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MBA in één dag | El i Goldratt

Interview

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MBA in één dag®

Eli Goldratt

In dit miniboekje vindt u meer informatie over Eli Goldratt.Kijk voor meer tips, foto’s en videomateriaal op www.mbain1dag.nl

MBA Miniboekje Eli Goldratt.indd 1 04-05-10 09:28


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El i Goldratt

Eli Goldratt

MBA in één dag®

CV Eli Goldratt• Eliyahu M. Goldratt werd geboren in 1948 in Israël.

• Hij studeerde natuurkunde en fi losofi e 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.

MBA Miniboekje Eli Goldratt.indd 2-3 04-05-10 09:28


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Interview

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Gilmore: What are the key concepts

behind the Theory of Constraints?

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.

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.

Gilmore: Yes, or they lack enough

information to know.

Goldratt: No – they believe the change is

likely to 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-win-

win 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

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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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

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

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.

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.

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!

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.



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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

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.

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.

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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Gilmore: You’ve said “inertia” is a big

problem in many companies. What do

you mean?

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.

So you have to go back and re-examine the

basic assumptions. The tough question is:

How do you know what assumptions you

have to re-examine when you are facing an

intolerable compromise?

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.

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.

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.

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.

Gilmore: It seems to me that the Theory

of Constraints has some strong parallels

to concepts like Lean and Six Sigma.

Right or wrong?

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.

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.

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

step down the path, almost by the nose. I

am actually sick of that approach.

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.

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.

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.”



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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

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

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.

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?



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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

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?

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?

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.



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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

and say “Let’s do this right.”

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.

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: Can the principles not be applied

within a function?

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

have to lay a bunch of you off? That’s the

problem, and why you eventually need a

more comprehensive view.

Gilmore: You are talking about radical,

almost unbelievable performance

improvements. Most companies are

happy with and struggle just to achieve

continuous, incremental improvement.

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: When you present this, do CXOs

want detailed, specific examples?

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

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.



18


Interview

19

What led you to turn from manufacturing

to product development?

“If you look at my work as a whole, you’ll

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.”

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

An interview with Eli Goldratt

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:

On Saddam Hussein, milestones, and how

the theory of constraints applies to project

management



20


Interview

21

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 decision-

making 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!”

Is it a correct reading of your book that

you don’t favor formal milestones?

“I hate formal milestones! It’s one of the

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.”

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



22

MBA in één dag:ultrakort en tóch volledigWat 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.

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


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