Jul 20, 2009

"The Goal" by Goldratt

I read The Goal by Eliyahu Goldratt. Of the Darden book list, this book was the sole required reading for the summer. It is an interesting book that takes a form of a novel. Its key precepts are not expounded, but rather unraveled using platonic dialogue between its protagonists Jonah and Alex Rogo.

Put simply, the book asserts that the goal of a company (implicitly for-profit one) is to make money. Isn't that a bit tautological? Anyway, the three measurements to achieve that goal are concepts called throughput, inventory, and operational expense. Throughout equates to sales, and you want to have more of them. Inventory and operational expenses are counterforces to sales, so you want to have less of them, but of course, you'll want enough of them to meet market demand so as to maximize throughput.

I found particularly interesting two things. One is a question about accounting concept. The other is a question about corporate life. First, based on the precepts asserted in the book, inventory is not desirable. It can be seen as a liability. Of course, in financial accounting is an asset. Where inventory declines, one debits expense and credits the inventory (asset). I find this very interesting. For example, Dell made its name by pioneering just in time inventory. Also, it's common knowledge that old inventory may become worthless. Both of these examples show that inventory is not generally desirable on the company's books. Hence, conceptually, much can be said to support the idea that it's a liability, rather than asset. (Same can be said about its place as an asset. It can be sold to generate throughput.)

The second challenging matter, that about corporate life, was the following. At the end of the book, Rogo asks himself what the role of a manager is. He asserts that a manager worth his salary should know the answers to the following:

1) What to change?
2) What to change to?
3) How to cause the change?

It's interesting to find the paramount place afforded to change. I suppose this is the reality. Those organization that fail to change, fail to live on.

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