The Goal: A Process of Ongoing Improvement (31 page)

It’s not until I’m busy with my delicious veal parmesan that my thoughts start to crystallize. What was the nature of the answers, the solutions, that Jonah caused us to develop? They all had one thing in common. They all made common sense, and at the same time, they flew directly in the face of everything I’d ever learned. Would we have had the courage to try to implement them if it weren’t for the fact that we’d had to sweat to construct them? Most probably not. If it weren’t for the conviction that we gained in the struggle—for the ownership that we developed in the process—I don’t think we’d actually have had the guts to put our solutions into practice.

Still deep in thought, I raise my eyes from the plate and examine Julie’s face. It’s as if she was waiting for me all this time.
"How come you didn’t think of it yourselves?’’ I hear her asking. "To me your answers look like plain, common sense. Why couldn’t you do it without Jonah’s guiding questions?’’
"Good question, very good question. Frankly, I doubt I know the answer.’’
"Alex, don’t tell me you haven’t thought about it.’’
"Yes, I have,’’ I admit. "All of us, back in the plant, had the same question. The solutions look trivial, but the fact is that for years we’ve done the exact opposite. Moreover, the other plants still insist on sticking to the old, devastating ways. Probably Mark Twain was right saying that ‘common sense is not common at all’ or something similar.’’
"That’s not an answer to my question.’’ She doesn’t let me off the hook.
"Just bear with me,’’ I plead. "I really don’t know. I’m not sure that I even know the meaning of ‘common sense’. What do you think we mean when we refer to something as ‘common sense’?’’
"It’s unfair to answer a question with a question.’’ She refuses my apparent attempt to turn the table.
"Why not?’’ I try again.
She doesn’t allow her lips to move.
"Okay,’’ I give up. "The best that I have come up with so far is to recognize that we refer to something as common sense only if it is in line with our own intuition.’’
She nods her head in approval.
"Which only helps to intensify your question,’’ I continue. "It only means that when we recognize something as common sense, it must be that, at least intuitively, we knew it all along. Why is there so often the need for an external trigger to help us realize something that we already knew intuitively?’’
"That was my question!’’
"Yes, darling, I know. Probably these intuitive conclusions are masked by something else, something that’s not common sense.’’
"What could that be?’’
"Probably common practice.’’
"Makes sense,’’ she smiles and turns to finish her dinner.
"I must admit,’’ I say after a while, "that Jonah’s way of leading to the answers through asking questions, his ‘Socratic approach,’ is very effective at peeling away the layers—the thick layers—of common practice. I tried to explain the answers to others, who needed them as badly as we did, but got nowhere. As a matter of fact, if it hadn’t been for
Ethan
Frost’s appreciation of our improvements to the bottom line, my approach might have led to some very undesirable results.
"You know,’’ I continue, "it’s amazing how deeply ingrained those things are that we’ve been told and practiced, but never spent the time to think about on our own. ‘Don’t give the answers, just ask the questions!’ I’ll have to practice
that
.’’
Julie doesn’t look too enthused.
"What’s the matter?’’ I ask.
"Nothing,’’ she says.
" ‘Don’t give the answers,’ definitely makes sense,’’ I try to convince her. "Spelling out the answers when you are trying to convince someone who blindly follows the common practice is totally ineffective. Actually there are only two possibilities, either you are not understood, or you
are
understood.’’
"You don’t say?’’
"In the first case, no real harm has been done, people are just going to ignore you. The second case might be much worse, people might understand you. They’ll take your message as something worse than criticism.’’
"What is worse than criticism?’’ she asks innocently.
"Constructive criticism.’’ I smile gloomily, remembering the harsh responses of Hilton Smyth and that Cravitz fellow. "You have a point, but it’s below the belt. People will never forgive you for that.’’
"Alex, you don’t have to convince me that when I want to persuade somebody—especially my husband—that giving answers is not the way. I’m simply not convinced that only asking questions is much better.’’
I think about it. She is right. Whenever I tried just to ask questions it was interpreted as patronizing, or even worse, that I was simply negative.
"It looks like one should think twice before charging the tall windmills of common practice.’’ I conclude gloomily.
Julie busies herself with the delicious cheesecake our waiter is placing in front of us. I do the same.
When the coffee’s served I gather enough stamina to continue the conversation. "Julie, is it really so bad? I don’t recall giving you a lot of grief.’’
"Are you kidding? Not only are you stubborn like a Southern mule, you had to go and pass on these genes to your kids. I bet you gave Jonah a hard time as well.’’
I think about it for a short while. "No Julie, with Jonah somehow it was different. You see, whenever I’m talking with Jonah, I have the distinct feeling that not only is he ready with his questions, he’s also ready with my questions. It must be that the Socratic method is much more than just asking questions. One thing I can tell you, improvising with this method is hazardous, believe me, I’ve tried. It’s like throwing a sharpened boomerang.’’
Then it dawns on me. Here’s the answer. This is the technique that I should ask Jonah to teach me: how to persuade other people, how to peel away the layers of common practice, how to overcome the resistance to change.
I tell Julie about my last telephone conversation with Jonah.
"That’s very interesting,’’ she says at last. "You definitely need to learn how to manage your life better. But sweetheart,’’ she laughs, "be careful, remember what happened to Socrates. He was forced to drink poison.’’
"I don’t intend
to give
Jonah any poison,’’ I say, still very excited. "Julie, let me tell you, whenever Jonah and I talked about my troubles at the plant, I always felt he anticipated my response. It actually bothered me for quite some time.’’
"Why?’’
"When did he have the time to learn so much? I’m not talking about theories, I’m talking about his intimate understanding of how the wheels are really turning in a plant. As far as I know, he never worked one day of his life in industry. He’s a physicist. I can’t believe that a scientist, sitting in his ivory tower, can know so much about the detailed realities of the shop floor. Something doesn’t match.
"Alex, if that’s the case, it seems that you should ask Jonah to teach you something more than just the Socratic method.’’

