still, the same concepts are demonstrated. How do you find the controlling factors, and create winwin? How do you unearth the false assumptions that lead you to believe that the only way out is a compromise, which means someone will lose? Then, usually there is so much resistance that even if you can implement what you intended, it will be so diluted that most of the results will be lost. Gilmore: The results of many company initiatives and strategies illustrate that point. Goldratt: Illustrate it beautifully.

The more complex the system is, the less the degrees of freedom, which means that if you can find the few elements that if you touch them then they impact the whole system, you’ve found the key elements of the system. 7 MBA in één dag | Eli Goldratt


Gilmore: It seems to me that originally the Theory of Constraints had a theme that for any system at a given point in time, there was a single constraint. Is that notion evolving? Goldratt: It depends on how you define a system. For me, in most companies a system is a one-directional flow, and therefore in most companies you have only one constraint. In conglomerates, there can be more than one constraint but this is because there is more than one system. But the fact that in a system there is one constraint that makes it simple. Gilmore: I talk with lots of supply chain executives, and right now for many of them there is a strong focus on simplifying their supply chains… Goldratt: Good grief! OK, there are two different definitions of complexity. The mere fact that both exist serve to confuse everything. One definition is that the more data elements needed to define the system, the more complex it is. So, if you can describe the system in five pages, that’s a simple system. If you have to take a hundred pages, that’s complex. In this regard every company and process is amazingly complex. Even in a small company, how many pages would it take to describe how to make every part, how to work with suppliers, manage channels, etc.? So, if it is enormously complex and we try to simplify it, there’s not much point. It would be a million complexities minus two

or three. We haven’t done a thing. But there is another definition of complexity, which is the degrees of freedom of the system. If the system has even five degrees of freedom, that is very complex to manage. If we have only one degree of freedom, that is so easy. The problem is that people look at simplifying the system not by reducing its degrees of freedom, but by the first definition, which is a total waste of time.

Gilmore: Let’s get back to a supply chain example. Goldratt: In the past decade, all we hear about is supply chain, supply chain, supply chain. Before that, there wasn’t a peep about it. So let’s analyze this for a second. Consider that product lifecycles are shrinking rapidly in almost every area, but especially electronics. As product lifecycles shrink, we hit the first huge barrier, because the lifecycle of products in the market is shorter than the time to develop the product. Gilmore: This is true often in the apparel industry as well, and I suspect an increasing number of others. Goldratt: Correct! Suppose I have an excellent company and a winning product. If your development time is longer than the lifetime of the product, it means there will always be a window of time when the competition has a better product than you. So, you will lose. As a result companies spend an awful lot

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Many haven’t. The best example is probably Digital Computer. It was ultimately killed by this problem. But still today, most companies in this situation have more than one team developing the same types of products, because that is the only way to effectively shrink the lead time of new product introduction. Gilmore: There are supply chain factors as well. Goldratt: Yes, in the electronics and other markets, as the product lifecycles keep shrinking, they are often now also equal or shorter than the supply chain lead time. If you make electronics and need a custom chip built, it will take 6, 7 or 8 months from the time you order to the time the first unit goes out the door with that chip in it. Longer than the product lifecycle. Now I order this component, and before I can even ship the product, there is a newer, better version of the component. So what do I have to do? I have to reduce the price or I can’t sell it at all. So now if I am in the channel I will eventually demand higher margins, or maybe even consignment inventory to protect against

this. As a result, you see top companies with great technology losing their pants! All because the supply chain time exceeds the market cycle time. So everyone is also trying to shrink the time of the supply chain. But the joke is they are always trying to do it in production, when they don’t realize that 80% of supply chain time for many is in the wholesalers and the retailers. And they aren’t doing a thing about that. In PCs of course, Dell is an exception.

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of effort to reduce the development time. But it hasn’t worked very well. So they think there is only one way out - if we can’t shrink the development time, than you have to have more than one wave of development on-going. But that’s very difficult to do. First, it’s very expensive. Then companies have to learn how to build cement walls between the teams, because if they talk with each other, nothing will ever be finished. But there are a few companies that have managed it.

