The past century has seen the rapid development of business management and business process improvement methodologies. From scientific measurement to Agile, with statistical process control, Six Sigma, and Lean Manufacturing in between, nearly every decade has seen a newly proposed framework. Who could have imagined that one of the most widely studied methodologies, promoted by top CEOs and used around the world, would first be communicated through a work of fiction? The Goal, by Eliyahu M. Goldratt, describes the trials and eventual success of a production manager, who learns to use “the goal” to make money for the company. Eventually the manager’s focus on “the goal” helps him find the path to productivity for the entire company. The tools and approaches he uses in the novel would later become the Theory of Constraints (TOC). In this article, we’ll discuss the history and principles of the Theory of Constraints. We’ll explain what a constraint is and why you should view it as a positive. We’ll explore the many tools described by the Theory of Constraints, including the Five Focusing Tools and the Thinking Processes. We’ll share examples and case studies from industry experts, and provide a list of resources to help you acquire an even richer understanding of the methodology.
The Theory of Constraints is a management approach that considers that at any given time, an organization is limited from achieving its highest goal by a single constraint. The theory provides tools to help identify and break through the constraint. Industry experts help create a richer picture of what TOC offers: Program Manager Chuck Werner describes TOC from a manufacturing perspective. “[It’s] all about the flow, and being able to move a part or move a step in a process along in a balanced way so that each stage in a process has the appropriate work to work on when it’s needed,” he says. Michael Clingan, a business consultant and certified TOC practitioner says, “It’s a prioritization method. It’s a way of looking at a complex system. Businesses have a lot of moving parts and TOC says, OK, how do I make the biggest impact without spending a lot of money, and that will make the most difference to what I’m trying to achieve with the business?” TOC creator and author Eli Goldratt simply defined it as, “A Thinking Process that enables people to invent simple solutions to complex problems.” Seeing the Big Picture TOC provides an alternative view of individual or local productivity in a product line or organization. Just because individuals or departments can speed through tasks and create high output doesn’t mean that they are benefiting the rest of company. TOC also holds that a company’s most important task is to make money or, for a services organization, to serve clients. A company accomplishes this goal not by creating a product, but by actually selling the product, or generating revenue. TOC calls this throughput. Tools and Methodologies
There are several tools unique to TOC. They provide structure and consistency in problem recognition and problem solving, and maintain focus on the organization’s goal. The main tools offered include:
Theory of Constraints is often compared to Lean Manufacturing, in that both are concerned with maintaining an efficient flow in production and both focus on continuous improvement. Like Lean thinking, TOC can serve both large and small, and for profit and nonprofit organizations. As in other circumstances, small companies may achieve better results. “It’s easier to use where you have access to the execs in charge of the whole organization,” says Clingan. “If I use Six Sigma, I can show cost or variation and that looks really good. TOC is more about impacting overall organizational performance and sometimes that takes a little longer to become visible.”
Eliyahu Goldratt, a physicist turned business consultant, articulated the Theory of Constraints in a 1984 novel, The Goal: A Process of Ongoing Improvement. In 1986, he created the Avraham Y. Goldratt Institute to teach the theory. He further elaborated his ideas in books such as Critical Chain and What is This Thing Called the Theory of Constraints? A movie based on the book The Goal is used in management training. One of Goldratt’s many quotable quotes is, “An expert is not someone who gives you an answer, an expert is someone who asks you the right question.” Taking cues from linear programming and systems thinking, Goldratt described a systemic approach to achieving success. He described companies as containing circles, representing areas of specialization. Individuals in one area focus on their little circle. However, each area is joined, like links in a chain. In solving problems, someone in a circle can’t necessarily see the interdependency, and someone looking in from the outside can’t see the specific needs of each circle. The theory is sometimes referred to as Critical Chain Project Management. What Is the Theory of Constraints Philosophy About Organizations?
When Theory of Constraints is applied well, it provides a philosophical change in an organization. Its effectiveness is not limited to manufacturing, and can bring benefits to banking, healthcare, sales, and other industries. Some of the specific benefits of TOC include:
By contrast, some consider that a methodology like Six Sigma focuses solely on improving a silo. Six Sigma focuses on improving quality, and quality may not be the only issue in an organization. As Dave Nave says of Six Sigma in his article “How to Compare Six Sigma, Lean and the Theory of Constraints,” “Improving all of an organization’s individual processes could have a detrimental effect on the company’s ability to satisfy the customer’s needs and provide product and services at the right time at the lowest cost. The realized savings might be less than the cost of all the improvements.” TOC also provides a framework that can be effective in complex situations. Clingan gives the example of working to start up a Nigerian chemical fertilizer plant operation after ten years of neglect.
