Section 4.3. What Is The Goal?


4.3. What Is "The Goal"?

The Goal[3] is an interesting and readable novel that helped revolutionize the manufacturing industry in the 1980s. It chronicles the turnaround of a manufacturing facility. It starts by showing a plant that is wildly out of control, unable to ship products anywhere near schedule and driven by the issue of the moment instead of a plan.[3] A guru guides the plant manager by asking leading questions and helping to define the metrics that drive the recovery. In addition to being insightful for manufacturing operations and offering many other management strategies, it is an excellent example of how the selection of appropriate metrics drives people to change behavior and move toward achieving "the goal."

[3] Sounds like a lot of software development projects I've worked on!

Although The Goal is set in a manufacturing facility, the process that enables the characters to save their facility (and jobs) is instructive. As with software engineering standards, manufacturing is a disciplined and metric-driven process. Applying a similar process to the definition of metrics to measure software development activities can lead to non-traditional metrics that can have important effects on development processes.

4.3.1. Goal Metrics for Any Business

For every viable business, the root goal of the organization is to make money. To measure our progress against that goal, we need metrics that measure against it.

Net profit is a metric that clearly correlates to the goal of making money. It is a good metric in that it is well defined and well understood, and the data it requires is generally available.

However, increasing net profit is insufficient to ensure that the organization is maximizing its profitability. Suppose you are considering making two changes that have the same effect on net profit. You would want to choose the one that requires the least investment. For example, if the changes were going to raise profits by $100 per month, but they required $1,000 and $5,000 respectively, it would be wiser to select the first change. The selection of changes becomes murkier if their effect on net profit and their investment costs differ. This can be addressed by selecting return on investment (ROI) as our second metric.

Net profit and ROI are insufficient to ensure success alone. Businesses that in the long term would have high net profit and ROI fail for lack of the cash necessary to execute their plan. Therefore, we need cash flow as our third metric.

Our strategic metrics are net profit, ROI, and cash flow. If we can increase the values of all of these metrics, our organization is moving toward the goal. However, it is important to note that we cannot optimize one or two of the values by sacrificing the others; raising net profit and cash flow at the cost of lowering ROI will not lead to long-term success.

4.3.2. Redefining the Metrics to Guide Behavior

Net profit, ROI, and cash flow are good metrics to measure the organization as a whole, but they have a serious weakness. It is difficult for people within the organization to see how their day-to-day decisions and behavior affect those organizational-level metrics. The day-to-day decisions are specific to the responsibilities of a relatively small portion of the organization. We need to find metrics that are equivalent to net profit, ROI, and cash flow but that relate more directly to the behavior of individual employees.

Consider these alternative metrics[3]:

  • Throughput The rate at which the company generates money through sales

  • Inventory Money that the company has invested in purchasing (or building) things that it intends to sell

  • Operational expense Money spent in order to turn inventory into throughput

If we can raise throughput, lower inventory, and lower operational expense, that would be equivalent to raising the three original metrics. Again, improving one of these metrics must be achieved without sacrificing either of the others because success depends on all three.

4.3.3. Connection with the Customer

The connection between our organizational metrics (net profit, ROI, and cash flow) and our more detailed metrics (throughput, inventory, and operational expense) is critical to making sure that every employee is working to the benefit of the overall organization. However, that relationship has an important side effect: at some level, it connects every employee with the customer. For example, in order to improve throughput, every employee must be aware of what the customer will buy and how their behavior is likely to affect a customer's urge to make a purchase. That connection with the customer is necessary to ensure that everyone is working to the maximum benefit of the organization.

In a plan-driven environment, there is very little connection between the team and the customer. A plan-driven development team talks with the customer rarely, if at all, and because the "orders" that the customer places are large (at least a release at a time), the team does not get the customer's perspective on the relative value of the features. The agreement is to produce features X, Y, and Z, but the team doesn't know which feature interests the customer the most. Conversely, an agile team has regular conversations with the customer and can see the relative value that the customer places on the various features. Appropriate metrics will only strengthen that connection.




Refactoring to Agility
Refactoring to Agility
ISBN: B000P28WK8
EAN: N/A
Year: 2006
Pages: 58

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