The Goal Summary & Book Review
The Goal is a book designed to influence industry to move toward continuous improvement. First published by Eliyahu Goldratt in 1984, it has remained a perennial bestseller ever since.
It is written in the form of a gripping business novel. A WHAT!!! Since when are novels written about a factory located in a small town???
Who is This Book For?
Everyone from production managers to college students to CEOs should read The Goal. It is surprisingly easy for people of all levels to read because it is written as a story.
Although it describes manufacturing operations, The Goal book is relevant for all types of situations because it is about learning what makes the world tick so that you can improve it. As the characters "think logically about their problems" they gradually uncover the "cause and effect relationships" between actions and results.
The Goal is one of three books that Jeff Bezo requires his top management team to read. In fact, he uses it as a framework for sketching out the future of Amazon.com.
The Goal Summary: Outline of This Article
This comprehensive book review of the Goal contains six sections:
Alex, an educated and competent manager at UniCo, is excited to get transferred back to his hometown Bearington with his family. But his moment of bliss quickly evaporates once he realizes that his factory is facing difficulties and might even get closed down!
Shipments are always late and their production backlog is growing, yet somehow inventories also keep soaring. The team wonders why they can't seem to ship on time with good quality at a reasonable cost. Alex resolves to do whatever it takes to save the manufacturing plant…
Meanwhile his wife, Julie, struggles to adjust to the monotonous life in the small town. Alex’s long hours at office put additional strain on their relationship, as things go from bad to worse.
Given three months to turn the plant around, Alex chances to bump into his old Physics professor, Jonah, who challenges his thinking and gives a series of clues about how to save the division.
Jonah takes on complex subjects like "productivity" and defines them in simple terms. For example: "Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive." But what is the goal?
Following Jonah's clues, Alex mobilizes his team at the plant to find ways to improve the flow of production and somehow ship the huge backlog of orders on time. Along the way they discover the importance of constraints and learn how to manage them to achieve growth and profitability.
Alex eventually realizes that the goal is not cost-effective purchasing, employing the right team members, the latest technology, producing quality products, capturing market share, customer satisfaction, etc. but rather making more and more money.
Once the plant’s operations stabilize, Alex finds himself spending more time with his family. He wins back his wife’s affection and his plant suddenly becomes the most productive one in the company. Alex is promoted to President at UniCo and entrusted with the task of implementing Jonah’s advice throughout the entire division.
Towards the end, he begins to realize that 'bottlenecks' or constraints can change over time, and hence he must adapt his way of managing the business. But Jonah has given him the key questions to find solutions to these challenges as they arise… the secrets to the Process of On-Going Improvement (POOGI).
Cast of Characters
Chapter 1 (The Goal)
This chapter introduces the main character Mr. Alex Rogo, an industrial engineer and an MBA graduate who manages a plant of the UniCo Manufacturing Corporation. He arrives at the office one morning to discover that his parking slot has been taken by the division Vice President Mr. Bill Peach. The conversation becomes heated when they discuss order #41427 that is seven-weeks overdue. Bill is very angry and warns Alex that he must turn around the factory within 3 months or it will be shut down. Furthermore the overdue order must be shipped that very same day or else…
Chapter 2 (The Goal)
Alex reflects back back on his travels, finding himself back at the place where he started from. "I’m 38 years old and a crummy plant manager."
The scene shifts to Alex’s home life. His wife Julie is from the city and is struggling to adjust to small town life. They get into an argument when Julie wants to go out for lunch. He promises her to be back early that night and then heads towards the plant…
Alex reaches office only to discover a worse-case scenario wherein a machine has completely stalled. He pushes all the employees to work extra hours and somehow, order #41427 finally gets shipped late that night. But this achievement comes at the cost of declining efficiencies and further delays for other orders. Later that night, while at dinner with a colleague, he reflects upon the mismatch between the company's MIS system reports and actual profits…
Chapter 3 (The Goal)
The next morning, Alex rushes to attend a meeting of plant managers at headquarters. In the elevator Alex’s co-worker Nathan Selwin explains why Peach has been behaving so strange lately. The entire division has been given one year to improve or it’s going to be sold!