So, we aren’t looking at what the constraint of the system really is, which in this case may be how inventory flows thru the channel. We have to look at how we exploit and subordinate that. Instead, we get all this mumbo jumbo about “simplicity” here, “simplicity” there. Gilmore: OK, we started out with one of the two pillars being “people are not stupid.” But this makes it sounds like maybe we don’t have especially bright people out there, when we know there are. Goldratt: We all act according to patterns and inertia. And it’s very hard to get out from under that, because it seems we have to recalculate everything. When you show them how it can be done, the reaction is usually “That’s not realistic,” or “But we’re different.” But I’ll tell you, most companies if they follow these principles in four years can have net profits equal to their current sales.

Bron: SupplyChainDigest 2006

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Dr. Eli Goldratt – Unplugged part 2 This is part 2 of SCDigest editor Dan Gilmore’s interview with Dr. Eli Goldratt, father of the Theory of Constraints, and author of “The Goal” and several other influential books on business and supply chain topics. “The Goal,” first published in 1984, is a novel that tells the tale of plant manager Alex Rogo, whose factory is a disaster and on the verge of being shut. With the help of a Goldratt-like consultant named Jonah, he turns things around by focusing on eliminating a series of bottlenecks (constraints) that are barriers to efficiency and service.

Gilmore: You’ve said “inertia” is a big problem in many companies. What do you mean?

How do you know what assumptions you have to re-examine when you are facing an intolerable compromise?

Goldratt: Inertia is related to the patterns of how a company does business or executes a function like supply chain. But when there is a paradigm shift, or the need for significant change, these patterns are what kill you.

But most companies just accept the compromise, rather than realizing they just got the gift that can point to us the wrong assumptions and the wrong patterns. Instead of working to find the correct pattern that will remove the conflict, and by that generating a win-win solution, we still compromise. That’s a huge mistake.

So you have to go back and re-examine the basic assumptions. The tough question is: 10

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Gilmore: It seems to me that the Theory of Constraints has some strong parallels to concepts like Lean and Six Sigma. Right or wrong?

If Jonah would have told Alex in “The Goal” what the performance of the factory really should be a year or so down the road, Alex would have fainted.

Goldratt: Let’s put it this way. In almost every implementation of the Theory of Constraints, we also force in the concepts of Lean and Six Sigma. The techniques themselves are beautiful. What is lacking is the mechanism to use them. In other words, Lean and Six Sigma will never force you to examine the policies of top management.

step down the path, almost by the nose. I am actually sick of that approach.

And that’s why they have a limited effect. Once you have used Theory of Constraints at a higher level to really understand what you need to do, at a lower level these techniques are fantastic. But you need to know where to use them and where not.

Even at a more local level, it can be hard. If Jonah would have told Alex in “The Goal” what the performance of the factory really should be a year or so down the road, Alex would have fainted.

For example, the U.S. Navy has an RFP last year for all its logistics operations, a huge undertaking. In the RFP, they said the umbrella for the operator must be Theory of Constraints, and underneath that Lean. That’s exactly what I am saying. Gilmore: When you are working with companies, what is typically the “Aha” moment, when the light bulb finally goes off? Goldratt: If you really want an answer to that, I am going to have to market myself. Let’s look at “The Goal.’ In that book, the consultant, Jonah, leads Alex Rogo step by

Interview

So, we have things that are good in the normal course of things, patterns and inertia, in the case of paradigm shift, is killing us.

That book focused at the plant level. My assumption was that if I showed top management the whole thing up front, they’d say “It’s unrealistic,” We’re different,” all the usual things, and they will not move.

And this is the problem. You go into a company, you use Theory of Constraints to make progress, move someone one step then another, they get fat and happy again, and then they just want to stop. But you’ve just started! So – this is the marketing part – I’ve started with a new thing called “Viable Vision,” where I am showing company execs the whole thing for the first four years. And again, I tell most of them that in four years they can have net profit equal to their current total sales. Of course, the first reaction is “This is totally unrealistic,” but then we say back, “Give us the data, and we’ll show you how to do it.” 11

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It doesn’t matter to me that in general they order from you once a week. What I want to know is for each specific product how frequently they order. And if the answer is they order once in two weeks or more than two weeks, that’s it - I have the solution.