Lou is my first and most important target. If I’m unable to persuade him to join me, I’m basically lost. It’s not going to be easy. He’s very close to retirement and I know to what extent he’s involved in his community. I take a deep breath and walk into his office. "Hey Lou, is it a good time?’’
"Good as any. How can I help you?’’

Perfect opening, but somehow I don’t have the guts to go straight to the point. "I was just wondering about your forecast for the next two months,’’ I say. "Do you see any problem in us reaching and maintaining the fifteen percent net profit? Not that it’s crucial any more,’’ I hurriedly add, "but I’d hate giving Hilton Smyth even the slightest opening to hiss, ‘I told you so.’’’

"You can sleep tight. According to my calculations we’ll easily cross the twenty percent net profit for the next two months.’’
"What!’’ I can hardly believe my ears. "Lou, what’s the matter with you? Since when do you believe marketing’s chronically optimistic outlook?’’
"Alex, a lot has happened to me recently, but believing marketing is not one of them. Actually, my forecast is based on a slight decline in incoming orders.’’
"So how did you pull this rabbit out of your hat?’’
"Have a seat, it’ll take me some time to explain. I have something important to tell you,’’ he says.
It’s clear that I’m going to hear about another devious accounting trick. "All right, let’s hear it.’’
I make myself comfortable while Lou shuffles papers. After two minutes I lose my patience, "Well, Lou?’’
"Alex, we blamed the distorted way in which product costs are calculated for giving the appearance that our net profit was only twelve point eight percent, rather than over seventeen percent as we believed was the case. I know that you were furious about it, but what I’ve found out is that there’s an even bigger accounting distortion. It’s tied to the way that we evaluate inventory, but it’s hard for me to explain. Maybe I’ll try to do it through the balance sheet.’’
He pauses again. This time I wait patiently.
"Maybe I should start with a question,’’ he says. "Do you agree that inventory is a liability?’’
"Of course, everybody knows that. And even if we didn’t know it, the last few months have shown to what extent inventory is a liability. Do you think we could have pulled off this fast response to orders if the floor had been as jammed up as before? And haven’t you noticed that quality has improved, and overtime has gone down—not to mention that we hardly ever have to expedite today!’’
"Yeah,’’ he says, still looking at his papers. "Inventory is definitely a liability, but under what heading are we forced to report it on the balance sheet?’’
"Holy cow, Lou!’’ I jump to my feet. "I knew that the financial measurements were remote from reality, but to that extent— to report liabilities under the heading of assets? I never realized the full implications...Tell me, what are the bottom line ramifications?’’
"Bigger than you think, Alex. I’ve checked and rechecked it, but the numbers do talk. You see, we’re evaluating inventory according to the cost to produce the goods. These costs include not only the money we pay for the raw materials, but also the value added in production.
"You know what we have done in the last few months. Donovan has worked only on things that we have orders for. Stacey has released material accordingly. We’ve drained about fifty percent of the work in process from the plant, and about twenty-five percent from finished goods. We’ve saved a lot by not purchasing new materials to replace this excess inventory, and the cash figures show it clearly. But on our books, the assets represented by inventory went down, since they were only partially compensated for by the cash we didn’t have to pay out. In this period, when we were reducing inventory, all the difference between the product cost and the material cost of the reduced inventory showed up as a net loss.’’
