It’s Not Luck. – book reviews

It’s Not Luck. – book reviews

Duncan Maxwell Anderson

I have good news: Eliyahu M. Goldratt has just published a sequel to his mind-bending, earth-shattering business novel, The Goal (1984). This one, another fast-paced tour de force on management, money, and the joy of work, is called It’s Not Luck. Like its predecessor, It’s Not Luck will rivet your attention, clarify your thinking, and improve your business. Truly, it isn’t luck that has enabled Goldratt to sell more than 1.3 million copies of his first book through a small press. The Goal was promoted principally by word of mouth – entrepreneur to entrepreneur, CEO to CEO. Rather than luck, it’s focused genius.

For the uninitiated: Goldratt, a physicist turned business consultant, put conventional wisdom on its ear with his “theory of constraints,” first outlined in The Goal. The shocking truth is that many businesses fail to pursue profits directly. As one company president commented to SUCCESS, if you do things the conventional way, “You chase efficiency, lower unit costs, and all those other things the accountants tell you to chase. You can set records in all of them – and still go broke.”

The Real Engine of Business

What really keeps your doors open? Throughput – making something (or rendering a service) someone wants and getting paid for it. (The conventional definition of throughput focuses on moving product out the door. Goldratt says throughput is meaningless until you get paid. While the loudest Goldratt adherents have been manufacturers, the logic applies just as powerfully to service businesses – indeed, to all organizations.) That’s all. You can cut costs until you’re down to one machine and one workman, but without throughput, you’re gone.

Goldratt’s analysis makes you look at the real constraint on your business process: production flow at your bottlenecks – the places where, if work stops there, throughput stops. Because life is disorderly, Goldratt says, the real efficiency is to put more capacity than you need at your bottlenecks, so that no matter what accident happens – if a machine breaks, if a manager arrives with a hangover, if a last-minute order comes in – throughput goes on and money comes in. The faster throughput occurs, the more revenue you take in per unit time and the lower your overhead costs become per sale. And if you’re fast, you don’t need to depend on inventory to respond to customer orders, and inventory costs go down, too. It seems like common sense, and is. You, too, can command a profit machine.

Horror Show

In It’s Not Luck Alex Rogo, who saved a factory in his division in The Goal by applying the theory of constraints, now must help the three company presidents in his division perform miracles. It won’t detract from the considerable suspense to say he succeeds brilliantly. The unfolding drama helps clarify the powerful process by which Rogo and his team of top executives derive solutions from seemingly impossible situations. The corporation wants to sell all Rogo’s companies to competitors – which will buy them just to close them and eat their market share. It’s too horrible to contemplate.

They must persuade everyone, from workers on the shop floor to members of the board, to embrace not just the theory of constraints, but a whole new set of insights. Here are some of them:

Don’t compromise when you see a problem or conflict. Look for the hidden assumptions that make the problem appear intractable and explode them. Suppose you’re selling to cash-strapped retail stores that buy six months of inventory because they can’t afford to be out of stock – incurring huge carrying costs. And sometimes they take 120 days to pay you. Here’s the conflict: They want inventory on hand – yet they don’t want it on hand, because that means carrying its cost.

The solution is to explode the assumption that the only way to have something on hand is to buy it six months ahead. Solve the core problem: Offer them daily inventory replenishment, so they’re never short. And offer them the goods on consignment – no cash outlay – so they can afford your price, in return for shelf display space and frequent sales reports. It seems as if you’re increasing your risk, but you’re not. On two-month consignment, the goods will be paid for within one inventory turn – about 45 days – as opposed to 120 days.

Managers’ perception of what a product is worth is heavily influenced by what it cost to design and make it. The customer’s perception is based on his benefit from using it. Here’s the surprise: Taking the customer’s point of view offers more profit potential.

Why? It frees you to focus on high-benefit uses of your product or service. When you buy a plane ticket, the airline doesn’t simply charge you your proportion of the cost of flying you across the Atlantic. You pay for convenience, if it’s a last-minute purchase; you pay more at certain times of year; you pay more for first class. The market is segmented, based not on who or where the customer is, but on what he needs. To the customer, the product isn’t simply the product. It’s a complex offer that includes financial terms, guarantee, service, delivery terms. He might actually value peripheral changes in the offer that don’t cost a dime more or take much time to provide. And yet, you could charge more for them.

The easiest and quickest improvements in your offer will come from eliminating negatives. They’re well known to the client. Unlike the positive benefits of expensive new bells and whistles, the benefit of being rid of negatives is obvious.

Profitable Problems

How do you find the most profitable problems? Market surveys are expensive and unnecessary, Goldratt suggests. Two or three representative clients can tell you the core problems all of them face.

The truth is that a customer wants not a product, but the benefit of it. For instance, if selling expensive equipment cheaply to stressed-out customers is difficult, perhaps providing the benefit itself is easier and more profitable. After all: Offices don’t own huge Xerox machines – Xerox keeps them running for a fee.

Why does Goldratt, in both books, focus on saving jobs at unprofitable companies? Isn’t this unrealistic or fuzzy; Let’s go back to first principles. A necessary goal of a company is to make money – now and in the future. There are necessary conditions, however. One is providing satisfaction to customers. And another is providing a secure and satisfying work environment for employees – now and in the future. Both number-crunchers and socialists need to learn that you can’t run a company profitably if the employees are demoralized.

It’s Not Luck teaches you how to think and how to spark the spirit necessary to achieving the real goals of business.

COPYRIGHT 1994 Success Holdings Company, LLC

COPYRIGHT 2004 Gale Group