At the meeting, Peach explains how bad things are and hands out new stretch targets for the next quarter…
Chapter 4 (The Goal)
While at the meeting, Alex remembers running into his old physics professor, Jonah, at the airport. Jonah marvels Alex with his intimate knowledge of how badly Alex’s plant is doing. With no prior knowledge, he accurately predicts problems like high inventories and missed shipping deadlines.
How did Jonah know so much about Alex's factory???
Their conversation is interrupted so that Jonah can catch his flight. But he leaves Alex with a lingering question: "What is his company's ultimate goal?"
Chapter 5 (The Goal)
Alex mind keeps wandering and he leaves the meeting to take a break. He cannot stop pondering over Johan's question. Suddenly it strikes him that the Goal of his company is to make money! Anything that brings him closer to the Goal is productive. Hence, all other activities are non-productive!
Chapter 6 (The Goal)
Back at the office that evening, Alex sits with the plant's controller, Lou. Together, they discuss the details of how the plant could go about achieving the Goal and the new targets. There is an urgent need to increase cash flow, return on investments, and the net profits. When Alex runs the numbers, the task seems daunting, almost impossible. Their conversation stretches late, and Alex finds himself in trouble once again with Julie when he calls home…
Chapter 7 (The Goal)
Returning home at a very late hour, Alex is surprised when his daughter greets him in the doorway. She wanted to show him her school grades, but this is the only time when should could get her father’s attention.
After tucking her into bed, he begins to rethink the situation from a more positive perspective. But he realizes that he might need guidance from Jonah once again…
Chapter 8 (The Goal)
The next morning at work, Alex tries to apologize to Peach after skipping out of his meeting the previous day. Unable to get through, Alex decides to trace down Jonah instead. In response to Alex’s questions, Jonah reveals three operational measurements. "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." Their conversation gets cut short once again. Alex is left wondering how to relate them in terms of the plant's operation…
Chapter 9 (The Goal)
The head of the company decides to come down for a photo shoot with the robots in the factory. Alex begins to reflect on the viability of the robots. With the help of Lou the accountant, the inventory control person, and the production manager, Alex discovers that the robots increased operating expenses without reducing any costs like direct labor, which was merely shifted to other parts of the plant. Since inventory stayed the same and throughput did not increase, the productivity of the plant declined because of adding the robots!
Chapter 10 (The Goal)
Alex and his team (Bob from production, Lou from accounting and Stacey from inventory control) reviewed the meaning of throughput, inventory and operating expense until everyone was satisfied. Lou, summarizes them as follows. "Throughput is money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make throughput happen."
Bob remains skeptical that everything can be accounted for with just three measurements. But Lou explained that machines, tooling and the whole the building are all just different forms of inventory. Stacey remarked, "So investment is the same thing as inventory." Together they decide that something drastic must be done with the machines. But how can they do that without lowering efficiencies? They call Jonah in search of answers, but to speak to him Alex must visit New York…
Chapter 11 (The Goal)
Alex catches Jonah briefly in his hotel in New York City and shares the details of the plant’s problems. Jonah assures Alex that all the problems can be solved despite their looming deadline.
He advises Alex to forget about the robots, and stop chasing efficiencies. After all, "a plant in which everyone is working all the time is very inefficient."
Jonah rejects Alex’s notion of a balanced plant, claiming that "the closer you come to a balanced plant, the closer you are to bankruptcy." Then he leaves Alex with another riddle: consider what "dependent events" and "statistical fluctuations" have to do with your plant? Both harmless enough to Alex, who feels confident that both should work themselves out farther on down the production line…
Chapter 12 (The Goal)
Upon his return home, Alex gets caught in an argument with his wife about all the unanswered phone calls. At this point his marriage is very strained due to the pressure of work and lack of time available for his family. Alex promises to set aside some time for her over the weekend…
Chapter 13 (The Goal)
Alex wakes up on Saturday morning surprised to find his son dressed and ready to go on an overnight Boy Scouts hike. Alex forgot that he had volunteered to lead the boys!
