Individual Dynamics and Leadership

Book Review

“The Goal”

Presented By:- Group No. 7

Anirudh Kowtha (B035)

Devesh Mendiratta (B042)

Prateek Kamthan (B033)

Nitish Mahajan (B040)

Rohit Dhir (B019)

Rohit Bhutoria (B014)

TABLE OF CONTENTS

S. no. Topic Page no.1. Introduction and summary 12. Statement of objectives 23. Method of study 24. Chapter wise summary and critical analysis 35. Theoretical framework and relating theory to practical aspects 76. Learning and conclusion 11

1. INTRODUCTION AND SUMMARY

The Goal, by Dr. Eliyahu M. Goldratt, well known for his ‘Theory of Constraints’, is a management oriented novel. It was first published in 1992 and has been revised and republished in 2004.

Dr. Goldratt, who died in June last year, was an Israeli physicist turned Management guru. He did his B.Sc. degree from Tel Aviv University, and his M.Sc. and Ph.D. degrees from Bar-Ilan University. Some of his key findings were the Optimized Production Technique, the Theory of Constraints (TOC), the Thinking Processes, Drum-Buffer-Rope, Critical Chain Project Management (CCPM) and other TOC derived tools.

He has also authored several business novels, the most notable amongst them being ‘The Goal – A process of ongoing improvement’ a fiction business novel.

The story is set in Bearington Massachusetts, in a plant owned by UniCo. The protagonist, Alex Rogo, is the Manager of the plant. The plant is in a dire stage where everything is always behind schedule, with lead times going as high as 4 months.

In the initial chapters itself, Bill Peach, the Division Vice-President of UniCo, and Alex’s boss, warns Alex that he has three months to turn things around or the plant would be shut down. Enter Jonah, a physicist and an acquaintance of Alex. Jonah helps Alex to identify and correct the problems he is facing at the plant through a series of telephone calls and short but very fruitful meetings. He helps Alex determine the goal of the company, i.e. Maximum profit and also helps him in establishing the measurements he should use to reach this goal, i.e. i) Inventory, ii) Overheads, and iii) Throughput. Once these are in place, they set out to look for bottlenecks on the plant floor and take the load off them. They increase their productivity further by reducing the batch sizes, enabling them to reduce their shipping times. By the time all this is implemented, the plant has shipped all its late orders, and the new orders are being shipped in three to four weeks, which is way better than their competitors.

Barring a few hiccups on the way, Alex successfully manages to save his plant and because of such amazing performance he is promoted to the post of Division Vice-President.

Apart from this, the storyline occasionally wanders into Alex’s marital life, which was already under stress and is affected even more after as Alex tries to get things right at the plant. At times Alex and is wife, Julie, also try to find the ‘goal’ of their marriage, trying to apply Jonah’s concepts.

1

2. STATEMENTS OF OBJECTIVES

The most important objective of this exercise for us was learning. And that happened as we tried to relate the characters in the story, their personalities, attitudes, drives, motives, and other traits with the different types of personalities, attitudes, drives, motives and traits we have studied in depth in class.

We tried to draw parallels between them, hence adding to our understanding of these very important concepts of Individual Dynamics and Leadership. It specially helped us understand the practical aspects of these factors.

As we delved deeper and deeper into the book, we ended up learning about not only the above mentioned concepts of Individual Dynamics and Leadership, but also some very important aspects of Operations management like The Theory of Constraints, how bottlenecks affect the plant, etc. It was something over and above what we wanted to achieve from this exercise, and was very fruitful.

3. METHOD OF STUDY

Our methodology was rather simple. Before starting to read the book and prepare the review, we went back to the text book and read up the chapters, so it would be easy for us when it comes to identifying the personalities, attitudes, drives, motives, and traits of the characters as and when they appear in the book. This was our idea to reduce any errors of judgment while trying to draw parallels between the traits of the characters and different theories of Individual Dynamics and Leadership.

Another technique we used at a later stage was that we divided the characters in the book amongst us; each one of us was focusing on one or two characters at max, thereby distributing the task evenly amongst us. This also added to the quality of observations we drew, as they were more detailed and focused in mature.

