The Goal: a process of Ongoing Improvement

operational
expense,
according to Jonah. You’re still accounting for it. It’s just that his
way is simpler, and you don’t have to play as many games.’’
Bob puffs out his chest. "Games? We, in operations, are honest, hard-working
folk who do not have time for games.’’
"Yeah, you’re too busy turning idle time into process time with the stroke of
a pen,’’ says Lou.
"Or turning process time into more piles of inventory,’’ says Stacey.
They go on bantering about this for a minute. Meanwhile, I’m thinking there
might be something more to this besides simplification. Jonah mentioned
confusion
between investment and expense; are we confused enough now to
be doing something we shouldn’t? Then I hear Stacey talking.
"But how do we know the value of our finished goods?’’ she asks.
"First of all, the market determines the value of the product,’’ says Lou. "And
in order for the corporation to make money, the value of the product—and

---

the price we’re charging—has to be greater than the combination of the
investment in inventory and the total operational expense per unit of what we
sell.’’
I see by the look on Bob’s face that he’s very skeptical. I ask him what’s
bothering him.
"Hey, man, this is crazy,’’ Bob grumbles.
"Why?’’ asks Lou.
"It won’t work!’’ says Bob. "How can you account for everything in the
whole damn system with three lousy measurements?’’
"Well,’’ says Lou as he ponders the board. "Name something that won’t fit in
one of those three.’’
"Tooling, machines...’’ Bob counts them on with his fingers. "This building,
the whole plant!’’
"Those are in there,’’ says Lou.
"Where?’’ asks Bob.
Lou turns to him. "Look, those things are part one and part the other. If
you’ve got a machine, the depreciation on that machine is operational
expense. Whatever portion of the investment still remains in the machine,
which could be sold, is inventory.’’
"Inventory? I thought inventory was products, and parts and so on,’’ says
Bob. "You know, the stuff we’re going to sell.’’
Lou smiles. "Bob, the whole plant is an investment which can be sold—for
the right price and under the right circumstances.’’
And maybe sooner than we’d like, I think.

---

Stacey says, "So investment is the same thing as inventory.’’
"What about lubricating oil for the machines?’’ asks Bob.
"It’s operational expense,’’ I tell him. "We’re not going to sell that oil to a
customer.’’
"How about scrap?’’ he asks.
"That’s operational expense, too.’’
"Yeah? What about what we sell to the scrap dealer?’’
"Okay, then it’s the same as a machine,’’ says Lou. "Any money we’ve lost is
operational expense; any investment that we can sell is inventory.’’
"The carrying costs have to be operational expense, don’t they?’’ asks Stacey.
Lou and I both nod.
Then I think about the "soft’’ things in business, things like knowledge—
knowledge from consultants, knowledge gained from our own research and
development. I throw it out to them to see how they think those things should
be classified.
Money for knowledge has us stumped for a while. Then we decide it
depends, quite simply, upon what the knowledge is used for. If it’s
knowledge, say, which gives us a new manufacturing process, something that
helps turn inventory into throughput, then the knowledge is operational
expense. If we intend to sell the knowledge, as in the case of a patent or a
technology license, then it’s inventory. But if the knowledge pertains to a
product which UniCo itself will build, it’s like a machine—an investment to
make money which will depreciate in value as time goes on. And, again, the
investment that can be sold is inventory; the depreciation is operational
expense.
"I got one for you,’’ says Bob. "Here’s one that doesn’t fit: Granby’s

