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Another Way to Optimize Your Organization
The Theory of Constraints, also known by the acronym TOC (Theory of Constraints), is a systemic approach to optimizing organizational performance, introduced by Eliyahu M. Goldratt in his 1984 book The Goal (Le But).
Its approach is simple:
- Identify the goal of an organization,
- Align its operations with that goal,
- Maximize the organization’s performance by optimizing the value-creation processes.
Introduction to the 5 Steps of the Theory of Constraints
The method is divided into five distinct steps, four of which are essential, within a framework of continuous improvement:
- Identify the Constraint: Identify the main factors limiting value creation within an organization.
- Exploit the Constraint: Without investment, remove anything that interferes with the functioning of the constraint and improve its performance in relation to achieving the goal.
- Subordinate All Other Processes to the Constrained Process: The constraint sets the pace for the rest of the organization to protect against uncertainties.
- Elevate the Constraint’s Performance, if necessary, through investments.
- Repeat: Once a constraint is eliminated, a new one is identified, and if necessary, action should be taken.
Let’s consider the example of a system of water reservoirs, where the goal is to deliver the maximum amount of liquid at output E.
The constraint in this system, limiting its capacity to produce value, is located at the opening C. This is a true bottleneck.
Before contemplating a heavy investment, such as replacing the reservoir with one that has a wider outlet, or directly undertaking widening work, we must first address how the constraint is currently being exploited.
It’s possible that leaves or limestone deposits are obstructing the passage. The goal, therefore, is to clear the neck of the bottle of anything that impedes its functioning and prevents it from working at full capacity.
In most cases, the exploitation step alone will yield enough results to meet the organization’s objectives, thus avoiding unnecessary immediate investment.
The next step is to adapt the rest of the organization to the physical reality represented by this bottleneck.
The objective here is twofold: to streamline the entire system by limiting stocks and stress, and to protect the constraint from interruptions. Since the constraint limits the capacity to produce value, a reduction in its output will slow down the rest of the organization. In this case, bottlenecks A and B are producing more water than the constrained neck C can handle. Thus, the flow of A and B will be subordinated to the flow of C to prevent overloading the reservoir and creating unnecessary stock.
If the system still does not meet the expected production targets, the final exercise would be to elevate the performance of the constraint through investments, such as creating a second bottleneck C or widening the existing one.
A Holistic Organizational Method
Following the success of his first book and to address the various challenges faced in the business world, Goldratt published additional books that expand and apply the principles of the Theory of Constraints to other fields. Notable works include Critical Chain, which focuses on project management, and It’s Not Luck, which applies TOC principles to distribution, marketing, sales, and conflict management.
Much like a toolbox, TOC allows action on the many dimensions of an organization. Modular and adaptable, it fits well with both agile and more rigid methodologies. It is well-suited to transformation or continuous improvement processes and positively impacts both the behaviors of individuals and the processes themselves, helping to streamline exchanges and interactions.
If you enjoyed this article, don’t miss the next episode of this series! It will discuss the Theory of Constraints applied to project management.
