Have you heard about this amazing form of personal transport? In a city, it’s often faster than a car; in the country, it connects you to nature. It’s cheap, green and keeps you fit. The bicycle may not be the jetpack we hoped for as children, but it does all as advertised. So why aren’t we all on our bikes?
It’s a profound paradox that something as simple, powerful and unique as Eli Goldratt’s Theory of Constraints can be so difficult to implement in an organisation. So what’s the constraint? The reasoning behind the theory is rock solid:
All systems have a constraint. If this were not the case,
the output would be infinite, or would collapse to zero.
Do you know of any business making an infinite return on investment? Do you know of any project whose critical path is over before it begins? Can you think of a supply chain where an item of physical stock is replaced the very minute it is sold? Of course not. And until you find data to disprove it, you too must accept the idea that the rate at which systems deliver value is governed by their constraints. So simple, and yet so elusive.
It’s not only theoretical, either. The empirical evidence around the results achieved by applying TOC methods to production, projects and replenishment is overwhelming. A PhD written on the comparison in results showed, across a sample size of twenty electronic plants, that when TOC was applied in combination with Lean and Six Sigma, the tangible dollar and cents results were an order of magnitude more than when only Lean or Six Sigma were applied. An academic study out of Victoria University in Wellington, New Zealand, showed average increases in throughput (revenue) of 68%, reductions in inventory of 50%, improvement in due-date performance of 60% and lead-time reductions of 69%.
The evidence is in
These are incredible results supported by empirical evidence. So why isn’t this just the way work is done? Why do people who know about it, whether expert or amateur, end up scratching their heads when asked the question: ‘If it’s so good, why isn’t everyone doing it?’ I’ve been using TOC for the last twenty years so I’ve heard pretty much every response you could imagine–from the instant evangelists to the diehard cynics. Only a very few have gone on to realise the full benefit available to them from this remarkably simple idea, but many more have stumbled and fallen.
I remember the first time I went to my boss and asked him if I could give TOC a go. I was the managing director of a national commercial refrigeration company serving a leading chain of supermarkets as they transformed their customer value proposition. After a period of being starved for work and living on the crumbs from servicing installed fridges, we were hit by a tsunami for which we were ill prepared. My research led me to The Goal. As soon as I finished it, I knew there was something profoundly different about this way of thinking. Yet when I told my boss what I’d discovered and how I would be able to better manage my bottlenecks through the application of its associated Critical Chain Project Management methodology, he told me he didn’t believe in constraints. ‘I may not believe in the theory of gravity,’ came my response, ‘but that doesn’t mean my arse doesn’t point to the ground.’
“Non-constraints have capacity available”
So, there are two clues about the adoption of TOC. You need to be convinced of your argument and you need courage to take on conventional wisdom with all of its associated inertia. This, however, is what you would ordinarily expect from the adoption of the likes of Lean, Six Sigma, Agile, PRINCE2 and the assortment of other methods you can name. But, TOC has a particular burden, unlike any of the others. You see, all of the rest can comfortably get away residing in the reductionist world of our management and accounting systems. But TOC and its associated methods cannot. Why? The more profound implication of the Theory of Constraints is not that systems have constraints—everyone knows that intuitively. What matters is that non-constraints have capacity available relative to the constraint. And that’s where the real trouble begins as you go to war with the custodians of the accounting systems.
Of course, even the most modest business is a complex web of people, process and technology in constant motion. They are divided into the functional specialities of sales, marketing, manufacturing, distribution, R&D, IT, finance and so on. How else, you ask yourself, could you tame the complexity other than by dividing it up into more manageable parts? Just do what you can to keep those parts functioning efficiently and live comfortably in the delusion that the sum of the parts delivers what’s best for the whole. Throw into this mix that you don’t have to be excellent—just that bit better than your competitors—and you’ll earn enough to keep playing the game.
There’s another big obstacle to moving to constraint-based management. We have what Daniel Kahneman, Nobel-winning author of Thinking, Fast and Slow talks of as ‘loss aversion’ where we count our losses at twice the value we give to our gains. We would prefer not to lose a dollar than make two. Effectively, we treat our bird in the hand as worth the two you offer me from the bush. Even if our bird clearly has a broken wing.
“You need to be convinced of your argument and
you need courage to take on conventional wisdom.”
It has certainly been my experience that whenever I’m called in it’s not because of an aspiration for greatness; rather there’s a terrible fear of loss. Fortunately, that fear can be a powerful stimulus to adopting new methods. For, as MIT’s Edgar Schein put it, learning probably isn’t going to happen until ‘the anxiety of survival outweighs the anxiety of learning’. The leader is now ready, as economic buyer, to engage. The competitor is eating his lunch and there is real fear about personal survival, and in extreme cases for survival of the organisation at large. He or she is ready to take on the deep transformation required to bring in something—anything—that will make a difference. Now the conditions are ripe for making the reasoned argument, backed up by the comforting empirical data.
But that’s only the external sales job done—the journey has barely started. A central tenet of the Theory of Constraints is the 5-Step FOCUS. If a constraint exists—a real one, a systemic one which prevents you getting more of your goal—then the first order of business is to find the damn thing. In fact, I’ve found that the first order of business is to get really clear about the boundary of the system you are dealing with and to clearly articulate the goal in terms of ‘at least x by no later than y’. But, that’s a story for another day.
Let’s assume you know the boundary of your system and its goal. Finding the real constraint is no simple matter. And even when you know it, the process of managing it by stepping through the 5-Step FOCUS (see illustration) is a real challenge. For starters, we have to be clear about our time horizon. Are we thinking ‘day of operations’, the tactical look-ahead or the big strategic horizon? Where would we design the constraint into our system if we had the choice and how might we keep it there? Supply? Our ability to make? The market’s ability to buy what we make? And once we have chosen, what method are we going to use to make the most of our constraint? Theory of Constraints clearly has the most to offer (the clue is in the name).
Are you ready for real collaboration?
By far the greatest obstacle to adopting TOC, though, is not the theory itself—it’s the collaboration part. If non-constraints have capacity relative to the constraint, which by definition they must, then their job is not to maximise their own production, but rather to support getting the most out of the constraint. This demands that people get moved around; that having multiple skills to bring to bear on whatever-the-problem-is defines a person’s value; and that you may have one supervisor today and another you’re not so keen on tomorrow. In short, what sounds like a process problem is really an organisational one. There is a basic instability in the social fabric of an organisation being managed on this principle. Indeed, to paraphrase Churchill, it’s the worst system of management possible, besides all others. That’s why people come to TOC last—when all else has failed. The belief that you can learn a better way of working ultimately demands a ‘growth mindset’.
To return to our cycling analogy, if you live twenty miles from your office, it may not make sense to ride in each day. Many people who discover TOC think it’s great in principle but, like a bike, has a rather specialist application. Wrong. If you work in any kind of production or supply chain—or projects, which these days covers most everything else—TOC is not only your friend, it’s the best chance you have of realising the bold vision you need to stay competitive. And, like riding a bike, once you learn how, you’ll never forget.
* * *
The change of mindset from standard thinking to Theory of Constraints (TOC) is both profound and exhilarating. To make it both fun and memorable, we use a business simulation. Just as astronauts need a few zero-gravity rides in a special aircraft before they experience the real thing in space, the game simulates the effects of TOC. We call it The Right Stuff workshop and we’d love to run it with you.
[Background photo by Chris Becker on Unsplash]
‘If you change the way you look at things,
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