2

4. CHAPTER WISE SUMMARY

Chapter One - Five

The first chapters get the readers acquainted with Mr. Alex Rogo and his apparent problems with his production plant. This is shown through a confrontation between Alex and his boss Mr. Peach, the Division Vice President. The dispute is over an overdue order #41427 which Peach wants to be shipped the same day and since the plant is neither productive nor profitable, Alex has three months to show an improvement or the plant will be shut down. He starts drifting away from his family because of the long hours he spends in the plant. Peach calls in a meeting of all the plant managers under his division, while attending the same Alex thinks back on a recent business trip where he ran into an old physics professor, Jonah, at the airport. Jonah puzzles Alex with how well he knows how Alex’s plant is doing. Johan predicts the problems of high inventories and not meeting shipping dates. He also states that there is only one goal for all companies, and anything that brings you closer to achieving it is productive and all other things are not productive. Alex leaves the meeting at the break. He roams around the town and after a pizza and a six pack of beer it hits him, money. The "goal" is to make money and anything that brings us closer to it is productive and anything that doesn’t isn’t.

Chapter Six - Ten

Alex sits along-with one of his accountants Lou, define what is required to achieve the goal. Net profit needs to increase along with simultaneously contributing to return on investment and cash flow. Now all that is required to mould the operation of the plant in order to generate money. He thinks of finding another job for a certain period of time but after giving a lot of thought he makes the decision to stay with the company for the last three months and try to make a change. Alex get hold of Jonah after a lot of trouble, who gives him three terms which will help him run his plant, throughput, inventory and operational expense. Jonah states that everything in the plant can be classified under these three terms. "Throughput is the rate at which the system generates money through sales." "Inventory is all the money that the system has invested in purchasing things which it intends to sell." "Operational expense is all the money the system spends in order to turn inventory into throughput.” With the help of Lou, inventory control woman Stacey, and the production manager Bob, Alex discovers the newly acquired robots increased operational expenses and hence were counter-productive. They all hammer out the meaning of throughput, inventory and operational expense in relation with money, the primary goal. They conclude that something drastic needs to be done with the machines to make them in-live with the goal hence Alex leaves for New York that night to meet Jonah.

Chapter Eleven - Fifteen

Jonah assures him that the problems in the plant can be fixed. First, Jonah asks Alex to forget about the robots.  He also tells Alex that "A plant in which everyone is working all the time is

3

very inefficient." Jonah suggests that Alex question how he is managing the capacity in the plant and considers the concept of a balanced plant. Then Jonah leaves Alex with another riddle, what does the combination of "dependent events" and "statistical fluctuations" have to do with your plant? Both of those seem harmless and should work themselves out down the production line. His family life also gets worst because of the hours he puts in the plant. Stuck for the weekend as troop master, Alex discovers the importance of "dependent events" in relation to "statistical fluctuations". Through the analogy between a single file hike through the wilderness and a manufacturing plant he understands the interdependency amongst them. Fully understanding the "dependent events", Alex puts the slowest kid in the front of the hike and he relieves him of extra weight he has been carrying in his backpack. This balances the fluctuations and increases the kid’s productivity, which increased the throughput of the team.

Chapter Sixteen – Twenty

After the camping trip he along-with his son arrive home to find his wife has disappeared. All the stress of his job was too much for her so she left. Now the kids and the job are all Alex’s responsibility. This was supposed to be a weekend for Alex and his wife, but when the hike came up it seemed to be the last straw for her. Alex finds it hard to explain his team about his new revelations but it’s proven to be right when it’s put to test for an overdue order in the plant. Jonah now introduces Alex to the concept of bottlenecks and non-bottlenecks and asks him not try to balance capacity with demand, but instead balance the flow of product through the plant. Alex and his team are able to find two bottlenecks after a stringent battle and start reorganizing the plant like Alex did with the hike but with great difficulty because of the dependent events in the process. Jonah visits the plant and tells them that they have to find the hidden capacity of the bottle necks by correcting their assumptions. He conveys that every minute of downtime at a bottleneck translates into loss of throughput, because without the parts from the bottleneck, you can’t sell the product.