---

chauffeur.’’
"What?’’
"You know, the old boy in the black suit who drives J. Bart Granby’s limo for
him,’’ says Bob.
"He’s operational expense,’’ says Lou.
"Like hell he is! You tell me how Granby’s chauffeur turns inventory into
throughput,’’ says Bob, and looks around as if he’s really got us on this one.
"I bet his chauffeur doesn’t even know that inventory and throughput exist.’’
"Unfortunately, neither do some of our secretaries,’’ says Stacey.
I say, "You don’t have to have your hands on the product in order to turn
inventory into throughput. Every day, Bob, you’re out there helping to turn
inventory into throughput. But to the people on the floor, it probably looks
like all you do is walk around and make life complicated for everyone.’’
"Yeah, no appreciation from nobody,’’ Bob pouts, "but you still haven’t told
me how the chauffeur fits in.’’
"Well, maybe the chauffeur helps Granby have more time to think and deal
with customers, etc., while he’s commuting here and there,’’ I suggest.
"Bob, why don’t you ask Mr. Granby next time you two have lunch,’’ says
Stacey.
"That’s not as funny as you think,’’ I say. "I just heard this morning that
Granby may be coming here to make a video tape on robots.’’
"Granby’s coming here?’’ asks Bob.
"And if Granby’s coming, you can bet Bill Peach and all the others will be
tagging along,’’ says Stacey.

---

"Just what we need,’’ grumbles Lou.
Stacey turns to Bob. "You see now why Al’s asking questions about the
robots. We’ve got to look good for Granby.’’
"We do look good,’’ says Lou. "The efficiencies there are quite acceptable;
Granby will not be embarrassed by appearing with the robots on tape.’’
But I say, "Dammit, I don’t care about Granby and his videotape. In fact, I
will lay odds that the tape will never be shot here anyway, but that’s beside
the point. The problem is that everybody—including me until now—has
thought these robots have been a big productivity improvement. And we just
learned that they’re not productive in terms of the goal. The way we’ve been
using them, they’re actually 
counter
productive.’’
Everyone is silent.
Finally, Stacey has the courage to say, "Okay, so somehow we’ve got to
make the robots productive in terms of the goal.’’
"We’ve got to do more than that,’’ I say. I turn to Bob and Stacey. "Listen,
I’ve already told Lou, and I guess this is as good a time as any to tell the both
of you. I know you’ll hear it eventually anyhow.’’
"Hear what?’’ asks Bob.
"We’ve been given an ultimatum by Peach—three months to turn the plant
around or he closes us down for good,’’ I say.
Both of them are stunned for a few moments. Then they’re both firing
questions at me. I take a few minutes and tell them what I know—avoiding
the news about the division; I don’t want to send them into panic.
Finally, I say, "I know it doesn’t seem like a lot of time. It isn’t. But until
they kick me out of here, I’m not giving up. What you decide to do is your
own business, but if you want out, I suggest you leave now. Because for the
next three months, I’m going to need everything you can give me. If we can

---

make this place show any progress, I’m going to go to Peach and do whatever
I have to to make him give us more time.’’
"Do you really think we can do it?’’ asks Lou.
"I honestly don’t know,’’ I say. "But at least now we can see some of what
we’re doing wrong.’’
"So what can we do that’s different?’’ asks Bob.
"Why don’t we stop pushing materials through the robots and try to reduce
inventories?’’ suggests Stacey.
"Hey, I’m all for lower inventory,’’ says Bob. "But if we don’t produce, our
efficiencies go down. Then we’re right back where we started.’’
"Peach isn’t going to give us a second chance if all we give him is lower
efficiencies,’’ says Lou. "He wants higher efficiencies, not lower.’’
I run my fingers through my hair.
Then Stacey says, "Maybe you should try calling this guy, Jonah, again. He
seems like he’s got a good handle on what’s what.’’
"Yeah, at least we could find out what he has to say,’’ says Lou.
"Well, I talked to him last night. That’s when he gave me all this stuff,’’ I
say, waving to the definitions on the board. "He was supposed to call me...’’
I look at their faces.
"Well, okay, I’ll try him again,’’ I say and reach for my briefcase to get the
London number.
I put through a call from the phone in the conference room with the three of
them listening expectantly around the table. But he isn’t there anymore.
Instead I end up talking to some secretary.

