It's Not Luck - Eliyahu M. Goldratt [8]
“Fat chance,” he mutters, but the color is returning to his face.
“One thing is clear,” Don says, “Pete must stop the bleeding of the wrapper department.”
“Yeah,” Pete agrees. “But if you are unwilling to give me the money, the only way I can do it is by closing down the whole department.” It’s the same everywhere, it is just a matter of scale. At corporate we are talking about closing plants and at the company level we are talking about closing departments. There must be a better way. “No, it won’t do,” Pete says. “It will improve the bottom line, but it won’t turn the company into a gold mine. It will just reduce the possibilities. I don’t see any way out.”
I don’t know what to say. I don’t see it either, but to Pete I say, “Remember what I taught you? There is always a way out. In the last year you and your people have proven it over and over again.”
“Yes,” says Pete, “but on technical issues, on logistical issues. Not on such a problem.”
“Pete, think about it. Use Jonah’s techniques. It will come.” I wish I felt as confident as I sound.
“Until now, I hadn’t realized how devastating the board’s decision is,” Don says when we’re back in the car. “That’s the danger of using common sense, when the entire industry is using common nonsense. Things change above you and you are forced back.”
I don’t answer. I concentrate on finding my way back to the highway. Once we reach it, I say, “Don, you know it’s not just Pete’s problem, it’s ours as well. If Pete’s company is sold for peanuts, the black mark is on us. See, that’s why closing the wrapper department is out of the question.”
After a while, Don says, “I don’t see the connection.”
“On our books these giant printing presses are depreciated over a ten-year period. If we close the department, the value of the presses drops to their selling value, which is relatively nothing. It will further degrade the asset base of the company. Which could mean that we’d get an even lower price. Don, we are captured in a conflict.”
“Yeah, I see. And as you taught me, whenever we face a conflict we should not attempt to avoid it by compromising.” Don opens his briefcase, and takes out his folio. “First step is to precisely verbalize the conflict, then we can find how to break it.” He starts to write the cloud. “The objective is ‘Sell Pete’s company for a good price.’ ”
I don’t agree with the objective, but prefer not to comment.
“One requirement is ‘Increase profit.’ Which means that we have to ‘Close the wrapper department.’ Another requirement is ‘Protect the asset base,’ which translates into ‘Keep the wrapper department operational.’ What a conflict!” I glance over at what he wrote:
It’s a good starting point. “Okay, Don. Surface assumptions, and challenge them.”
“In order to get a good price we must increase profit, because . . . ?”
“Because profit of a company determines its value,” I surface the assumptions.
“Yes,” says Don. “I don’t see how to challenge that, especially in Pete’s case. He doesn’t have any promising new technology, or a new patent that would make the current profits irrelevant.”
“Carry on,” I say.
“In order to get a good price we must not erode the asset base, because . . . . Once again, because the value of the assets determines the selling price of the company. I don’t see how the left side of the cloud can help us.”
When I don’t comment, he continues.
“In order to increase profit we must close the wrapper department, because . . . because the department is losing money. I have an injection!!” he declares. “Let’s turn the wrapper department into a gold mine!”
“Ha, ha.” I’m not in the mood for jokes.
“Okay,” Don says, “in order to not erode the asset base of the company we must keep the department operational because . . . because the book value of the equipment is bigger than the sales value of the equipment.” I don’t see any