I swallow hard. "Lou, you’re telling me that we were penalized for doing the right thing? That reducing the excess inventory was interpreted by our books as a loss?’’
"Yes,’’ he replies, still looking at his papers.
"Well tell me, what was the impact—in numbers?’’
"Our actual net profit was well over twenty percent in each of the last three months,’’ he says flatly.
I stare at him. I can’t believe my ears.
"But look at the good side,’’ he says sheepishly, "now that the inventory has stabilized at a new, low level, this effect won’t disturb us any longer.’’
"Thank you very much,’’ I say sarcastically and turn to leave.
When I reach the door I turn around and ask him, "When did you discover this phenomena? When did you find out that we were turning much more profit than the targeted fifteen percent?’’
"A week ago.’’
"So why didn’t you tell me? I could have used these facts very effectively in the plant review.’’
"No Alex, you couldn’t have used them at all, it just would have confused your story. You see, everyone evaluates inventory this way, it’s even required by the tax authorities. You didn’t stand a chance. But I did discuss it at length with
Ethan
Frost; he understood it perfectly.’’
"So that’s what happened, you fox. Now I understand why
Ethan
became so supportive,’’ I say, sitting back down.
When we’ve finished grinning at each other, Lou says in a quiet voice, "Alex, I have another issue.’’
"Another bomb?’’
"You might call it that, but it’s sort of a personal matter.
Ethan
told me that he’s going with Bill Peach to the group. I know that you will need a good divisional controller, someone who has experience in the more diverse subjects that are dealt with at the division level. I’m just one year from retirement; everything that I know is old-fashioned. So . . .’’
Here it comes, I say to myself. I must stop him before he states that he doesn’t want to come with me. Once he says it, it’ll be much harder to change his mind.
"Lou, wait,’’ I interrupt him. "Look at the work that we’ve done in the last few months. Don’t you think . . .’’
"That’s exactly what I was about to bring up,’’ he interrupts me in turn. "Look at it from my point of view. All my life I’ve gathered numbers and compiled reports. I’ve seen myself as somebody who has to supply the data, as an impartial, objective observer. But the last few months have shown me to what extent I was wrong. I wasn’t an objective observer; I was following, almost blindly, some erroneous procedures without understanding the far-reaching, devastating ramifications.
"I’ve given it a lot of thought lately. We need financial measurements for sure—but we don’t need them for their own sake. We need them for two different reasons. One is control; knowing to what extent a company is achieving its goal of making money. The other reason is probably even more important; measurements should induce the parts to do what’s good for the organization as a whole. What’s become apparent to me is that neither of these two objectives is being met.
"For example, this conversation we just had. We knew very well that the plant had drastically improved, but the distorted measurements have almost condemned us. I’m submitting efficiency reports, product-cost reports, and now we both know to what extent they just lead workers and management alike to do what’s bad for the company.’’
I’ve never heard Lou talk for so long. I agree with everything he just said, but I’m totally confused. I don’t know what he’s getting at.
"Alex, I can’t stop here. I can’t retire now. Do me a personal favor, take me with you. I want the opportunity to devise a new measurement system, one that’ll correct the system we have now, so that it
will
do what we expect it to do. So that a controller can be proud of his job. I don’t know if I’ll succeed, but at least give me the chance.’’
What am I supposed to say? I stand up and stretch out my hand. "It’s a deal.’’