A simple philosophy I’ve followed for most of my adult life goes like this: In any endeavor, there are only two questions that matter:
These questions are too broad to be terribly useful on their own, but they have definitely guided me as I’ve searched for how to best produce a life worth living. At roughly the same time in my life that these questions distilled themselves, I received my first exposure to Eliyahu Goldratt’s classic business novel The Goal. I’ve since discovered that the book is also a classic of the previously-unknown-to-me genre of “advertisement for a business consultant thinly disguised as a novel”. In this genre, sacrificing literary finesse in favor of clear morals and easily-digested lessons is a feature, not a bug, and the attempt at presenting a logical framework for the improvement of complex systems was very well received by 27 year-old me. Well-received enough that I looked up some of Goldratt’s lesser-known works, and found in It’s Not Luck a more abstracted and nuanced (not too nuanced though–we’re still very much in the “consultancy” genre) application of ideas in the same vein. It’s been too long for me to remember which was the chicken and which was the egg, but the books attempt to put some meat onto my two questions and give some concrete tools for answering them.
I should probably mention now that, in case anyone wanted to read these books for what passes as their plots, uh…spoilers, I guess?
For those who haven’t been through business school, or haven’t heard of Goldratt, he espouses what he calls the “Theory Of Constraints” as a way of diagnosing, analyzing, and solving business problems. In The Goal (to which It’s Not Luck is a direct sequel), our hero, Alex Rogo, is the general manager of a struggling factory producing generic widgets for a faceless conglomerate. Globalization is taking its toll (this is the mid 80s), operations are a mess, and all of the stress is causing strain on Alex’s marriage. As a final blow, he’s told that his factory will be closed in 90 days if it can’t turn its finances around.
The Goal
In his hour of need, Alex turns to his old physics-professor-turned-business-consultant named Jonah (Goldratt’s self-insert), with whom he had recently had a chance meeting. Over a brief conversation, Jonah immediately puts his finger on the factory’s most pressing issues, and leaves Alex with a question: “What is the goal of a company?” Spoiler alert: the goal is to make money, but it takes Alex a surprisingly long time to arrive at that conclusion. His intuition about his own company is warped because the metrics by which he understands his business are flawed. The rest of the book is about undoing that warping, and about establishing metrics that will lead toward The Goal, rather than away from it. Along the way, Alex returns his factory to profitability, saves both his factory and his marriage, and secures a promotion for himself in the process. Yay!
Goldratt’s enemy number one is cost accounting as dictated by the Generally Accepted Accounting Principles (GAAP), which encourages load balancing, maximum efficiency at each step, and an understanding of cost that is out of step with actual cash flows. And if, dear reader, load balancing and maximum efficiency in a dynamic system sound like good things then please read on, because this book is for you.
The key insight in the book happens while Alex is taking his son’s scout troop on a hike. He lets the boys walk at their preferred speed, and quickly sees the line of boys spread out to a ridiculous degree. As the leader bringing up the rear, Alex is stuck behind Herbie–the out of shape kid with an oversized backpack who just can’t keep up with the rest. Alex sees the hike become a metaphor for his factory, with each boy representing a machine or process, the space between each boy being work-in-progress (WIP) inventory, and the ground covered by the entire troop as completed orders. As the space between the boys grows, Alex sees the “WIP” of the trail ballooning to unmanageable levels, just like it is doing in his factory, paired with excruciatingly slow progress down the trail.
After getting everyone all back into one group, he sets up a game for the boys to play, where the goal is to pass matchsticks down an “assembly line”. Each boy rolls a die to see how many matches their station produces, then passes that many matches down to the next station. The catch of course, is that you can only process as many matches as you have waiting for you. If there’s only 2 matches coming from the station ahead of you that turn, it doesn’t matter if you roll a 6, 2 is the best you’re going to be able to do.
This assembly line is perfectly balanced. Each station should theoretically be able to process an average of 3.5 matches per turn. In this type of set-up, however, because there is no slack built into the system, the variation of each station doesn’t average out. Rather, it accumulates, and the result is an output that is much lower than the average capacity of any individual machine.
When the boys resume their hike, Alex makes sure that Herbie is placed in the front of the line, instead of the back. He also has Herbie empty his overstuffed pack, and distributes the load among the rest of the boys. This keeps the scouts together, helps Herbie move a bit faster, and gets them successfully at their campsite for the night. Alex also notices what happens to the variation in walking speed when Herbie is setting the pace for the group. If one boy needs to stop and tie his shoe, his speed becomes an advantage, enabling him to catch up quickly, rather than creating problems.