We show them how to do it, and then we take on the implementation plan. Gilmore: Net profit in four years equal to current sales? Goldratt: That’s right. Not every company. Right now, I know how to do it with about 80% of them. Gilmore: What’s the barrier at the other 20%? Goldratt: I’m stupid – I don’t know enough yet. I am restricting myself now, for example, to physical products. Not hospitals, banks, etc., even though we know in general Theory of Constraints works beautifully there, but we have less data and don’t want to take on too big a risk because all of our contracts are based almost totally on realizing the results. Gilmore: When you look at the issues and plans across companies after you do this analysis, what are common themes or opportunities?

Goldratt: Let me give you the truth. In order to minimize risk and best enable my people to execute this, I have eight generic solutions. If it fits one of these eight, we take the project. If it doesn’t, we don’t. Those eight templates cover 80% of the physical products companies, including manufacturers, retailers, wholesalers, etc. Gilmore: Can you describe a common template? Goldratt: Well, to do this in half a page or whatever this will be will probably be mumbojumbo, but fine. Suppose that we are producing manufactured products that are sold through distribution, wholesale and retail, ok? Then the question the question I am really interested in is “How frequently those channels are ordering from you the same SKU?” It doesn’t matter to me that in general they order from you once a week. What I want to know is for each specific product how frequently they order. And if the answer is they order once in two weeks or more than two weeks, that’s it - I have the solution. Because what happens is that if say they are ordering the same product once a month, that means the total order lead time – from when the sell a unit to when they order a unit – is one month. This is enough to kill them. It will typically create big problems with excess inventory, along with frequent problems with unavailability. So now, the standard solution shows them how to do this with less than half

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Interview

the inventory, with almost no unavailability. Do you understand once you are doing that you are taking the market? A retailer or wholesaler’s key metric is inventory turns, and its main concern unavailability. If you solve both these problems, that’s it, the customer is yours. Gilmore: Ok, I think the basic issue is well understood. We’ve been trying to solve that with many things, from collaborative planning to RFID and lots of other technologies and strategies. Goldratt: These are all hard. This solution is so damn simple. Do you know that I have put in the public domain computer courses? Because I found that in a manager wants to get buy-in from his people, a computer course is far more effective than a book. Exactly what I have told you about how to do that solution is in one of the computer courses. Gilmore: Procter & Gamble is among the companies trying to solve this, and is doing so in part by trying to make their factories more flexible to shorten the length of production runs and enable more SKUs to be made each day…. Goldratt: First, so you know, the Procter & Gamble soap and detergents division implemented my distribution solution in 1989! But it as just that division, as far as I know. Gilmore: Procter & Gamble is of course better than most, but they are committed to this further improvement, though

So save two cents there so you can pay 20 cents over here. Very smart. Let small warehouse concerns override smart business decisions. Think about what you’ve just said. Rather than pick a carton or two instead of a full pallet and have a few more pennies of warehouse cost, I need to invest in flexible plants? 13

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whether the manufacturing economics will allow them to make tubes of Crest or whatever in much shorter runs, as even they have said, remains to be seen. Goldratt: But at the same time I think you’d find the P&G or at least most consumer goods manufacturers give big discounts to retailers and wholesalers for ordering in large quantities. That’s part of what kills them all. If they would refrain from that, then they probably wouldn’t need to make their plants more flexible. Let’s consider an example. You are a shop. And let’s say I say to you, you have to buy minimum of 100. And you are selling two per day, on average. So immediately I have elongated your cycle by 50 days. Because now you will wait to order until you have run down the first 100 and then order another 100. I have put into the replenishment time 50 days. Gilmore: The response, I would think, is that there are trade-offs between inventory and transportation, and my costs of shipping the two I sold that day are way too high. Goldratt: Since when are we allowed to put only one type of product in a truck? So, where is this argument coming from? Gilmore: Let’s take it back further then. It costs a lot more per unit to pick and ship say two items than a pallet of them. Goldratt: Your right – so save two cents there so you can pay 20 cents over here. Very smart. Let small warehouse concerns 14 MBA in één dag | Eli Goldratt