As they hike, the boys in the troop keep getting spread out further and further. It seems Alex discovered the true meaning of "dependent events" in relation to "statistical fluctuations" by fluke! This analogy between a single file hike through the mountains and a manufacturing plant, makes Alex realize the difficulty of making up the downside of the fluctuations following "dependent events". The last event must always catch up everything to average out, which rarely ever happens.
Chapter 14 (The Goal)
To observe the effect more carefully, Alex devises a dice game to play with the boys. It quickly becomes clear that any balanced plant faced with "statistical fluctuations" and "dependent events" will see throughput going down and inventory going up. Jonah was right - a balanced plant is not the answer!
Chapter 15 (The Goal)
The next day the troop begins to hikes again. But this time, Alex decides to let the slowest kid named Herbie lead the line. He also distributes some of the extra weight that Herbie was carrying. As expected, the fluctuations of the line balance out and the hikers reaches together on time, thus increasing the “throughput” of the entire troop!
Chapter 16 (The Goal)
Sunday evening when they reached home from the camping trip, Julie has gone missing. In her note, she expresses frustration that Alex is spending all his time at work and has yet again broken his promise to spend time with her.
He picks up his daughter from his mother's house and tries to reach Julie on the phone. Despite making several calls to friends and acquaintances, he is unable to locate her anywhere. Now the kids and the job are all Alex’s responsibility…
Chapter 17 (The Goal)
The next day at work, Alex explains his revelation about dependent events and statistical fluctuations to a hesitant team of co-workers. Fortunately, he is able to prove his point by using these principles to complete a large overdue order. The team’s skepticism fades and even the production supervisor agrees. Now what…?
Chapter 18 (The Goal)
The team is beginning to trust their boss and appears ready to act on his command. But Alex, on the other hand, remains unsure what to do next. Predictably, Jonah is consulted once again.
This time, the professor discloses the Theory of Constraints: "A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it. A non-bottleneck is any resource whose capacity is greater than the demand placed on it." Jonah carefully explains that Alex must NOT try to balance capacity with demand, but instead balance the flow of product through the plant.
Alex and his team set out to find their bottleneck and zero in on the NCX-10 machine and heat treatment section…
Chapter 19 (The Goal)
Jonah finally visits the plant in person. He explains to Alex that every plant should have bottlenecks (!), and that a system can only increase production by increasing capacity at the bottleneck operations.
But Alex is confused. What must he do to increase the capacity of the plant? Ideally he would like to purchase an additional machine, but they have neither the time nor the budget for that. Jonah muses that more machines to do the bottleneck operations might help, but weren’t they forgetting about making the existing machine run more effectively?
How much does it costs when the bottlenecks (NCX-10 and heat treatment) machines go down? Lou quotes $32 per hour for the former and $21 per hour for the latter. And how much does it cost when the whole plant goes down? About $1.6 million. How many working hours are available per month? About 585. Jonah then reveals that when the bottlenecks are down for just an hour, the true opportunity cost is more like $2,735. That is because each minute of downtime at a bottleneck translates into lost throughput for the entire plant!
Chapter 20 (The Goal)
Alex prioritizes the bottlenecks to work on the overdue orders starting from the most overdue down to the least. While this production plan is being set into motion, Alex discovers that his wife Julie had been staying with her parents. But when he tries to convince her to come home, she insists that she needed more time to herself…
Chapter 21 (The Goal)
The crew works out a detailed plan to keep the bottlenecks fully utilized. They soon discover that they need a mechanism to inform workers about the priority sequence at non-bottlenecks as well. A system of red and green tags is put into place to map priorities visually: Red for bottleneck parts (to be worked on first) and green for non-bottleneck parts (to be worked on second).