---

"Ah, yes, Mr. Rogo,’’ she says. "Jonah tried to call you, but your secretary
said you were in a meeting. He wanted to talk to you before he left London
today, but I’m afraid you’ve missed him.’’
"Where is he going to be next?’’ I ask.
"He was flying to New York. Perhaps you can catch him at his hotel,’’ she
says.
I take down the name of the hotel and thank her. Then I get the number in
New York from directory assistance, and expecting only to be able to leave a
message for him, I try it. The switchboard puts me through.
"Hello?’’ says a sleepy voice.
"Jonah? This is Alex Rogo. Did I wake you?’’
"As a matter of fact, you did.’’
"Oh, I’m sorry—I’ll try not to keep you long. But I really need to talk to you
at greater length about what we were discussing last night,’’ I tell him.
"Last night?’’ he asks. "Yes, I suppose it was ‘last night’ your time.’’
"Maybe we could make arrangements for you to come to my plant and meet
with me and my staff,’’ I suggest.
"Well, the problem is I have commitments lined up for the next three weeks,
and then I’m going back to Israel,’’ he says.
"But, you see, I can’t wait that long,’’ I say. "I’ve got some major problems I
have to solve and not a lot of time. I understand now what you meant about
the robots and productivity. But my staff and I don’t know what the next step
should be and . . . uh, well, maybe if I explained a few things to you—’’
"Alex, I would like to help you, but I also need to get some sleep. I’m

---

exhausted,’’ he says. "But I have a suggestion: if your schedule permits, why
don’t I meet with you here tomorrow morning at seven for breakfast at my
hotel.’’
"Tomorrow?’’
"That’s right,’’ he says. "We’ll have about an hour and we can talk.
Otherwise...’’
I look around at the others, all of them watching me anxiously. I tell Jonah to
hold on for a second.
"He wants me to come to New York tomorrow,’’ I tell them. "Can anybody
think of a reason why I shouldn’t go?’’
"Are you kidding?’’ says Stacey.
"Go for it,’’ says Bob.
"What have you got to lose?’’ says Lou.
I take my hand off the mouthpiece. "Okay, I’ll be there,’’ I say.
"Excellent!’’ Jonah says with relief. "Until then, good night.’’
When I get back to my office, Fran looks up with surprise from her work.
"So there you are!’’ she says and reaches for the message slips. "This man
called you twice from London. He wouldn’t say whether it was important or
not.’’
I say, "I’ve got a job for you: find a way to get me to New York tonight.’’

---

11
But Julie does not understand.
"Thanks for the advance notice,’’ she says.
"If I’d known earlier, I’d have told you,’’ I say. "Everything is unexpected
with you lately,’’ she says. "Don’t I always tell you when I know I’ve got
trips coming up?’’
She fidgets next to the bedroom door. I’m packing an overnight bag
which lies open on the bed. We’re alone; Sharon is down the street at a
friend’s house, and Davey is at band practice.
"When is this going to end?’’ she asks.
I stop midway through taking some underwear from a drawer. I’m getting
irritated by the questions because we just went over the whole thing five
minutes ago. Why is it so hard for her to understand?
"Julie, I don’t know.’’ I say. "I’ve got a lot of problems to solve.’’
More fidgeting. She doesn’t like it. It occurs to me that maybe she doesn’t
trust me or something.
"Hey, I’ll call you as soon as I get to New York,’’ I tell her. "Okay?’’
She turns as if she might walk out of the room.
"Fine. Call,’’ she says, "but I might not be here.’’
I stop again.

---

"What do you mean by that?’’
"I might be out someplace,’’ she says.
"Oh,’’ I say. "Well, I guess I’ll have to take my chances.’’
"I guess you will,’’ she says, furious now, on her way out the door.
I grab an extra shirt and slam the drawer shut. When I finish packing, I go
looking for her. I find her in the living room. She stands by the window,
biting the end of her thumb. I take her hand and kiss the thumb. Then I try to
hug her.
"Listen, I know I’ve been undependable lately,’’ I say. "But this is important.
It’s for the plant—’’
She shakes her head, pulls away. I follow her into the kitchen. She stands
with her back to me.
"Everything is for your job,’’ she says. "It’s all you think about. I can’t even
count on you for dinner. And the kids are asking me why you’re like this—’’
There is a tear forming in the corner of her eye. I reach to wipe it away, but
she brushes my hand aside.
"No!’’ she says. "Just go catch your plane to wherever it is you’re going.’’
"Julie—’’
She walks past me.
"Julie, this is not fair!’’ I yell at her.
She turns to me.
"That’s right,’’ she says. 
"You
are not being fair. To me or to your children.’’