have a few more pennies of warehouse cost, I need to invest in flexible plants? Gilmore: Well, part of the issue of course is that most companies in the end are still siloed, and the distribution director is in fact primarily concerned with DC operational efficiency, and transportation managers their metrics, etc. Goldratt: No you understand why in the Theory of Constraints that the number one thing we attack all the time is called “Local Optima.” Someone tries to optimize a piece of the system, and you kill the system. That’s why again we now focus up front on viewing the whole picture. Goldratt Interview Part 2 Ó 2006. All Rights Reserved. 5 Gilmore: People and companies have taken the Theory of Constraints and taken it in all kinds of different directions. Are they doing this well, or is it being misapplied? Goldratt: I would say most of them are valid. Gilmore: Some software vendors have adopted at least in part a Theory of Constraints orientation, especially in “optimization” products. What is the role of software in TOC? Goldratt: It depends. There are in fact cases where I don’t know how to solve a company’s issues without the software. For example, if you are dealing with large distribution networks of course you have to have the

software. You’ll get killed trying to do it on spreadsheets. You also need software for big project management activities. Gilmore: Let’s talk about manufacturing in Europe and North America. There is a lot of general concern and political heat around “saving” manufacturing in the west, amidst low costs and pressure from China and other low cost countries. Can adoption of Theory of Constraints principles help revitalize those manufacturing companies?

Interview

override smart business decisions. Think about what you’ve just said. Rather than pick a carton or two instead of a full pallet and

Goldratt: I think that question doesn’t consider what is really going on. What is this “save western manufacturing?” Let me talk about China and India – these are the two you are afraid or, right? I work a lot in China. You know the biggest problem in China is right now? Getting people – for the 2nd shift. Can you imagine not enough people in China? Salaries are now skyrocketing. Statistics say that in 2004 salaries rose by 24%. When they are finalized in 2005, it will be much higher. Have you been in Shanghai, for example? You may have had images like I had of rickshaws and bicycles – No! This is a western town. With the best cars everywhere, and fewer bicycles than in Holland. I sent an assistant to go and look in some shops for bargains. She said, “Sorry Eli, the prices are the same as in Amsterdam.” So, China is not only becoming a big producer, but a huge consumer. If what we see now continues another 5-6 years, China will be by then the largest consumer market in the world. 15

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Does the VP of Supply Chain have influence on marketing strategies and policies? If that answer is No, then immediately you are working with one of your hands tied behind your back.

What’s happening in India is even more fascinating. I can say without blinking an eye that in India they have the best management of companies in the world. Better on average than I have seen in Europe of the United States. There problem was that they had put chains on themselves, in terms of regulations, tariffs, etc. This is gone. Because of it, the biggest boom is happening. India is also growing at 8-10 percent per year, and salaries are also rising rapidly. So again, in just a few years you will see a huge consumption market. Do you understand what together this means? In a few years, we will triple the world consumption in 5 to 6 years. You will see supply chain bottlenecks everywhere in the world. The best thing that ever happened to us is what is happening now in China and India. It is time to stop complaining about Chinese producers and focus on how to enter the Chinese market or export to China and India. What huge, beautiful markets. Gilmore: Yes, if they continue to open their markets….

Goldratt: They are open right now. Fine, it still takes 3-4 months of bureaucracy – what’s the big deal? As if there is no bureaucracy to overcome in Europe or the U.S. China and India shouldn’t be looked on as a threat but as a fantastic opportunity. Gilmore: Our audience is a supply chain audience. How do they best understand and get started with these concepts? And from what you’ve said earlier, is this something that really only makes sense to start at the CXO level with? Goldratt: When I start with a company, yes I start from the CEO down, because from a business perspective, “grass roots” is just usually too hard. It’s also because if you start in one function, you improve that, but then immediately the constraint just moves to another function. Gilmore: But in “The Goal,” Alex was a plant manager. There was something in the TOC constraints for him. Goldratt: He was quite lucky. If you remember, if he hadn’t have had the VP of Marketing on his side because of the problems he was also facing, Alex would have crashed into the wall. Gilmore: So does TOC work for the VP of Supply Chain or not? Goldratt: Absolutely yes, because you have to assume his or her boss is not an idiot. They should drag the CEO to one of our seminars

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have to lay a bunch of you off? That’s the problem, and why you eventually need a

Think about it. Does the VP of Supply Chain have influence on marketing strategies and policies? If that answer is No, then immediately you are working with one of your hands tied behind your back.

more comprehensive view.

