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The Theory of Constraints (TOC) is the foundation idea behind a whole new approach to managing organisations of any kind, be they for-profit businesses or not-for-profit organisations. What is interesting about management based on TOC is the extraordinary results being achieved in very short times, so extraordinary in fact that it seems too good to be true.
This short introduction attempts to explain what the Theory of Constraints is and how it works.
If you are at all interested in achieving truly extraordinary results in your organisation, this introduction is for you.
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Where Did TOC Come From? |
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| TOC was invented by a man named Dr. Eli Goldratt more than 25 years ago. Goldratt is a 'guru' type, a true intellectual. He brought TOC to the world's attention by publishing his first book, 'The Goal' in 1984. This has turned into a business best seller and he has published many other books on the subject since. |
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Today, the Goldratt organisation is spreading the word worldwide and applying TOC to transform business performance. |
What do you mean by extraordinary results? |
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| The results achieved by TOC seem to be way beyond what would normally be expected and these results are achieved in a very short time. Here is an assorted list of examples of what has been achieved. |
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If you think these results are good, listen to this. Goldratt's current offer is called his 'Viable Vision'. This is his explanation in his own words: |
| "When I do an analysis of a company, I am somewhat satisfied only when I clearly see how it is possible to bring the company to have, in less than 4 years, net profit equal to its current total sales." |
Net profit equal to current total sales, in less than 4 years! |
Try translating this into the numbers for your own company. Sounds incredible, doesn't it? Unfortunately, examples of companies that have taken up this offer are not made public. Apparently, those companies are quite secretive about what they're doing - they don't want their competitors to find out. Perhaps that's not surprising! |
What is the Theory of Constraints? |
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| The key to understanding TOC is to think about complexity in organisations. How complex is yours? How many people? How many functions and processes? How many products and services? How many suppliers and customers? It is no surprise that even small companies are complex. And it doesn't take a genius to know that complex companies are difficult to manage. |
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| So, how do we go about managing a complex company? We dissect it into smaller parts, into business units, functions and departments. And because each 'division' is smaller than the whole company then by definition, it is easier to manage. A quick look at your organisation chart will confirm that this is what we do. |
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| Complexity is about more than the number of divisions. The real problem in our organisations is that things that happen in one part of the organisation have an impact on one or more places elsewhere. It is the many cause/effect relationships that criss-cross our organisation that make it so complex. |
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| It is the cause/effect relationships in our organisations that provide the clue to the solution. Consider this question: what is the minimum number of 'things' that we need to manage in order to manage the company? If the answer is '10 things' then this is a difficult company to mange. It has too many degrees of freedom. It's like trying to juggle 10 balls and keep them all in the air at once. If the answer is 'just 1 thing' then this is an easy company to manage: we can easily juggle with one ball. |
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| Bearing this in mind, look at the diagrams below representing two companies. Which one do you think is more difficult to manage, company A or company B? |
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| To answer this question, we need to go to the core argument behind TOC. The idea is this: |
| … The more interdependencies that there are in the company, the fewer degrees of freedom there must be. |
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| It follows that in any complex company, there are very few 'things' that must be managed in order to manage the performance of the entire company, very few balls to keep in the air. These few things are the leverage points for the company performance or the 'constraints' of the business: hence the name, 'Theory of Constraints'. |
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| In other words, the more complex a company is, the fewer degrees of freedom there must be and the fewer the constraints there must be that must be managed. Goldratt talks about the 'inherent simplicity' of a complex system, a complex business. |
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| In Goldratt's own words… |
| "The more complex a system is, the more profound is its inherent simplicity." |
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| Think about it - this idea has far reaching ramifications. |
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| You can watch Goldratt explaining this in a video that he's posted on YouTube. There's a link at the bottom of this article. |
Why does managing based on TOC produce extraordinary results? |
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| If the performance of any complex business is controlled by just a few elements, the constraints of the business, then clearly the first thing to do is to identify these constraints. We will also need to understand the cause/effect relationships that link these constraints to all other parts of the business that control the business performance. Goldratt and his colleagues have developed simple tools to achieve these things. |
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| The great thing about this is, once we have identified the constraints of the business, we know what to focus on. We know exactly what we have to take care of in order to optimise the performance of the company. This is what allows the extraordinary results. |
| When we know the constraints of the business, all of our management attention can be directed to the few things that make a difference. |
Why isn't TOC more widely known and used? |
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| TOC is a fundamentally different approach to 'traditional' management thinking. It challenges the widely held beliefs about what makes 'good' management and for many people, this is hard to accept. |
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| You can liken TOC to a completely new product that has been launched onto the market, like the mobile phone or the VCR in the late 70's and early 80's. To begin with, very few people bought these products. They were the type of people who are inherently interested in new technologies and new products. Only later did these products become accepted in the mainstream market. |
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| TOC is like a new product in the market for business improvement. TOC is in its early market phase and it will take some time to penetrate the market because of its 'newness'. |
Where can I find out more? |
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You can see Goldratt explaining his 'Viable Vision' on YouTube here.
The following books are also recommended:
For TOC and manufacturing - 'The Goal' by Goldratt and Cox (ISBN 0-566-08665-4)
For TOC and marketing - 'It's Not Luck' by Goldratt (ISBN 0-556-07627-6)
'Manufacturing at Warp Speed' by Schragenheim and Dettmer (ISBN 1-57444-293-7)
'Breaking the Constraints to World-Class Performance' by Dettmer (ISBN 0-87389-437-5)
For TOC and project management - 'Critical Chain' by Goldratt
For TOC and companies involved in the IT market - 'Necessary but not Sufficient' by Goldratt, Schragenheim and Ptak (ISBN 0-88427-170-6)
See the Goldratt UK web site for other resources and information.
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