---

She goes upstairs without looking back. And I don’t even have time to settle
this; I’m already late for my flight, I pick up my bag in the hall, sling it over
my shoulder, and grab my briefcase on my way out the door.
At 7:10 the next morning, I’m waiting in the hotel lobby for Jonah. He’s a
few minutes late, but that’s not what’s on my mind as I pace the carpeted
floor. I’m thinking about Julie. I’m worried about her... about us. After I
checked into my room last night, I tried to call home. No answer. Not even
one of the kids picked up the phone. I walked around the room for half an
hour, kicked a few things, and tried calling again. Still no answer. From then
until two in the morning, I dialed the number every fifteen minutes. Nobody
home. At one point I tried the airlines to see if I could get on a plane back,
but nothing was flying in that direction at that hour. I finally fell asleep. My
wake-up call got me out of bed at six o’clock. I tried the number twice before
I left my room this morning. The second time, I let it ring for five minutes.
Still no answer.
"Alex!’’
I turn. Jonah is walking toward me. He’s wearing a white shirt—no tie,
no jacket—and plain trousers.
"Good morning,’’ I say as we shake hands. I notice his eyes are puffy, like
those of someone who hasn’t had a lot of sleep; I think that mine probably
look the same.
"Sorry I’m late,’’ he says. "I had dinner last night with some associates and
we got into a discussion which went, I believe, until three o’clock in the
morning. Let’s get a table for breakfast.’’
I walk with him into the restaurant and the maitre d’ leads us to a table with a
white linen cloth.
"How did you do with the measurements I defined for you over the
telephone?’’ he asks after we’ve sat down.
I switch my mind to business, and tell him how I expressed the goal with his

---

measurements. Jonah seemed very pleased.
"Excellent,’’ he says. "You have done very well.’’
"Well, thanks, but I’m afraid I need more than a goal and some measurements
to save my plant.’’
"To save your plant?’’ he asks.
I say, "Well... yes, that’s why I’m here. I mean, I didn’t just call you to talk
philosophy.’’
He smiles. "No, I didn’t think you tracked me down purely for the love of
truth. Okay, Alex, tell me what’s going on.’’
"This is confidential,’’ I say to him. Then I explain the situation with the
plant and the three-month deadline before it gets closed. Jonah listens
attentively. When I’ve finished, he sits back.
"What do you expect from me?’’ he asks.
"I don’t know if there is one, but I’d like you to help me find the answer that
will let me keep my plant alive and my people working,’’ I say.
Jonah looks away for a moment.
"I’ll tell you 
my
problem,’’ he says. "I have an unbelievable schedule. That’s
why we’re meeting at this ungodly hour, incidentally. With the commitments
I already have, there is no way I can spend the time to do all the things you
probably would expect from a consultant.’’
I sigh, very disappointed. I say, "Okay, if you’re too busy—’’
"Wait, I’m not finished,’’ he says. "That doesn’t mean you can’t save your
plant. I don’t have time to solve your problems for you. But that wouldn’t be
the best thing for you anyway—’’

---

"What do you mean?’’ I interrupt.
Jonah holds up his hands. "Let me finish!’’ he says. "From what I’ve heard, I
think you can solve your own problems. What I will do is give you some
basic rules to apply. If you and your people follow them intelligently, I think
you will save your plant. Fair enough?’’
"But, Jonah, we’ve only got three months,’’ I say.
He nods impatiently. "I know, I know,’’ he says. "Three months is more than
enough time to show improvement ...if you are diligent, that is. And if you
aren’t, then nothing I say could save you anyway.’’
"Oh, you can count on our diligence, for sure,’’ I say.
"Shall we try it then?’’ he asks.
"Frankly, I don’t know what else to do,’’ I say. Then I smile. "I guess I’d
better ask what this is going to cost me. Do you have some kind of standard
rate or something?’’
"No, I don’t,’’ he says. "But I’ll make a deal with you. Just pay me the value
of what you learn from me.’’
"How will I know what that is?’’
"You should have a reasonable idea after we’ve finished. If your plant folds,
then obviously the value of your learning won’t have been much; you won’t
owe me anything. If, on the other hand, you learn enough from me to make
billions, then you should pay me accordingly,’’ he says.
I laugh. What have I got to lose?
"Okay, fair enough,’’ I say finally.
We shake hands across the table.