For example, in the consumer goods example we had, if I was the VO of Supply Chain and I was making these improvements, but the policy was to still give big reductions for ordering in large quantities, rather than selling in big quantities, then I will fail in achieving results. Do you understand what that last sentence means? It’s fine to say that as long as you sell 500 a month, you get the reduction in price, but it does not mean you have to order 500 at a time. Because if I still have to order 500, I can kiss away much chance of improving my supply chain.

Gilmore: You are talking about radical, almost unbelievable performance improvements. Most companies are happy with and struggle just to achieve continuous, incremental improvement.

Interview

and say “Let’s do this right.”

Goldratt: Incremental improvement is nothing. This is exactly what I am crying about. Incremental improvement generally does not lead to more and more but to a crash, because one of your competitors is not taking an incremental approach but a breakthrough one, and eventually they crush you. Gilmore: There really are companies achieving these kinds of results. Goldratt: Yes!

Gilmore: Can the principles not be applied within a function?

Gilmore: When you present this, do CXOs want detailed, specific examples?

Goldratt: Let’s take R&D or new product development. Let’s say you have used TOC to radically reduce development time. But if the other strategies of the company have not changed, you will not know how to effectively use this stream of new products you can develop, and because of that the end result will be you have too many engineers and you will have to lay some of them off. How would you like to be in the situation where you get buy-in from the engineers to do this in a much better way, and then come back and say as a reward for this effort, we

Goldratt: Sometimes, but not usually. It’s like reading “The Goal.” Does not that make simple, logical sense that you are convinced contains truth? It’s the same way when we explain the principles to a CEO, with their data. Usually the first reaction is “Let’s do it!” Sometimes at an enterprise level, it’s even simpler than it was for Alex Rogo.

Bron: SupplyChainDigest 2006

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An interview with Eli Goldratt

On Saddam Hussein, milestones, and how the theory of constraints applies to project management With his latest novel, Critical Chain, Theory of Constraints pioneer Eli Goldratt tries to do for project management what he did for manufacturing in his 80s best seller The Goal. In a largely favorable Harvard Business Review critique, Jeffrey Elton and Justin Roe argue that Goldratt’s book presents powerful suggestions for individual project management, but falls short when it comes to overall portfolio management and overlooks what they think may be the greatest constraint: a shortage of skilled leaders. We spoke with him about these and other issues:

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see that I started in production, then went to finance and accounting, then to marketing and sales, then to distribution, and, finally, with Critical Chain, to projects. In Theory of Constraints you start to believe more and more that there is one constraint that is limiting the leap of the company. But when you open that constraint, of course, performance does not jump to infinity. Some other constraint jumps to the center for performance improvement. “Many times, it is simply moving from one function to another. The problem is, when it moves to another function you don’t know how to handle the new constraint. Then you start to stagnate. Unfortunately, what happens is not really stagnation because after awhile the stagnation turns into common practice. Then you may ruin the company. So if you improve production what happens many times is that the constraint moves to distribution or sales. Then you improve that and it moves to engineering. And then what? That’s what led me to product development and project management.” The ideas in Critical Chain sound great—if only everyone was that rational! “Everybody is rational. Unfortunately, not everybody starts from rational assumptions. I had this debate once with Israeli intelligence. They wanted to use my methods. After four or five days, when we had analyzed many things, they said, ‘Wait a minute. We have here a preconception problem. We’re analyzing everything logically. But some of our enemies are not logical. So whatever we do in terms of predicting what they are doing is worthless.’

I said, ‘No, what we call irrational behavior is simply the person behaving according to another set of assumptions. But within that he is very logical.’ So we took as an experiment the most illogical person you can imagine—Saddam Hussein—and we built the future scenario of his actions.  And he was behaving so logically that we knew what he was doing before he did. Many times we claim that people are behaving irrationally because we put them into a conflict and we are looking at only one side of the conflict. So of course it looks to us as though they are behaving irrationally.”

