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Main Lessons From The Goal Book

Initially, Alexs thinking is distorted by conventional management accounting metrics. This causes him to
waste time and energy improving efficiency even though it has no impact on the profits of the division.
Jonah helps Alex align his organization to the Goal by distinguishing between three operational

Throughput: the rate at which the system generates money through sales net of variable costs.
This corresponds to the value added by the system.

Inventory: all the money that system has invested in purchasing things which it intends to sell,
This was later expanded to include all investment such as plant, property, equipment etc.

Operating Expense: all the money the system spends in order to turn inventory into
throughput. These fixed costs like rent and salaries are incurred whether or not throughput
increases or decreases.

Armed with these definitions, Alex has a sound basis to analyse whether his decisions are helping the
plant move towards the Goal (to make money, as characterized by increasing throughput and/or
decreasing inventory and operational expense). Between these three operational measurements,
increasing Throughput impacts profitability far more than reducing Inventory or Operating Expense.

The slowest operation always determines the maximum speed at which products can be produced and
therefore also the rate at which throughput can be realized. This slowest machine is called the
Bottleneck or Constraint. A lost production hour on this bottleneck tends to be very costly.

Jonah outlines the secrets to managing constraints (Theory of Constraints) by asking questions. The
answers to his questions form five focusing steps to improve the performance of any system (sometimes
known as the Process of On-Going Improvement or POOGI):

1. Identify the system's constraint(s)

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

3. Subordinate everything else to exploit the constraint(s)

4. Elevate the system's constraint(s)

5. 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.

These five steps follow a specific sequence. In other words, you should exploit the constraint before
elevating it, because adding capacity requires capital investment. Also note that the bottleneck may be
internal or external, such as customer demand. Click here to read more about The Five Focusing Steps.

Key Takeaways for Managers: How to

Drive Continuous Improvement
1) Measurements Drive Behavior: any misalignment in measurements causes a wide range of
destructive tendencies. It is your responsibility to identify The Goal of your organization. Be sure that your
metrics align completely to this Goal.

2) Seek Answers: Be active in your quest for knowledge. The answers are out there, you just have to
discover them. Sometimes the answers can be found in unlikely places, such as Jonah, an old physics

3) Teamwork: Teams are very important to driving change and improvement. The more heads on the job
the better. People have different opinions and outlooks; someone else may think differently than you ever
would have.
4) Never Give Up: There is always a chance to recover as long as your business in still running. Dont be
afraid to challenge the status quo. The battle is not lost until the moment you give up and stop trying.

5) Work Smarter, Not Harder: Oftentimes our greatest efforts are ineffective and sometimes even
counter-productive. But by focusing on the right areas we can achieve breakthrough results

6) Improve the Overall System, Not Just the Individual Parts: Effective coordination between
Operations and Marketing/Sales is critical to achieving the Goal, not just optimizing a single link in the
value chain.

Like Mrs. Fields and her cookie

included it in their curriculums
- Fortune Magazine

Final Thoughts
The Goal continues to transform a variety of different fields including:

Production Planning

Accounting & MIS Reporting

Process Improvement
Systems Thinking

Sales & Marketing

Achieving Work-life Balance

But it is not intended only for managers. It should be taught as part of every MBA, accounting course and
leadership development program because of it's thought provoking explanation of business fundamentals.
- See more at: http://www.tocinstitute.org/the-goal-summary.html#sthash.bnP47Iza.dpuf