When discussing tools, it’s easy to forget an essential aspect of Theory of Constraints, and certainly, one that the philosophy says is easily missed in business: the goal. In Goldratt’s novel, the mentor, Jonah, says only one goal exists: to make money. Every action must trace back to that. In the movie version of The Goal, Jonah says, “Efficiencies aren’t the goal of a business. Why do you think your company built your business? To show off your efficiencies?” Fair wages or a good work environment aren’t the goal either. (However, note that while the goal for a business is generally to make money, the goal for a social service organization or government department may not be profit.)
If every system, or organization, has at least one constraint, then what exactly is a constraint? Goldratt defined a constraint as “Anything that limits a system from achieving higher performance versus its goal.” Basically, a constraint is a step or process that is producing less than what’s demanded of it, or it is something that limits profit, or in TOC terms, throughput. Rather than viewing them as problems, Goldratt saw constraints (also known as bottlenecks), as the keys to unlocking productivity. Constraint management accepts that constraints exist in most organizations. Although experts and practitioners disagree, they generally accept that only one constraint can exist at any time (although some say as many as three can exist at one time). “Theory of Constraints works backward from the goal,” explains Clingan. “We’re not looking for just any constraint, only the one keeping us from achieving more of the goal.” By addressing only one or two constraints at a time, the next biggest problem appears, and so on. The benefit of focusing on one problem at a time is that it requires fewer material, financial, and emotional resources than does attacking everything at once. Clingan believes that working on multiple problems simultaneously can also result in the constraint simply moving back and forth between silos without ever being solved. What Do Constraints Look Like?
Policy constraints are the most common and often underlie other constraints. Absenteeism, for example, is a constraint, which may cause less experienced personnel to assume the duties of the absent worker. Constraints can also appear as a person. Werner gives the example of assigning one highly talented worker (capable of doing many different tasks) tasks better performed by a dedicated department. In contrast to a methodology like Six Sigma, which seeks quality and improvement throughout a process company, the focus in TOC is one constraint at a time. “The thing I’d love for people to know about Theory of Constraints is that you’re only working on one problem at a time, so you’re lining up your problems,” stresses Clingan. “You work on the biggest constraint and eliminate that; then you move to the next. It’s a sequential process. It’s not trying to improve everything at once.”
To move nearer to your goal or even to achieve it, you must understand the company constraints. How do you recognize a constraint? The Five Focusing Steps — Identify, Exploit, Subordinate, Elevate, and Avoid Inertia — help you to find and address them.
In his book, Dettmer elaborates further: “Exploitation of the constraint should be the kernel of tactical planning - ensuring the best performance the system can draw now. For this reason, the responsibility for exploitation lies with line managers who must provide the plan and communicate it so that everyone else understands the exploitation scheme for the immediate future.”
Subordinating can have social implications, because humans may not logically understand why, when they are performing well, they are being asked to slow down, and they may resent it.
Elevating a constraint might include adding more machines, or people, or shifts, or spending money for advertising, or hiring writers to create lead-generating web articles. Since elevation involves expenditure, you need to consider whether the ROI justifies the expense.
You can anticipate constraints in existing processes, but you can also plan for them while designing a product, process, or service. Werner says you do that through value stream mapping the process. “You should look at what the cycles will be and work back with Takt time with the understanding that at the very least you should be able to meet 115 to 120 percent of the demand of the customer.”
In manufacturing, but especially in service and transactional industries where you may not see “big piles,” you may need to use other tools to find what’s keeping an organization from achieving its greatest success. Thinking Processes help to find the root cause of a problem by capturing the symptoms, called undesirable effects (UDEs). By arranging these responses in tree diagrams, an organization can get a picture of what’s happening. The Thinking Processes are designed to work through what the theory calls layers of resistance, the individual perceptions of why things aren’t working optimally. Clingan uses the Thinking Processes to help groups find the core constraint. Each team member provides an opinion to identify the constraint. He explains, “Someone may think that engineering is the problem. Someone else may think that manufacturing is just incompetent. But when you get everyone in a room and you're rolling it all up, there’s a lot of ah-ha moments with people working together. That to me is one of the real strengths of the Thinking Processes. They’re just really good tools for helping think better together.” The Thinking Processes help to find answers to the key TOC questions: What needs to be changed?
What should it be changed to?
How to change it?