The rest of the book consists mostly of Alex’s implementation of this discovery in his plant. He is able to identify the bottleneck processes (not-so-affectionately referred to as “Herbies”), and takes steps to increase their capacity while reorienting the entire factory’s rhythm to match the bottleneck. Jonah appears occasionally to offer advice, but mostly takes a Socratic approach to teaching Alex, providing the proper questions that lead naturally to the necessary insights.
Cost accounting plays the villain here because it is what incentivized the creation of a balanced process in the first place. If a machine (or worker) is idle, that idleness represents a wasteful expense to be eliminated; and so a factory cuts capacity that it could use to smooth out naturally occurring variations in the manufacturing process. Additionally, the entire factory will gradually attempt to balance itself against the market, leaving it unable to capitalize on any increases in demand and undermining any efforts to increase sales.
The core insight of the book is that the throughput of the bottlenecks IS the throughput of the factory. If the bottleneck machine is down, the entire factory might as well be down. Another machine (like a speedier boy scout who had to tie his shoe) would be able to catch up from a bit of downtime, but if Herbie stops, the whole line has to wait for him. The implication is that any investment into the efficiency of a non-bottleneck is a complete and utter waste. Traditional cost accounting incentivizes us to look at each machine as an entity unto itself, something to be optimized and made as efficient as possible. When you put these locally-optimized entities into a dynamic system, however, these same efficiencies are crippling.
And if this was where the book ended, it would be a great book about lean manufacturing, but probably not one that I’d feel compelled to write about. Lest we view the topic too narrowly, I return to the first of my two questions: “What’s the right thing to do?”, or in other words, “What’s the goal?” Alex eventually asks this question about both his marriage and his new promotion. Neither of those problems yield easily to the same analysis that he performed on his plant and, with a nudge from Jonah, he realizes that what he really needs is a generic set of management tools. Ones that can cut through large piles of facts toward real insights and root causes. Goldratt presents these tools primarily in It’s Not Luck, and dubs them the “Thinking Processes”. They’re explicitly designed to answer these questions: What to change?, What to change to?, and How to enact the change?.
It’s Not Luck
The book is rather breathless about something as obvious as applying inductive and deductive reasoning to management problems (or any other problems that a person might have), but I must concede Goldratt’s frequent assertion that “common sense is not so common”--and Alex ends up pursuing this direction with far more rigor than most of us ever do.
If I have a gripe with either of these books, it’s that the “Thinking Processes” are presented sporadically, without a good way to refer back to any particular idea–not even an index. I’m going to try to impose that order as I complete my review, but it was highly frustrating to not have a synopsis anywhere when I just wanted the information rather than the boardroom drama.
When we rejoin Alex Rogo at the beginning of It’s Not Luck, several years have passed and Alex is an Executive Vice President at the same conglomerate, running the “Diversified Group”. The Diversified Group consists of 3 companies that have nothing in common, except that they have all risen from deep losses to very small profits under a year of Alex’s management. Despite their impressive turn-arounds, Alex is informed (during a dramatic turn in a meeting with the board of directors) that his companies are to be sold in order for UniCo to “focus on the core business”. (Oh no!) Fearing both for his reputation and the well-being of his employees, Alex determines that the way to avoid these companies being sold is to drastically and immediately increase their profits. Operational efficiency won’t save him this time.
And as much as I’d love to walk through the three companies, the various issues they face, their solutions, and Alex’s friendly sparring with a pair of the board members, they are the canvas in this book, rather than the painting. With the “Thinking Processes”, Alex already has the tools he needs to resolve his issues. The meat of the book is in learning what the processes are and how to put them to good use.
The Evaporating Cloud
The first thinking process we are exposed to is known in the TOC literature (why yes, there is TOC literature!) as the “Evaporating Cloud”, and its objective is conflict resolution. Why Goldratt chose a “cloud” metaphor isn’t clear to me, but this tool comes in the form of a diagram framing the conflict at hand. An example (with content paraphrased from a conflict described on an ACX open thread) looks like this:
On the right, we see the two incompatible actions. In the middle are the reasons why we feel those actions are necessary or desirable, and on the left is the common goal that both parties want, or that both branches should ultimately support. Depending on the circumstance the diagram may be filled out in various orders to ease its creation.
Goldratt bills this tool as one for creating win-win, no-compromise solutions. The way this tool accomplishes this feat is by shifting the conflict away from the competing objectives to focus both parties on the common goal. The diagram is used by examining the arrows connecting the boxes and surfacing the assumptions embedded in each. If an assumption turns out to be faulty, or reveals an alternative that is not incompatible, the conflict “evaporates”, and both parties can get what they want.