Interview

What led you to turn from manufacturing to product development? “If you look at my work as a whole, you’ll

You seem to say that a key part of planning is to really focus on a few key constraints. One of these is resources. How does an organization get the kind of internal collaboration needed to move resources where they are needed, when they are needed? “You must always go for a win/win solution. What we usually do is act out of a culture that teaches us to think the cake is finite. Then you have lose/lose: if I win, you must lose. You can always find resources, if you really want to. Look at the peace process [Middle East]. They argued about three percent and then they found it in the Judean Desert. There is always a way the question is do you want to do it? “It’s much easier in an organization. If you look at my books, you’ll see that I show that the thing that needs to be sacrificed are some policies that nobody wants to protect. Nobody. The size of the batch, for example. Everybody thinks it’s stupid, but it’s convention. Or look at how we do projects in a multi-project environment. It looks like four people trying to rush through the same 19

MBA in één dag | Eli Goldratt


door at the same time. Eventually they will come out--a little bit crippled! “If they go one at a time, there is no problem. But there is a stupid assumption that says the earlier you start, the earlier you finish. That’s not always the case. And once you explain the whole cause and effect logic, you don’t have a problem. It’s not as though we are trying to sacrifice something holy.” GOLDRATT’S DISCIPLINE “Part of the discipline Goldratt offers involves the proper use of measurements. He reminds managers of two criteria: measurements should induce the parts to do what is good for the whole, and measurements should direct managers to those parts that need their attention. Many managers rely on milestones to monitor a project’s progress (and individuals’ performance, but that practice violates both of the above principles. Following the maxim, How you measure people is how they’ll behave, the book [The Critical Chain] points out that management by milestone motivates members of project teams and their managers to insert safety time before each milestone. Once safety time has been added to each task, various mechanisms arise that waste that time. So, Goldratt concludes, the fewer the milestones, the fewer the delays. We have found such dysfunctional behavior occurring when milestones are set as artificial review points tied to the end of a development phase or task stream.” Jeffrey Elton and Justin Roe “Bringing Discipline to Project Management” Harvard Business Review March-April 1998

How do you respond to those who say the biggest constraint in product development is lack of executive decisionmaking discipline? Of course! How can you make a decision when the things on the table are so big and whoever you ask says, ‘I don’t know’? Even when you ask, ‘When are you going to finish, in two months or four months?’ you get ‘I don’t know.’ And the same people who refuse to give the data complain about lack of decisions from the top. What happens if you sort things differently, by sacrificing one of the assumptions, is that all of a sudden you can give reliable estimates and the same person can make a decision on the spot.” Jeffrey Elton and Justin Roe, writing about Critical Chain in Harvard Business Review, suggest that more often than not the big constraint is a real shortage of leadership skills. “I disagree. I find that in most organizations, when we are dealing with the more tangible constraints, the constraint ends up usually being friction in human relationships.” How does the time it takes to implement Theory-of-Constraints thinking in product development differ from production? What key behaviors change? Is it about eliminating waste? “It takes six weeks in production, six months in product development. Behaviors that change? Better communication, increased trust, greater pride, and people not running around like chickens with their heads cut off. You call it eliminating waste, I call it eliminating ingrained stupidities!”

20 MBA in één dag | Eli Goldratt


diseases. It’s nobody’s intention to get control in such a way that you definitely lengthen the project, yet that’s what formal milestones do. The problem with milestones: if you have a milestone two months from now you immediately get the student syndrome. ‘There’s time, let’s waste it.’ You’ll get some surprises and the safety’s gone. Then, when you achieve the milestone, it’s ‘Now we can relax.’ Then another week is gone. All in the name of control! Buffers are a key element of your Critical Chain thinking. What about the tendency to pad? “Today, we put a buffer in for each activity. Everyone is protecting his own activity. His ‘realistic’ estimate means he has a 50 percent chance of finishing, which means he’s already padded, he already has a buffer. The idea I’m proposing--and it’s known to every student of statistics--is that statistical deviations average out. “Which means that if you strip the safety from individual tasks and put it at the end of the path you need much less safety to handle the same amount of deviations. “You don’t really care if each task, on its own, will be early or late. What you care is whether the project will be early or late. So the whole idea is to swap all the safety to the end. “This is not so easy because you have to convince people to give up covering their ass in order to protect the company. You’re asking them to trust their managers not to crucify them and most people don’t trust their managers very much for that sort of thing. So, to implement this idea means a

lot of education, particularly of managers. After it’s done once, the whole environment changes because everyone gains so much confidence.” What do you say to those who see the book as mostly suited to individual projects? “Before I wrote the book, I knew I was dealing with two distinct markets: the single-project market and the multi-project environment. I told myself that it would take a long time for the multi-project environment to move on my ideas. The cultural change needed would be tremendous--it would take longer than it took to change production. I wrote The Goal in 1984, for example, and only now are the ideas being widely implemented. “Because cultural change in product development in a multi-task environment is so much bigger, I decided to focus on the single project. The person in charge is a single manager. He’s already in trouble so he’ll do anything to save his project. I was surprised by the intense interest in the book that came from the multi-project environment. I immediately wrote another book called Project Management the TOC Way in which I show exactly how to implement in a multi-project environment.”