Theory of Constraints accounting differs from traditional accounting in that it views accumulating inventory as a bad behavior, and cutting costs as less important than selling goods (again, throughput). Throughput accounting has three core aspects:
Drum Buffer Rope (DBR) is a scheduling and planning tool. As a type of microcosm of constraints, it considers that any system has at least one limited resource. This limited resource controls the output for the entire system, and so it is the drum, setting the beat for delivery. Buffers of time protect the scarcity or drum from disruption. The rope ensures that all other resources are subordinated to the drum; in other words, timed and scheduled to support it.
Plant types describe how materials flow through a factory. In Theory of Constraints, this is called the VATI analysis, and can help with scheduling problems. Draw the diagram from the bottom of your page to the top of your page.
Practitioners generally consider that a toolbox of varied tools is the most useful. TOC focuses on working with constraints and pushing past them, which leads to greater production,and thereby, greater revenue. By contrast, Lean focuses on eliminating waste, which leads to cost savings. Nave also sees Lean as focusing more on improving flow, and on making small changes in the immediate. “If your organization values a systems approach where total participation is not desired … then TOC might be a good way to start.”
How do you apply TOC methodology to a real situation? Here are Michael Clingan’s manufacturing and healthcare examples of the Five Focusing Steps used to help real businesses improve their performance. Manufacturing - An aerospace and medical device supplier was losing business.
Healthcare - A behavioral health facility had a 15-day intake cycle and a 42 percent dropout rate.
Banking scenario offered by Clingan: “Customer engagement directly drives bank revenues. Engaged customers have three or more products and generate 37 percent higher revenues. Retention is also directly related to the number of products a customer has.”
As with any methodology, TOC has its critics. Some complain that TOC offers nothing that couldn’t be extracted from other 20th century methodologies, such as PERT and critical path. In fact, Goldratt dealt specifically with PERT and critical path method in his 1990 business novel, Critical Chain. In it, he posed the question of how, with so many safety buffers built into schedules, PERT and critical path projects still overshot completion dates. His answer: too many buffers caused student syndrome, where people procrastinated because they knew the schedule allowed it. As Graham K. Rand states in an article in the International Journal of Project Management, “In contrast to PERT/critical path method, which may be characterised as dealing solely with certain technical aspects of project management, the application of theory of constraints focuses very much with how senior management deal with human behavior.” Clingan also notes that since Goldratt created TOC in 1984, a substantial body of knowledge has accumulated, and hundreds of books have been written on it, sometimes with over a thousand pages detailing just one tool or aspect of the theory. That can make it seem inaccessible. “It started so simple and now there’s so much attached to it.” “I think TOC is a framing tool,” says Clingan. “In a nutshell, sometimes TOC, like other methodologies, is dogmatic about its approach. I think TOC works best when it’s very flexible and says how do we get the best results as soon as we can.”
There are many available paths to proficiency in Theory of Constraints. Some people, such as Michael Clingan, start with self-training, simply by reading The Goal. Often individuals pursue further training after a private consulting firm has taught the methodology in their workplace. In addition, formal training is offered through worldwide outlets of the Goldratt Institute. At the Institute, practitioners train to become Jonahs, after the mentor in the novel. Advanced practitioners are called Jonah’s Jonahs. In the early Millennium, Goldratt brought together leading TOC practitioners to create the Theory of Constraints International Certification Organization (TOCICO). Certification involves testing in fundamentals, with supervision of methods and results used in practical projects. Chuck Werner believes that you should acquire TOC training and certification with a knowledge of Lean tools. “When we say subordinate a bottleneck, how do you do that? How do you balance a line? They say the first step in solving a problem is to recognize that you have one. But if you don’t know what to do about it, all you are is someone who’s frustrated and knows they have a problem.” Werner also adds that line supervisors who oversee the actual work require TOC training. Problems start at the operator level, but supervisors must recognize when a problem starts to build. “They need to react when it’s still a little pile of stuff and not when it’s a giant pile of stuff, and nothing’s coming out at the end of the line and the customer’s on the phone angry.” Although TOC may have been more widely discussed in the 1990s, it still carries weight. Clingan says he receives positive comments when people see it on his resume. In fact, in 2011, Time Magazine cited The Goal as one of the 25 most influential business management books. Even Amazon founder Jeff Bezos leads senior executives in reading the book. Clingan suggest that viewing the Goldratt website materials and taking classes through private trainers is an excellent start to learning TOC. “I think that the best thing I can say is to jump in,” he says. “Buy The Goal, read it, and actually start applying it. Walk through the organization and try to identify the constraints. Walk through with other people and try to look at it from a client’s or customer’s perspective and try to identify the constraint or bottleneck area that’s preventing you from doing more for your customers.”
Eliyahu Goldratt was a prolific writer and speaker. Three of his books are listed here; in addition, you can find videos of his speeches on YouTube. Resource by Other Authors
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