---

A waiter interrupts to ask if we’re ready to order. Neither of us have opened
the menus, but it turns out we both want coffee. The waiter informs us there’s
a 
ten
-dollar minimum for sitting in the dining room. So Jonah tells him to
bring us both our own pots of coffee and a quart of milk. He gives us a dirty
look and vanishes.
"Now then,’’ Jonah says. "Where shall we begin . . .’’
"I thought maybe first we could focus on the robots,’’ I tell him.
Jonah shakes his head.
"Alex, forget about your robots for now. They’re like some new industrial toy
everybody’s discovered. You’ve got much more fundamental things to
concern yourself with,’’ he says.
"But you’re not taking into account how important they are to us,’’ I tell him.
"They’re some of our most expensive equipment. We absolutely have to keep
them productive.’’
"Productive with respect to what?’’ he asks with an edge in his voice.
"Okay, right...we have to keep them productive in terms of the goal,’’ I say.
"But I need high efficiencies to make those things pay for themselves, and I
only get the efficiencies if they’re making parts.’’
Jonah is shaking his head again.
"Alex, you told me in our first meeting that your plant has very good
efficiencies overall. If your efficiencies are so good, then why is your plant in
trouble?’’
He takes a cigar out of his shirt pocket and bites the end off of it.
"Okay, look, I have to care about efficiencies if only for the reason that my
management cares about them,’’ I tell him.

---

"What’s more important to your management, Alex: efficiencies or money?’’
he asks.
"Money, of course. But isn’t high efficiency essential to making money?’’ I
ask him.
"Most of the time, your struggle for high efficiencies is taking you in the
opposite direction of your goal.’’
"I don’t understand,’’ I say. "And even if I did, my management wouldn’t.’’
But Jonah lights his cigar and says between puffs, "Okay, let’s see if I can
help you understand with some basic questions and answers. First tell me
this: when you see one of your workers standing idle with nothing to do, is
that good or bad for the company?’’
"It’s bad, of course,’’ I say.
"Always?’’
I feel this is a trick question.
"Well, we have to do maintenance—’’
"No, no, no, I’m talking about a production employee who is idle because
there is no product to be worked on.’’
"Yes, that’s always bad,’’ I say.
"Why?’’
I chuckle. "Isn’t it obvious? Because it’s a waste of money! What are we
supposed to do, pay people to do nothing? We can’t afford to have idle time.
Our costs are too high to tolerate it. It’s inefficiency, it’s low productivity—
no matter how you measure it.’’
He leans forward as if he’s going to whisper a big secret to me.

---

"Let me tell you something,’’ he says. "A plant in which everyone is working
all the time is very inefficient.’’
"Pardon me?’’
"You heard me.’’
"But how can you prove that?’’ I ask.
He says, "You’ve already proven it in your own plant. It’s right in front of
your eyes. But you don’t see it.’’
Now I shake my head. I say, "Jonah, I don’t think we’re communicating. You
see, in my plant, I don’t have extra people. The only way we can get products
out the door is to keep everyone working constantly.’’
"Tell me, Alex, do you have excess inventories in your plant?’’ he asks.
"Yes, we do,’’ I say.
"Do you have a lot of excess inventories?’’
"Well... yes.’’
"Do you have 
a lot
of a lot of excess inventories?’’
"Yeah, okay, we do have a lot of a lot of excess, but what’s the point?’’
"Do you realize that the only way you can create excess inventories is by
having excess manpower?’’ he says.
I think about it. After a minute, I have to conclude he’s right; machines don’t
set up and run themselves. People had to create the excess inventory.
"What are you suggesting I do?’’ I ask. "Lay off more people? I’m practically
down to a skeleton force now.’’