Chapter Twenty One - Twenty Five

Alex strategizes to prioritize bottleneck jobs as per requirement. To implement the strategy, he designs a system to inform the workers what materials have priority at non-bottlenecks. Red and green tags are the answer. Red for bottleneck parts to be worked on first as to not hold up the bottleneck machine, and green for the non-bottleneck parts. As a result of the plan, 12 orders get shipped. Alex is pleased. To increase capacity of the bottleneck machine, Donovan brings Zmemga, an old machine. Next, Alex decides to reschedule the shifts of workers, in line with the thought to increase utilization. The night foreman discovers a way to process more parts by mixing and matching orders by priority, increasing efficiency by ten percent. Inventory starts decreasing. However, lower entry revealed more bottlenecks. But Jonah tells them that new bottlenecks aren’t the problem, but it is the over utilization of non-bottlenecks which is causing them the trouble. There needs to be a balance. The red and green tags need to be modified. It

4

seems as if the bottlenecks will again control the flow, by only sending them exactly what they need and when they need it. On the personal side, he tries to patch up with his wife by trying to spend time with her.

Chapter Twenty Six - Thirty

Ralf, the computer wizard comes up with a schedule for bottleneck parts. They try to map it to non bottleneck parts as well, using the same data. At the corporate meeting next month, Alex talks to Mr. Peach and convinces him to keep the plant open if he shows him a 15% increase in sales. Though it is difficult, but it gives hope to him. Alex calls up Jonah and informs him of his new problems, viz. more inventories and less throughput. Jonah advises him to reduce batch sizes by half. This may cause some problems with vendors, but it will get them quicker response times, lead times and also cuts cost in half. Implementing this, Alex is faced with a propositioned test. He wants to ship 1000 products in two weeks, which would be a daunting task. Again putting on his thinking cap, he decided to cut batch size by half again. They promise to ship 250 each in next 4 weeks. The customers loved it. Finally, they are able to achieve 17% improvement, more than what they were asked to improve. They receive a 10,000 product order, representing greater confidence of the management in the plant administration.

Chapter Thirty One - Thirty Five

At the next corporate meeting, Alex is pleasantly surprised to know he just got promoted to Mr. Peach’s position. Now Alex has to manage three plants as the whole division. He calls up Jonah for helping him again, but Jonah declines unless he has specific questions. On the personal front, things start improving for the better. He has dinner with his wife. With his mind being a little free from personal problems, he starts concentrating on how to make people understand the techniques he had implemented. He starts to carefully choose his team for the division. Surprisingly the accountant with two years to retirement is on board, but the production manager isn’t. He wants to be plant manager to continue their efforts. Once team is decided, they start solving the problems of the whole division, a mammoth task. They try relating the practical aspects of management, like how scientists came up with periodic table starting from almost nothing. A way to define them by their intensive order is needed.

Chapter Thirty Six - Forty

The team finally comes up with the process:1. Identify the system’s bottlenecks.2. Decide how to exploit those bottlenecks.3. Subordinate everything else to step two decisions.4. Evaluate the systems bottlenecks

5

5. If, in a previous step, a bottleneck has been broken, go to step one.

Talking to the Sales Head, Alex finds out that there is a market order to fill the capacity. It’s in Europe, so selling for less there will not affect domestic clients. It will open a whole new market. Then, Alex ponders Jonah’s question, to determine what management techniques should be utilized. They also realize that some fictitious orders are being used to keep up productivity, which when released will free up 20% capacity, which can be used to increase market share. Production is an ongoing process of improvement, and when new problems arise they need to be dealt with accordingly.

Finally, struggling with the answer to Jonah’s question, Alex comes up with some questions on his own: What to change? What to change to? How to cause the change? Answering these questions are the keys to management, and the skills needed to answer them are the keys to a good manager.

CRITICAL ANALYSISThe heart of this story is based around the life of Alex Rogo, the Plant Manager of Unico. The story epitomizes day to day life activities of a manufacturing plant manager, in context of the various problems he faces and how he copes up with them in a lucid manner with simple, plain & innovative thinking. His thoughts are influenced by his old time friend and physicist, who is now a management consultant.

As a group, what we enjoyed most about this book was the layout. The layout consisted of telling a story about Alex in a novel form, which included dialog, plot, etc. This helped in breaking the specifics down for a layperson, Alex. After all, Alex represents the average person - job going down the tube and marriage shortly following it. These back to basics principles, help break down what has become "common practice". Apart from solving the problems of business, Alex could have applied the same approach in solving his personal life problems, which he has been facing for quite a while.