Interview

Is it a correct reading of your book that you don’t favor formal milestones? “I hate formal milestones! It’s one of the

Is it available? “I’ve distributed about 4,000 copies personally, so the pressure’s off. Hopefully it will be published by the end of the year, but it’s not at the top of my current priority list.” What is at the top of your priority list? “When I talk to managers, I find that one of the biggest problems in most companies is that most of their people don’t see the company 21

MBA in één dag | Eli Goldratt


as a whole. They see fragments. Because of this, you get localized optimums, many wrong decisions, and much miscommunication. So the question I’m currently focused on is: can we educate the entire management of the company, in one shot, in a short time, and very effectively? I don’t know. “But next March I’m doing an eight-session satellite program starting from the same base and covering all functions. I’ll show exactly how to change each function to common sense rather than the prevailing view. We’ll look at how everything ties together, hoping that this will generate a common language, much better communication, and a slew of correct initiatives that can lift the company.” Will you share your thinking about this at MRT’s conference? “Yes, yes, yes. Project management was the last piece of the puzzle. Now all the parts are covered by the same logic. You’ve seen how Critical Chain works with the concept. Now I can show how everything is tied together and how every function can understand and help the other functions.” Key Learnings: • When you open one constraint, some other constraint is likely to take its place • Often constraints merely move from one function to another • The best way to get collaborative resource sharing is always to go for win/win • It’s about “eliminating ingrained stupidities” • When it comes to buffers, don’t focus on individual tasks; keep your eye on the end of the project • The big problem in most companies today is getting people to see the company as a whole

Bron: Management Roundtable, 1998

22 MBA in één dag | Eli Goldratt


MBA in één dag: ultrakort en tóch volledig Wat verklaart het succes van MBA in één dag? Waarin zit de kracht? MBA in één dag biedt antwoord op twee fundamentele vragen van managers: Vraag 1: Hoe blijf ik bij? U heeft een méér dan volle werkweek. Het bijhouden van de management­ literatuur schiet er dan bij in. Dat is logisch, maar ook zonde. Want juist met de inzichten uit managementboeken kunt u effectiever en slimmer werken. En dat bespaart weer veel tijd. Maar welke boeken zijn écht goed en relevant voor u als manager? Hoe scheidt u het kaf van het koren? Wat moet u lezen en wat niet? Iemand moet een selectie maken. Vraag 2: Hoe zat het ook alweer? Tijdens uw opleiding heeft u de boeken van goeroes als Henry Mintzberg, Philip Kotler of Michael Porter gelezen. Maar dat is alweer een hele tijd geleden. Terwijl u juist nú deze kennis zou kunnen toepassen: hoe geef ik beter leiding? Hoe organiseer ik mijn bedrijf het beste? Hoe communiceer ik de strategie van mijn organisatie? Eigenlijk zouden Mintzberg, Kotler, Porter en al die anderen eens opnieuw voorbij moeten komen. Bijblijven + opfrissen = MBA in één dag In ‘MBA in één dag’ smelten deze twee vragen samen in een wervelend seminarprogramma. Ben Tiggelaar behandelt de greatest hits in management. Hij selecteerde de beste inzichten uit acht meter managementboeken met maar één criterium: wat kan een manager hier praktisch mee? Morgen al! Daarmee is MBA in één dag uitgegroeid tot de snelste manier om managementkennis op te frissen en aan te scherpen. Een MBA-opleiding in één dag: dat kan toch niet? Uiteraard is dit seminar geen volwaardige MBA opleiding. En u krijgt ook geen titel om achter uw naam te zetten. Maar toch: managen is een praktisch vak en MBA in één dag is ontdaan van alle fratsen die veel opleidingen zo onnodig hoogdravend maken. Méér dan de inzichten uit dit seminar heeft u niet nodig om effectief te zijn als manager.


MBA in één dag®

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