As Alex uses these diagrams, he repeatedly emphasizes that they should be read out loud, using the words “In order to”, and “we must” creating a logical connection for each arrow. When looking for the solution to the conflict, we begin by looking at the arrow that we’re most troubled by. That troubling feeling is our intuition telling us that the logic of that arrow is not quite solid. The diagram above would read as follows:
If you’re facing this conflict, and any of those statements ring false to you, you have likely found the soft spot. Work to logically invalidate that branch, and once you succeed, your conflict is resolved. Goldratt first introduces us to this tool via an argument between Alex and his daughter about her staying out late at a party. Alex’s branch of the conflict hinges on his concern for his daughter’s safety. Once he’s able to ascertain enough details for his concern to be resolved, there is no more conflict. Familial harmony is preserved.
According to Goldratt, these conflict diagrams are not merely interesting. The entire point of drawing a conflict cloud is to break it. It’s a powerful way of looking at a situation because we’re constantly in the middle of conflicts, and because they frequently prevent us from taking correct actions. How frequently do we attempt to compromise some best practice in favor of satisfying a manager or customer right away? Or how often is the correct course of action clear, but not taken? The root cause for these phenomena is frequently some hidden conflict, where we believe that it’s necessary to take two incompatible actions at the same time.
Once we surface the conflict, we can look at the arrows to see how to break it. To attack these branches, we might posit certain “injections” that can be combined with the existing logic. Let’s say that as I wrote out the example cloud, the arrow that bothered me the most was #2. One possible injection might be “Charter schools can provide a rich, challenging, learning environment.” That might then be combined with “Charter schools are a form of trad school.” If you can accept these injections as true, then sentence #2 now looks like this:
And your cloud has been broken.
These are simple examples for people who are being introduced to this mode of thinking for the first time and a bit tedious to specify, but the value in being this meticulous is the airtight logic chain that you’re building. Perhaps you don’t know for sure if charter schools will provide a satisfactory environment, but you now have a well-formed, specific question to answer in order to get out of your conflict.
The Negative Branch
Coming up with a solution to break a cloud is easy when injections are hypothetical. Actually implementing a solution, however, comes with a host of risks and unintended consequences. The goal of the “negative branch” diagram is to systematically identify and “trim” the risks and drawbacks of a given solution. The same terminology regarding injections, and the methodology for building logical chains of cause and effect are in force here.
For any resolution to a conflict, there will likely be multiple potential negative branches. If they can be trimmed, then the solution should be implemented. If they cannot be trimmed, the solution should be reworked or abandoned in favor of going back to the conflict cloud and finding a new solution. A negative branch is formed when you identify something bad that will happen because of a proposed solution. When we’re first introduced to this tool, Alex’s son Dave has asked to borrow his fancy BMW while Alex is on a week-long business trip.
Alex has some reservations, but isn’t able to articulate them clearly and gives his son a non-committal “Let me think about it.” as an answer. After some nudging from his wife, Alex does think about it and after floundering through a few items that reveal themselves to be excuses puts his finger on the real reservation. He doesn’t want to share his car, and if Dave has free reign over it for long enough, it will quickly become “their” car, and this will damage their relationship. His negative branch diagram eventually goes like this:
In the situation with Alex and his son, this diagram is utilized as both proof that Alex has indeed “thought about it”, and as a way of communicating those concerns in a way that avoids direct confrontation. Instead, they are able to look at the diagram, agree that there is a valid concern and then look together for ways to trim the branch.
Goldratt doesn’t mention this, but it strikes me as a crucial precondition for this sort of conversation that both parties need to be engaging in good faith. It would certainly be possible to argue and split hairs at each logical juncture to eventually respond “Your argument is invalid, now I get the car”, but what Goldratt does demonstrate is that it is to both parties' advantage to engage in good faith. Dave eventually proposes an extended “cooling off” period where he doesn’t ask to use the car after Alex’s trip, targeted at defusing proposition #2. Both sides see this as a win–Alex gets an extended period without Dave pestering him, and Dave gets to use the car without serious restriction while Alex is on his trip. It’s not the only solution that could have trimmed this branch, but the fact that it was arrived at together means that both parties are invested in both the problem and the solution.
Current Reality Tree
Breaking clouds and trimming negative branches are both important, but impossible if you don’t understand the big picture. This is where the Current Reality Tree comes into play. Current Reality Trees are large and complex, and we really only get one example of how to construct and use one. Over drinks during this aforementioned business trip, Alex gets cornered by the two board members (Jim and Brandon) he’s accompanying. Despite the fact that they’re selling his companies, they’re still quite impressed by what he’s done with them, and want to know what his secret is.
