The Algorithm: A good complement to Goldratt's The Goal
In March, I heard an interview suggesting that Tesla and SpaceX had a possible “new school of management” that seemed to be based on ideas from Goldratt’s The Goal. Then I listened to a podcast with Jon McNeill (former Tesla President) promoting his book, The Algorithm.
I just finished the short book (188 pages). About 1/4 through, I thought it was good but wasn’t sure I would recommend—it had good stories but might be too high-level.
By the end of the book, I decided it is a good addition to the operational improvement literature. It is also a good complement to The Goal. Here are three reasons why:
One, the Tesla stories about breaking bottlenecks are creative.
The stories show how Tesla broke bottlenecks in sales, online ordering, service, vehicle delivery, vehicle insurance, and the famous manufacturing story of the failed robots.
The stories show how operational ideas can be applied to a wide range of topics. Although this is not a technical book, you can find references to S&OP (to balance supply and demand), supply chain design (adding distribution hubs to use rail), large setup costs (and the need to schedule jobs in batches), and measuring cycle time.
I particularly liked how he talked about the importance of measuring cycle time from the very start to the very end. I learned this lesson early in my career while working on a setup-reduction project. The traditional setup cycle time started when the machine started and ended when the first quality part was made. While analyzing the data, I realized the definition was missing a lot. The line slowed long before the setup, and it took a long time to reach full speed after the first quality part. By counting the full cycle time, we gained new insights.
I also appreciated that the stories didn’t oversell how easy the fixes were. He often mentioned that some changes took a year or two to work through.
Two, it presents a different framework for thinking about the bottlenecks.
This is what ‘The Algorithm’ is. It is a different (I think, more general and specific) way to approach bottlenecks than in The Goal.
As a reminder, The Goal’s process is:
Identify the bottleneck.
Exploit the bottleneck.
Subordinate everything else to the bottleneck.
Elevate the system constraint(s).
Warning—the bottleneck can change quickly.
In fairness, this got us thinking about the bottleneck systematically.
The steps of The Algorithm are:
Question every requirement
Delete every possible step in a process.
Simplify and optimize
Accelerate cycle time
Automate last
These steps seem both more specific and easier to apply outside of manufacturing. And the book highlights this with many Tesla and non-Tesla stories.
Also, the steps in The Algorithm were designed to help a large business grow quickly. That same emphasis wasn’t in The Goal. In that sense, the book is also for fast-growing startups.
Three, it adds three cultural factors to explain Tesla.
Any operation can be improved by going through the steps of The Algorithm.
The last 1/4 of the book covers the culture required to apply it across a large company to achieve extraordinary growth. For example, how did Tesla use this across the organization?
These three ideas:
Expand the definition of your product to the customer’s entire experience. For Tesla, this meant adding insurance, improving the service experience, and offering other extensions.
Inject urgency and accountability into your organization. For Tesla, this meant weekly meetings with a CEO who tracked and worked on solving the problems. It is also implied that the CEO had a deep understanding of all areas of the business.
Eat your own dog food. That is, use your own product.
If I can offer a critique, Tesla and SpaceX do the second one extraordinarily well and do a very good job of identifying the biggest issues to address. I suspect this one isn’t as general as it sounds.
However, I like that he included ‘eat your own dog food.’ In my career, I’ve found that whenever I was stuck, putting myself in the customer’s (defined broadly) shoes always helped.
Finally, reading the book confirmed that it isn’t too far from ideas in The Goal. Jon McNeill seems to have met Eli Goldratt and references his book in several places.