Today’s post is by Dr. Giovanni Siepe.
The Theory of Constraints is a management methodology developed by the physicist Dr. Eliyahu Goldratt in the late 1970s. There is little doubt about how radically effective TOC is and that remarkable results have been achieved with it in all kinds of sectors, from healthcare to steel foundries and everything in between. So it’s not surprising that many people are left wondering, how come TOC isn’t mainstream when it clearly works so well?
One of the problems is that TOC is not fully understood and accurately implemented, and this can be seen from an abundance of videos and articles that transmit TOC incorrectly. However, the main “problem” with TOC is another.
How we measure
TOC challenges the current measurement system used by managers for performance assessment and decision-making. In particular, in TOC the ideas of product cost and “efficiency” are completely overturned in favor of the concepts of throughput and focus on the constraint. The emphasis is moved from the world of costs to the world of throughput, directing all the organization’s efforts towards increasing sales rather than cutting costs or increasing efficiency. (This does not mean that TOC has nothing to do with efficiency as we will see below.) The introduction of these concepts alone can already be considered a revolution.
Let’s clarify these concepts in the simplest way possible.
What is throughput?
In the Theory of Constraints, a company is viewed as one, whole system that by definition has a constraint. Throughput is the pace or speed at which the System generates units of the goal (whatever is considered value for the organization, i.e. money) through sales. Efficiency, instead, is understood as System Efficiency as opposed to Local Efficiency – something that gets results for one part of the company without taking into consideration the overall goal. Local efficiency in fact sub-optimizes the efforts of the whole company.
System efficiency can only be achieved if we have a clear process to manage the Constraint appropriately. In order to do that, Goldratt developed a simple protocol:
- Identify/choose the Constraint
- Exploit the Constraint (let the constraint work on the best product mix)
- Subordinate the System to the Constraint (let the System have the statistical capacity to allow the Constraint to work all the time)
Now you might wonder: why is there so much misunderstanding about TOC?
The most common misunderstanding that people have with TOC is considering the Constraint to be some kind of limitation (a bottleneck) that we have to eliminate. On the contrary, the Constraint is the leverage point that we want to use to extract the maximum possible output (value) from the System. Not only that, but managing an unbalanced System (unbalanced on the Constraint) is radically simpler because you have to focus your actions and decisions only on one element of the System. If you manage a balanced System you will most probably face the problem of managing interdependent bottlenecks with all the problems that ensue.
Linear vs systemic
The most superficial critics of TOC consider it to be some kind of linear programming. Let me make this clear: there is nothing linear in TOC. Actually, the approach is Systemic, a fully integrated methodology that is perfectly adequate for embracing complexity in organizations through:
- identifying/choosing the leverage point (the constraint)
- managing operations through management of the constraint (strategically chosen) facilitated by the use of non-linear algorithms (Drum-Buffer-Rope, Critical Chain, Replenishment…)
- managing the network of conversations through the use of non-linear, logical-linguistic-emotional processes (Thinking Processes).
So don’t be fooled: there is no programming in TOC. Management is a human activity and choices are made by people. Managing organizations entails managing complexity and choosing the Constraint is a strategic decision that cannot be left to any algorithm or software alone.
Intelligent Management has been guiding organizations to understand a systemic approach to manage complexity and improve performance for over 20 years through our Decalogue management methodology. The Network of Projects organization design we developed is supported by our Ess3ntial software for multi-project finite scheduling based on the Critical Chain algorithm.
See our latest books Moving the Chains: An Operational Solution for Embracing Complexity in the Digital Age by our Founder Dr. Domenico Lepore, The Human Constraint – a digital business novel that has sold in 41 countries so far by Dr. Angela Montgomery and ‘Quality, Involvement, Flow: The Systemic Organization’ from CRC Press, New York by Dr. Domenico Lepore, Dr. .Angela Montgomery and Dr. Giovanni Siepe.