Overall the book was excellent and easy read. This book would be ideal for anyone interested in simplifying ways to improving any process - whether it is manufacturing or service oriented.

6

5. THEORETICAL FRAMEWORK & THEIR RELATION TO PRACTICAL ASPECTS:

There are several theories which one will encounter will reading the book. Listed below are some of the theories which form the framework of the book:

GOAL SETTING THEORY:The Goal Setting Theory of Motivation was proposed by Edwin Locke. This is the main theoretical backbone of the book.

As the heading suggests, the book is about setting a goal which is specific. Alex Rogo and his team are constantly revising their goal for the plant in order for it to survive. They are trying to set “specific goals”. This goal might be difficult to achieve but the drive to achieve it will lead to higher performance.

This is what the goal theory states: “Specific and difficult goals with feedback, lead to higher performance.”

Goals are set to indicate and give direction to an employee about what needs to be done and how much efforts are required to be put in. Difficult goals lead us to discover strategies that help us perform the job or task more efficiently. Once the goal for the plant has been set all the workers

Management by Objectives: (MBO)The book emphasizes that a more systematic way to utilize goal setting is with a management by objectives program. The organization’s overall objectives are translated into specific objectives for each succeeding level in the organization.

This process is illustrated several times in the book. For example Rogo and his team assign specific goals for the fabrication team (Pete’s people) and the team which is handling the robot when they have to deliver a shipment. Each department is set a target which they have to achieve

SELF EFFICACY THEORY:Self Efficacy is “a measure of the level of confidence that an individual has to perform a task.”

The higher yourself efficacy the more confident you are that you will succeed.

Jonah is high on self efficacy. He is extremely confident in his abilities. He could seamlessly switch his line of work from being a physicist to an analyst as he had belief in his cognitive abilities.

7

In demanding and difficult situations, individuals having high self efficacy are more likely to redouble their efforts to achieve their goal whereas those with low self efficacy will be more willing to give up.

When Alex Rogo and his team were faced with the prospect of having their plant closed down, they didn’t simply accept their fate. They started working much more intensively to ensure that they kept the plant running.

When an individual low on self efficacy is given negative feedback, he is likely to get disheartened and lose motivation. Those with high self efficacy will treat it as a challenge and try harder.

This is illustrated by Rogo after his boss Bill Peach gives him an ultimatum of three months time before shutting down the plant. The task of turning around the fortunes of the plant in as little as three months is a herculean task. But Rogo is high on self efficacy and deals with the problem head on instead of putting out his resume.

EQUITY THEORY:The Equity Theory states that people are always comparing their job inputs and outcomes with that of others and then try to remove any shortcomings by increasing their efforts.

Alex Rogo was driven by his desire to surpass Bill Peach and rise to the position of CEO of the company. He feels that he is capable of a lot more than Bill and rues the fact that Bill is Vice President while he is a ‘mere plant manager.’

SOCIAL LEARNING THEORY:Rogo employs social learning theory on several occasions, the most striking example being that of the hike which he has with his son and some boy scouts. During the course of the hike he notices inconsistencies in the line. He relates this to the same scenario he is facing at the plant. He tries to find out the limiting factor in the group’s performance and identifies that the inconsistencies are being caused by a boy named Herbie.

When he returns to the plant, he tries to apply the same approach he had learnt during the trek to identify the 'Herbie' or the limiting factor in the industry. He learns through both observation and direct experience.

REINFORCEMENT THEORY:There are examples scattered throughout the book with respect to reinforcement theory and how it motivates employees.

8

Bill Peach uses negative reinforcement to stimulate a positive response from Rogo and his team. Initially he threatens to shut down the plant if the performance doesn’t improve. Once it does improve he does not acknowledge the efforts of Rogo and his workers apart from merely saying ‘Good Job.’ He does not shower them with praise and in fact demands an even better performance from the plant. This instigates Rogo to meet the demands set by Peach.

Alex Rogo on the other hand uses positive reinforcement to get better work out of his employees. He is constantly encouraging them and ensures that they are getting the breaks between their work hours.

On increasing operational efficiency and thus saving the plant, Alex and his teammates got promoted for their hard work. They then started to quickly diagnose any kind of upcoming problems and developed a five-step process for solving throughput problems.

