It's Not Luck - Eliyahu M. Goldratt [48]
“Jim, you are not fair.” Brandon is uneasy with Jim’s remark.
I’m more direct. “Jim, all of a sudden all managers are incompetent? Come on. To me, what you said sounds more like UDE number six—‘Various functions are blaming each other for lack of performance.’ Can you do the formal connection to our tree?”
“I’ll try,” he smiles back.
While they both are struggling with it, I examine the list in the attempt to find an UDE that can be an alternative explanation to Jim’s suggestion of incompetence. UDE number five immediately presents itself: “Managers are trying to run their companies by striving to achieve local optima.” I decide to wait for Jim and Brandon.
When they finish, I ask, “Why do you think most distribution systems don’t improve fast and significantly enough?”
Half jokingly Jim answers, “Because they haven’t developed the solution that you and your people implemented in I Cosmetics.”
“That solution is nothing but common sense. What do you think prevented them from developing it themselves? Let me ask you an even tougher question. In any company that you know, do you think that it would be easy for a manager to convince the company to switch to such a system?”
That slows them down for a minute. Brandon is the first to answer. “No. It would be very difficult. As I already said, your system requires a change in the way plants are internally measured. It’s not easy to get a consensus for such a change.”
“And what about the cost accounting distortion that translates reduction of inventories into a huge artificial loss? Do you know that because of that distortion I contemplated reversing Bob’s implementation?”
“I don’t blame you,” Brandon says. “This morning I was very close to suggesting it myself.”
“If you agree with this, what do you think about the following? Let me start with a generic statement: ‘For every mode of operation, managers develop suitable measurements.’ ” When they naturally agree, I continue, “If, ‘Managers are trying to run their companies by striving to achieve local optima,’ and ‘For every mode of operation managers develop suitable measurements,’ then ‘There are important measurements that focus on local optima, e.g., cost accounting based measurements.’ Do you agree?”
“At last!” Jim exclaims.
And Brandon explains, “We were warned that before the end of the trip you would fill our ears with fierce attacks on cost accounting. Some even say that you call cost accounting ‘enemy number one of productivity.’ ”
“This is not a joke.” I’m irritated. “All the improvements that I initiated in production and engineering were flying in the face of all cost accounting measurements. Efficiency; variance; product cost; you name it, I had to violate it. It was the only way to improve the companies. Let me tell you, more than once, I was sailing too close to the wind. If it was not for the speed with which our changes improved the bottom line, I wouldn’t be sitting here now with you.”
“Carry on,” Brandon pats me on my shoulder. “We fully agree.”
Still a little irritated, I decide to return to the tree. “Here is another facet of the same thing: ‘Many actions that are needed for improving lead-time, reliability, quality, response time and service do not save cost, and/or increase cost in the short run.’ Before you ask, let me make it clear that I mean ‘cost’ in the traditional sense. The way it is measured by cost accountants in the plants.”
“Unfortunately, we don’t have any quarrel with you,” Brandon assures me. “We examined very closely what you have done in your previous division and we must agree. You did violate every local measurement and at the same time, everything you implemented made perfect sense. Our only problem is the painfully slow pace with which your improvements are picked up by others in UniCo. But carry on, let’s see where you intend to take it.”
“Now it’s just a matter of putting all of it together. If ‘There are important measurements that focus on local optima, e.g., cost accounting based measurements,’ and ‘Many actions that are needed for improving lead-time, reliability,