As Alex introduces them to the “Thinking Processes”, they discuss the necessary-but-insufficient nature of intuition in running a business. Alex has been so adamant about the efficacy of these tools, they want to see a demonstration, and begin grousing about all of the struggles they’re currently having with their businesses. Having promised to boil the issue down to a manageable set of root-causes, Alex begins guiding them through the process of creating a Current Reality Tree.
When I was in business school, I learned that, second only to collecting fees, what business consultants love most is writing things on post-it notes and then shuffling them around. It’s in this area that the Current Reality Tree really shines. The process begins by writing down a long list of UnDesirable Effects, hereafter referred to as “UDEs”. (Rhymes with “cooties”.) This is where you list out everything that is going wrong, every fire you find yourself fighting, and everyone that you’d like to blame. The only difference between this and any other gripefest is that each of these UDEs are being written down.
Once you feel like you have a representative sample of UDEs, the goal is to join all of them together into a single logical tree, of the same general type that we’ve already seen. It may take a great many injections to join all of the UDEs together, but the ultimate goal is that you can see logical cause-and-effect relationships connecting them all. As Alex fleshes out the large tree, he comes to the inevitable conclusion–all of the problems that Jim and Brandon mentioned are caused by (drumroll) managers striving to achieve local optima. It’s our old friend, back again to cause more trouble.
Finding a root cause is not the end result of a current reality tree, however. Once you’ve got the lay of the land, it’s time to find the inherent conflict that is driving the root-cause UDE. Look back through the tree again, and it shouldn’t be hard to spot. Once Alex creates this tree, he tries leveraging it to create a truly breakout solution, but his initial attempt at breaking his conflict cloud fails. Not because the solution doesn’t work, but because it doesn’t work well enough. Breaking a cloud is good, but not all methods of breaking the cloud are created equal. Some solutions are more powerful than others, and so Alex goes back to the cloud and begins working on a different arrow, looking for a more powerful solution.
Future Reality Tree
That new solution Alex finds manifests in the form of a few related strategic objectives. The objectives look like impossibilities when they are first articulated. And so, after all of that preparation, the real work begins–constructing the Future Reality Tree.
A Future Reality Tree functions much like a proof of a mathematical postulate. You posit that some strategic objective is possible, then set out to derive the chain of logic by which that possibility becomes reality. Is this also just a fancy word for “planning”? Perhaps, but most “planning” meetings I’ve been a part of have assumed that the territory is largely known and that the largest hurdles are logistical. The construction of a future reality tree is a much more creative process, with much less certainty that a path to the objective actually exists. It’s less traditional “planning” and much more about “engineering”. Alex begins his Future Reality Tree with his new injection from the conflict cloud, and uses the tree to better understand what that injection implies and how to bring it about.
Negative Branches make an appearance here as well, and not just for checking that a proposed solution is acceptable. They are also used to, in Goldratt’s words, “trim the wings of the flying pigs” that can be created while performing pie-in-the-sky injections to create powerful conflict resolutions. For this negative branch, you’re creating a logical tree to describe why a given solution will not work. At some point, your positive action will lead to a negative result. Focus on the arrow connecting those two concepts and surface the assumptions and conflicts embedded within it to find additional injections that will trim the negative branch. If you can accomplish this, then you have both proven out your solution and created a road map for how to get there.
FInal Thoughts
Goldratt pulls no punches when it comes to selling the thinking processes. I roll my eyes right along with Alex when he remembers Jonah insisting things like: “This method will always create a win-win solutions.” At the end of the day, Goldratt is a consultant, and despite what the marketing says, no tool is correct for every job. But when I read his books, I become a believer in spite of myself. There’s been a fair amount of academic work done on these processes, and what I’ve seen of it indicates that these ideas are typically very impactful and at the least, have done no harm. (Although the standard disclaimers about small sample sizes and inconsistent reporting absolutely apply here.)
And in my life outside of business? I’m brought back again to my original two questions: What is the right thing to be doing right now, and how can I discover it? I can look at the list of UDEs I’m currently struggling with, find the root causes, and find what I need to focus on next. And, How might I achieve those objectives? By engineering solutions, carefully vetted and grounded in my current reality.
We’ve all got personal problems, and our civilization has plenty more to spare if we ever run out. In this environment, I believe that a set of tools to put people on the same side of the table, incentivize good faith, and provide tractable solutions and roadmaps would be one of the most valuable things we could possess. You could do a lot worse for that than the system Goldratt describes here, and I’m not sure I’ve seen anything better.