SELF CONCORDANCE THEORY:Alex aided the entire plant to concentrate on its global goal. He let people begin to see how their part of the operation contributed to the overall goal. He exhibited effective implication of self-concordance theory where people are made to realize how their individual interests and goals are consistent with overall goal.

ORGANIZATIONAL JUSTICE:Even though Rogo knew that his plant was passing through a difficult period he tried to ensure organizational justice while trying to achieve the goal of the plant.

Distributive: He makes sure that young Mike Haley gets appreciated for his work. He also ensures that all the workers are getting their allotted breaks.

Procedural: Those working overtime were given their required breaks. Those who were slacking off were made to increase their efforts

Interactional: He interacted with all the workers on the floor with the same level of courtesy and respect. Was open to listening to individual concerns and tried to give the desired solution whenever possible.

THEORY OF NEEDS & MOTIVATION:The different characters in the book all exhibited a different set of needs.

Alex Rogo ranks high on the Need for achievement and Need for Affiliation in Mclelland’s Three Needs Theory Need for achievement: He wants to ensure that the plant doesn’t shut down. He likes

being recognized as the towns blue eyed boy but does not want to be the one responsible for shutting down the plant. He does not want to take the easy route and search for

9

another job once the plant shuts down but he wants to achieve something by turning around the fortunes of the plant.

Need for Power: He needs people to act in a manner he deems fit. He wants them to follow the methodology he is employing.

Need for Affiliation: He wants to be close with his team. He confides in them and values their opinion. He treats them as equals. In terms of his personal life he tries very hard to work things out with his wife as he is heavily reliant on his family for emotional support.

Jonah is a Type A personality. He is aggressively involved in a chronic, incessant struggle to achieve more and more in lesser time.

With respect to Maslow’s Hierarchy of Needs, Jonah is high on self actualization. He had already achieved status and acceptance as a professor. He now wants self fulfillment.

Jonah is intrinsically motivated. He does not seek monetary advances from Rogo. He changes his career from physicist to analyst just to prove himself.

Julie Rogo rank high on Social Needs and Need for Affiliation. She does not like being second in the list of Alex Rogo’s priorities. She complains that she does not have many friends around and seeks Alex’s companionship.

When she feels that Alex is not sparing enough time to spend with her, she leaves the house and lives with her friend Jane. She then heads to her parents’ house and lives with them for a few days. Her Social Needs are high.

10

6. LEARNING AND CONCLUSION

The book review exercise was a great learning experience for each of us. One of the team members was aware of the book and we were lucky we could select it as the topic of our course assignment.

The prime lesson that we learnt from the story was that no matter how big the problem is at hand, there is always a solution if one decides to work with commitment. Through the fine characterization of Alex Rogo and others, we learn that there are various challenges awaiting us once we step outside with an MBA degree. Though the main focus of the story was on learning to manage the operational dynamics of an industry including throughput, inventory and costs, which were dwelled upon numerous times, other crucial insights could also be exploited. The story teaches us that even if there is a grave problem, the best outcome is achieved if the leader keeps faith in himself and his team and moves ahead with his vision to beat all odds. A leader must have high self efficacy. If he keeps a positive outlook and keeps the mood of his employees upbeat then the positivity rubs off on everyone and people are motivated to perform more efficiently.

We learn how Rogo keeps all the stakeholders of the company satisfied and includes them in the goal achievement process. His experiences highlight the fact that many of the solutions are out there around us. We need to keep an open mind and think proactively while learning from our surroundings. Analogical thinking could help cut down complex bottlenecks we face.

We also learn that we should not become complacent after achieving our goal and always strive for a higher aim by using the learning from the goals as we achieve them. An important lesson from the story was how issues in personal life can affect the work efficiency. Though there is no direct implication, but we do learn that a healthy business and personal relationship go hand in hand. Finally a clinical learning from the story was that a mentor plays an important role in shaping the future path and one should identify him/her and follow him diligently to achieve success.

In conclusion, the assignment apart from teaching us various management concepts helped us to know each other better. An idea of reading about the operational success of a failing manufacturing plant may not seem to be the most interesting but the excellent portray of different characters and framing of various management concepts made it fun as well as a great learning experience. The self characterization and discussion made us realize how different perspective can be possible when reading the same extract. We excelled in working as a team and understanding and appreciating each other’s view point. We look forward to working on more assignments on these lines.

11