Alex is determined to make up for the weekend he owes Julie, so he asks her out for Saturday. She is excitedly agrees to this plan. This time, Alex manages to keep the date he promised his wife without any interference from work…
Chapter 22 (The Goal)
Monday morning, Alex is excited to learn that their new system is actually working… the plant managed to ship twelve overdue orders! Alex is pleased, but he definitely wants more. He invites suggestions from the team for additional improvements. Bob, the production manager, finds and refurbishes an old machine to take some of the load off the NCX-10. Things are finally beginning looking up…
Chapter 23 (The Goal)
New problems crop up at the bottlenecks to disrupt production. There is nothing to do while waiting for the bottleneck to finish its batch, so workers have been shifted to other areas between batches to keep busy. To prevent this, Alex dedicates one foreman at each constraint location all all times. One of his dedicated foremen discovers how to process more parts by mixing and matching orders by priority, thus hiking efficiency by a full 10%.
Meanwhile, things are beginning to work out between Alex and Julie as well…
Chapter 24 (The Goal)
The team is excited about the sudden increase in performance and decides to celebrate. Afterwards, Stacey dropped Alex home but Julie is waiting up for him. She becomes suspicious that Alex might be cheating on her and leaves!
Back in plant, the new priority system is in place. The rate of flow has increased considerably, thus reducing inventory.
But now that the productivity of the bottleneck has improved, new bottlenecks begin to surface! This intrigues Jonah and he decides to visit the plant to have a look…
Chapter 25 (The Goal)
After studying the problems, Jonah explains that there aren’t any new bottlenecks! Rather, the current practice of prioritizing non-bottlenecks to work first on bottleneck parts inadvertently caused the problem. Another part, which is required for final assembly, does not require any work by the bottleneck. Hence those parts were produced on lowest priority, leading to shortages at final assembly.
The solution might be to rework the tagging system to create an equal supply of the two parts. The focus now expands to include matching the production of bottleneck parts to ensure timely availability of non-bottleneck child parts. If successful, this could also reduce the accumulation of bottleneck parts in WIP inventory at the assembly line (while awaiting their respective matching parts from the non-bottleneck processes)…
Chapter 26 (The Goal)
Jonah & the team (including Ralph, the computer whiz) devise a plan to anticipate which products needed to be finished by when and release them into production accordingly. It might take some time since there are so many parts stacking in front of the bottleneck. But this would eventually create a balance between production of the bottleneck and non-bottleneck parts. Tired but relieved, Alex drops Jonah back to catch his flight at the airport...
Chapter 27 (The Goal)
Once again, Alex is summoned for another corporate meeting. But this time, he is expecting plenty of appreciation for the achievements of his team.
Instead, the meeting turns into a disaster. Though Alex’s plant made progress over the last couple of months, none of the others are doing well at all. Management is considering closing the entire division. When Alex confronts Mr. Peach in private, he is told that if he can improve another fifteen percent, he might be allowed to keep his plant open. It seems pretty challenging because this would require generating additional new demand from the market. Despite his secret misgivings, Alex promises to achieve it.
When he returns to spend time with his wife and kids, he manages to get into another fight with his wife. But they eventually resolve their differences and make up.
Chapter 28 (The Goal)
Later, as Alex ponders over how to increase demand from the market (15% !?#!) while reducing inventories, his thoughts are interrupted by the ring of the telephone. Jonah has called to inform that he will not be available for advice over the next few weeks.
Alex informs him about his new stretch targets and how difficult they appear. Jonah suggests reducing the batch sizes down to half of their current level. Doing this could potentially reduce inventory levels by half. Also, they could achieve faster response times and shorter times for orders. But it would mean several operational changes including negotiating new deals with the vendors. Alex bumps into Johnny Johns, the division sales manager, and requests him to create a new marketing strategy to achieve the new targets.
