The Goal

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come arrogant. And we had the same situation! It was great! And to think that we had started with all those competitors, all the problems, and 20 sales guys who were really discouraged, they didn't know what to do. And here we came with this really simple solution. I'm amazed that to this day nobody's really copying it.

DW: Would you have discovered this breakthrough had you not been exposed to Goldratt's theories?

PH: First of all, I wouldn't have known how to attack the problem Since I was working at the printing company and my nephew was working at the office supplies company, I never expected that we would change roles. Nevertheless, I knew how much loss they made. And by then I was so convinced that just by applying Theory of Constraints, I would figure out a way to solve the problem. It took me something like three or four weeks to see the light and understand what was go- ing on and how to solve it. I survived that month by sitting back and saying, "Okay, no panic, no panic, let's not be hasty. As long as we don't have a breakthrough idea I'm not going to make any changes " I was just sitting back and thinking and discussing with people how we could solve the problem, until we solved it. And that's one of the good things about theory of constraints. You know in these cases that eventually you will come up with a breakthrough idea.

DW: You have only to find it

PH: Yes, and I became better and better at it. It takes Eli about five minutes to find the constraint and how to brake it. In most cases, I can find the same within a week. Compare it to just doing more of the'same. I very often use this fu

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Interview with Eli Goldratt continued...

DW: Can you give me another example? Of a service company that does not deal with physical products?

EG: To demonstrate how different one type of service company is from another, I suggest you interview both a bank and a financial advisors company. Then interview another, obviously different, type of service industry, a hospital

Interview with Richard Putz, A Midwest Bank

Former CEO of Security Federal Bank.

DW: How did you conceive of applying the principles outlined in The Goal to the banking industry?

RP: I was flying back from Los Angeles one night. And I was re- membering my days as a consultant at Coopers Lybrand, working with the folks who were handling the manufacturing engagements. That's where I was first exposed to The Goal. And I began to think that when you look at how a bank operates-for example, how it moves through the process of putting loans together-it's really no different than manufacturing. Why couldn't I use something that worked in manufacturing and apply it to a bank? The process is the same, we just give it different labels. So I started testing that out.

DW: How did that go over with the staff?

RP: In the begi

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DW: So how did you approach the problem?

RP: Traditionally the tough issue within banking is how you manage all the regulatory constraints that you're faced with. Banks are just immersed in regulations. And if you actually tried to manage accord- ing to the regulatory measurements, your bank would fail. You bring that up to the regulators and they laugh. There's just this whole slew of things, some of which contradict themselves. Some of them were created when lawmakers added them onto banking legislation because they looked good, or else to fit a particular situation at the time.

DW: You're talking about regulations that keep banks out of certain businesses?

RP: Right, as well as those that mandate certain loan mixes, how you approach a market, that type of thing.

DW: Preservation of asset ratios and so forth?

RP: You got it. We took a slightly different approach. We decided we had to figure out what our real market constraint was. Using TOC, we found it had to do with service levels and how we were solving problems for our customers, not with the specific products we were offering. So we ended up gearing the whole bank toward solving prob- lems for our customers. Part of the solution-the injection that broke the conflict-was the creation of personal banking for everybody, not just for wealthy people. Banks normally assume it's not worth spend- ing time with you if you have only $100,000 when they can spend that time with a guy who's got $10 million. We discovered that a guy who only has $ 100,000 isn't really going to spend a lot of time with you anyway; he's just not there very often. So we stopped worrying about that and began focusing on how to better manage our customer relationships across the board. People ended up coming to our bank- ers anytime they had a financial problem. If we couldn't solve it for them, then at least we could refer them to someone else, and we could give them good advice because we didn't have an ax to grind. All we asked is that they let us manage their cash flow. Most people gave us everything in that regard, plus all their loans.

DW: You had a large mortgage business, too?

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RP: Right. We had more than 300 correspondent banks, all over the country. National City and Bank of America would sell us mortgages. What we discovered-also using TOC, and this is how we expanded this business-is that most people with a loan viewed the bank that serviced the loan as their bank. So, whether Freddie Mac or Fa

Also, these days it's a lot easier, but it used to take forever to get a mortgage approved. That's because there are all these things you have to have in place-again, to satisfy the regulators. We looked at that and said, "Okay, what's the conflict here?" We built our conflict clouds, and we built a current reality tree, and we discovered there are only three things that end up deciding whether a loan is a go or a no-go. If we just focus on doing those three items, and worry about plugging everything else into the file later, we can speed things up. In fact we were able to cut the approval time almost in half. That made us really popular with realtors and mortgage brokers, which brought us more business.

DW: What effect did TOC have on customers' ordinary day-to- day interactions with tellers?