The Goal

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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 beginning they were skeptical. I got all of the people who report directly to me into the board room, we sat down, I passed out copies of The Goal, and I said: 'Guys, we're going to come together ev- ery week on Friday. We'll have fun, we'll have food, the whole bit, but we're going to discuss how to translate The Goal into banking terms.' I'm looking over there at my CFO, he has this constipated look on his face. I said, 'Jim, is there something wrong?' He says, 'Yeah.' I said 'What?' He says, 'There's no index in the back of the book. How do we find anything?' I said, 'You read it, it's a novel.' He eventually became our biggest advocate. But he was totally skeptical.

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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 Fannie Mae or PNC or any other investor actually owned the loan, we wanted to own the servicing asset. It was more valuable in terms of building customer relationships than the loan itself.

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?

RP: Most of the tellers said they wanted to do this TOC thing, too. Well, what do they really need to do? They really don't need to know how to do future reality trees because their everyday life is not involved in future reality trees. But a teller is often dealing with conflict resolu- tion. Tellers represent the frontline defense, especially at savings and loans. People come up to them and say: 'This doesn't work, this is out of balance, they screwed this up,' and it's the tellers who have to solve the problem. So we taught them how to do conflict clouds. We created conflict-cloud worksheets for them, pads of 50 sheets, eight and a half by eleven. On the back side were the instructions, just in case they forgot how to do it. And the teller could actually fill in the cloud as he or she was talking to the customer, work out the prob- lem, then rip off the sheet and do the next one. We had that going throughout the bank.

DW: It sounds like one of the main conclusions you reached

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was that the perceived constraint-the regulatory climate-was not the actual constraint

RP: Correct. I would walk into the office of my compliance officer and I'd say, 'Jeff, I got this idea.' And he would just automatically point to this poster on his wall that basically said: If you can dream it, there's a regulation for it.

DW: And yet even in that environment, you found ways to grow.

RP: We did things in the banking industry that were totally unheard of. We actually had regulators visit us more often than other banks because those other banks kept calling them and saying: 'They've got to be doing something illegal, you need to check them out.'

Interview with David Harrison, Administrative Ser- vices, Founder, Positive Solutions, Newcastle, U.K.

DW: Tell me about Positive Solutions.

DH: We provide management and administrative services to inde- pendent financial advisors. At present we have 755 of those people who rely upon us to help them with such things as compliance with financial services regulations, collection of commissions, and so forth. That's the company we built, 60% of which we sold recently to the Aegon group, one of the world's largest insurers.