Chapter 29 (The Goal)
John has found a customer willing to purchase 1,000 products in just two weeks’ time. In fact, this order may lead to more business in the future as well! But can the plant produce that much, given their existing commitments? The team realizes that smaller batch sizes can help but will not completely solve the problem. Working together, they find a novel way to spread out the new contract deliveries over four weeks (250 products per week). The customer loves their proposal and they win the order. Thus, smaller batches become a key factor in their ability to increase sales.
But Alex remains worried about the fact that his efficiencies and P&L statement appear to be getting worse, despite all the growth and productivity improvements. Lou the accountant tells him not to worry and promises to contest the MIS reports which are clearly misrepresenting the reality of their improvements.
Chapter 30 (The Goal)
The month is over and results are in. Lou calculates an improvement of Seventeen Percent as per his new accounting method!! Most of this increase is thanks to delivering on the new order…
But Hilton the productivity manager gets a whiff of the news and drops in to audit the plant. According to his calculation there is only a 12.8% increase when going by the standard method of accounting.
Meanwhile, the owner of their new customer, Mr. Burnside, shows up to personally shake hands with the team for delivering their order so quickly. He has decided to increase the size of the contract from 1,000 parts to 10,000!
Afterwards, Alex meets Julie and they reclaim their relationship. But tomorrow is the final day of reckoning back at the division headquarters…
Chapter 31 (The Goal)
Instead of meeting directly with the boss, Alex finds himself discussing matters with a committee of Mr. Peach’s subordinates. They seem to believe that that the plant’s extraordinary growth is just temporary, and that the plant will soon begin to show major losses. Lou tries to point out the flaws of the old accounting model to the division controller, demonstrating that the actual growth for that month was almost 20%.
As the discussion drags on, Alex becomes impatient. He tracks down Mr. Peach to defend his plant's growth, but the decision has already been made… the plant will continue operations and will not be shut down! Moreover, Peach has been promoted and Alex is to take over his old position as head of the division! Now, Alex has to manage three plants instead of just one!
Alex calls Jonah in search of urgent advice, but Jonah refuses to offer much assistance. He has specific questions to ask first…
Chapter 32 (The Goal)
Alex and his wife decide to celebrate his promotion with a candlelit dinner in an expensive restaurant. Over wine, they discuss Jonah's critical role in the events that transpired in the past months. Why couldn't they do it without Jonah's questions and occasional advice, which seem like little more than common sense?
Alex now faces the challenge of getting a whole new set of workers to buy in to these ideas from scratch. How can he do this without putting them off and being condescending?
Chapter 33 (The Goal)
Alex makes his appearance at the plant, but this time as the division Vice-President. He promotes his team members Lou, Bob, Stacey, and Ralph, to higher positions within the division, carrying greater responsibilities. Now he is all set to embark upon the next major stage of planning and growth…
Chapter 34 (The Goal)
Now that Alex’s core team has taken up their new positions, it is time to take their model to a new level. The concepts that were being applied for just one plant must somehow be modified to work for the entire division. This will involve plenty of work and each team member's intense involvement. So they decide to meet on a daily basis to work out their strategy and tactics.
Chapter 35 (The Goal)
As the team brainstorms, they discuss how chemists invented the periodic table of elements. How were they able to classify something so vast into one simple table? Maybe this is how they can approach the massive problems of their division! Those scientists began by observing vast chaos and gradually derived it’s underlying order. By thinking like scientists, they must design a common framework to examine all the issues of the division…
Chapter 36 (The Goal)
As the team reviews the process they followed to fix the situation at their plant. Gradually they formulate a five-step Process Of On-Going Improvement (POOGI):
Chapter 37 (The Goal)
As the team reviews the five focusing steps, they discover various issues to be addressed. The last step in the five-step process, for example, must ensure that inertia does create any system constraints.
They discover some fictitious orders were created to keep the bottlenecks busy. Eliminating this can free up 20% capacity, which can be used to fulfill real orders in the future. Stacey modifies the tagging system, and Alex and John plan future expansion in the market.