---

"No, I’m not suggesting that you lay off more people. But I am suggesting
that you question how you are managing the capacity of your plant. And let
me tell you, it is not according to the goal.’’
Between us, the waiter sets down two elegant silver pots with steam coming
out of their spouts. He puts out a pitcher of cream and pours the coffee. While
he does this, I find myself staring toward the window. After a few seconds, I
feel Jonah reach over and touch my sleeve.
"Here’s what’s happening,’’ he says. "Out there in the world at large, you’ve
got a market demand for so much of whatever it is you’re producing. And
inside your company, you’ve got so many resources, each of which has so
much capacity, to fill that demand. Now, before I go on, do you know what I
mean by a ‘balanced plant’?’’
"You mean balancing a production line?’’ I ask.
He says, "A balanced plant is essentially what every manufacturing manager
in the whole western world has struggled to achieve. It’s a plant where the
capacity of each and every resource is balanced exactly with demand from
the market. Do you know why managers try to do this?’’
I tell him, "Well, because if we don’t have enough capacity, we’re cheating
ourselves out of potential throughput. And if we have more than enough
capacity, we’re wasting money. We’re missing an opportunity to reduce
operational expense.’’
"Yes, that’s exactly what everybody thinks,’’ says Jonah. "And the tendency
for most managers is to trim capacity wherever they can, so no resource is
idle, and everybody has something to work on.’’
"Yeah, sure, I know what you’re talking about,’’ I say. "We do that at our
plant. In fact, it’s done at every plant I’ve ever seen.’’
"Do you run a balanced plant?’’ he asks.

---

"Well, it’s as balanced as we can make it. Of course, we’ve got some
machines sitting idle, but generally that’s just outdated equipment. As for
people, we’ve trimmed our capacity as much as we can,’’ I explain. "But
nobody ever runs a perfectly balanced plant.’’
"Funny, I don’t know of any balanced plants either,’’ he says. "Why do you
think it is that nobody after all this time and effort has ever succeeded in
running a balanced plant?’’
"I can give you a lot of reasons. The number one reason is that conditions are
always changing on us,’’ I say.
"No, actually that isn’t the number one reason,’’ he says.
"Sure it is! Look at the things I have to contend with—my vendors, for
example. We’ll be in the middle of a hot order and discover that the vendor
sent us a bad batch of parts. Or look at all the variables in my work force—
absenteeism, people who don’t care about quality, employee turnover, you
name it. And then there’s the market itself. The market is always changing.
So it’s no wonder we get too much capacity in one area and not enough in
another.’’
"Alex, the real reason you cannot balance your plant is much more basic than
all of those factors you mentioned. All of those are relatively minor.’’
"Minor?’’
"The real reason is that the closer you come to a balanced plant, the closer
you are to bankruptcy.’’
"Come on!’’ I say. "You’ve got to be kidding me.’’
"Look at this obsession with trimming capacity in terms of the goal,’’ he
says. "When you lay off people, do you increase sales?’’
"No, of course not,’’ I say.

---

"Do you reduce your inventory?’’ he asks.
"No, not by cutting people,’’ I say. "What we do by laying off workers is cut
our expenses.’’
"Yes, exactly,’’ Jonah says. "You improve only one measurement,
operational expense.’’
"Isn’t that enough?’’
"Alex, the goal is not to reduce operational expense by itself. The goal is not
to improve one measurement in isolation. The goal is to reduce operational
expense and reduce inventory while simultaneously increasing throughput,’’
says Jonah.
"Fine. I agree with that,’’ I say. "But if we reduce expenses, and inventory
and throughput stay the same, aren’t we better off?’’
"Yes, 
if
you do not increase inventory and/or reduce throughput,’’ he says.
"Okay, right. But balancing capacity doesn’t affect either one,’’ I say.
"Oh? It doesn’t? How do you know that?’’
"We just said—’’
"I didn’t say anything of the sort. I asked you. And you 
assumed
that if you
trim capacity to balance with market demand you won’t affect throughput or
inventory,’’ he says. "But, in fact, that assumption—which is practically
universal in the western business world—is totally wrong.’’
"How do you know it’s wrong?’’
"For one thing, there is a mathematical proof which could clearly show that
when capacity is trimmed exactly to marketing demands, no more and no
less, throughput goes down, while inventory goes through the roof,’’ he says.
"And because inventory goes up, the