Chapter 38 (The Goal)
John finds a new client in Europe which is large enough to utilize the excess capacity that has been freed up. But there is a catch – the deal would have to be priced significantly lower than their offering to the local market. But the deal could open up new opportunities in Europe, which has a lot of other potential large customers.
Alex decides to analyze the situation from the perspective of a physicist. They could use their existing spare capacity to meet the contract requirements and the only additional cost would be raw materials. Despite the lower pricing, this would still lead to incremental profit in the division’s book of accounts… and since the customer is in Europe, selling there should not cause any reduction in the pricing for domestic orders. Eureka!
Chapter 39 (The Goal)
Another problem at the plant… all the fresh orders seem to be creating new bottlenecks all over the place! Julie, who has been reading Socrates, explains the theory of 'if… then' deduction. She explains the importance of considering all of the scenarios that can arise and how prepare for all the side effects of a new initiative.
After analyzing the problem, the team decides to increase the inventory in front of the bottlenecks to ensure utilization of their full capacity. This will increase cycle times and hence the sales team can promise to fulfill new orders after four weeks, twice as long as before. Although this may jeopardize some of their new customer relationships, it appears to be required. Business is an ongoing process of improvement, and when new problems arise they must be dealt with head-on.
Meanwhile, Alex is called upon by Peach to help Hilton with his plant's improvement and is asked to visit the plant and teach his practices.
Chapter 40 (The Goal)
While Alex and Lou ponder over Jonah’s questions, they creates a few of their own:
Main Lessons From The Goal Book
Initially, Alex’s thinking is distorted by conventional management accounting metrics. This causes him to waste time and energy “improving efficiency” even though it has no impact on the profits of the division. Jonah helps Alex align his organization to the Goal by distinguishing between three operational measurements:
Armed with these definitions, Alex has a sound basis to analyse whether his decisions are helping the plant move towards the Goal (to make money, as characterized by increasing throughput and/or decreasing inventory and operational expense). Between these three operational measurements, increasing Throughput impacts profitability far more than reducing Inventory or Operating Expense.
The slowest operation always determines the maximum speed at which products can be produced and therefore also the rate at which throughput can be realized. This slowest machine is called the Bottleneck or Constraint. A lost production hour on this bottleneck tends to be very costly.
Jonah outlines the secrets to managing constraints (Theory of Constraints) by asking questions. The answers to his questions form five focusing steps to improve the performance of any system (sometimes known as the Process of On-Going Improvement or POOGI):
Key Takeaways for Managers: How to Drive Continuous Improvement
1) Measurements Drive Behavior: any misalignment in measurements causes a wide range of destructive tendencies. It is your responsibility to identify The Goal of your organization. Be sure that your metrics align completely to this Goal.
2) Seek Answers: Be active in your quest for knowledge. The answers are out there, you just have to discover them. Sometimes the answers can be found in unlikely places, such as Jonah, an old physics professor.
3) Teamwork: Teams are very important to driving change and improvement. The more heads on the job the better. People have different opinions and outlooks; someone else may think differently than you ever would have.
4) Never Give Up: There is always a chance to recover as long as your organization in still running. Don’t be afraid to challenge the status quo. The battle is not lost until the moment you give up and stop trying.
5) Work Smarter, Not Harder: Oftentimes our greatest efforts are ineffective and sometimes even counter-productive. But by focusing on the right areas we can achieve breakthrough results
6) Improve the Overall System, Not Just the Individual Parts: Effective coordination between Operations and Marketing/Sales is critical to achieving the Goal, not just optimizing a single link in the value chain.
The Goal continues to transform a variety of different fields including:
But Dr. Goldratt did not intend his book to be only for managers. It should be taught as part of every MBA, accounting course and leadership development program because of it's thought provoking explanation of business fundamentals.
Also: click here for an interesting back story about events leading up to the writing of The Goal.