A Guide to Implementing the Theory of Constraints (TOC)

Preface Introduction Site Map

Bottom Line Production Supply Tool Box Strategy & More … Next Step
Chain

Constraint Holistic Strategic Flexibility Paradigms SPIN

Management Model Approach Advantage Mafia Offers

Well, Just What Is Strategy?

Let’s start by defining strategy. And for a definition of strategy let’s modify a definition of quality
that would suit just as well if we swapped the words. It belongs to Robert Pirsig (1). Here is the
modification;

Strategy is neither mind nor matter, but a third entity independent of the two ... even though
strategy cannot be defined, you know what it is.

As a definition that is a little devious maybe; but strategy, like quality, has that characteristic of
meaning so many different things to so many different people. One of the best definitions of
strategy is certainly that of Colonel John Boyd, but let’s leave that definition until the page on
strategic advantage.

In the measurements section we found that we needed to define; the system, the goal of the
system and the necessary conditions to support the goal. We called these our rules of
engagement, but in effect we were defining the direction of the company. Let’s use the
direction of the company as a simple definition of strategy. In a similar way Caspari and
Caspari suggest that strategy is an organization’s path to the future (2).

Previously we looked at the process of change as follows;

(1) What to change

(2) What to change to
(3) How to cause the change

However, this leaves out an important question. An important question that might easily remain
unanswered if not asked – why change. Let’s add this to our process of change for a more
complete approach.

(1) Why change

(2) What to change
(3) What to change to
(4) How to cause the change

Once we add this initial step we can use the process of change for whole company strategy as
well as operational problems. Answering the question “why change” tells us something about
the direction of the company, even if that direction hasn’t been clearly articulated yet. “Why
change” is a result of the dynamic tension between where we are now and where we want to be
in the future. Sometimes we don’t even write down where we want to be in the future, we just
“feel” that we are not doing the right things now in order to be in the right place in the future.

So, step 1 tells us about the desired direction of the company. Steps 2, 3, & 4 tell us about the
direction of the solution to how to implement it.

Let’s list this in bold. In our strategizing we are seeking the answers to two questions;

(1) What is the direction of the company?

(2) What is the direction of the solution?

Let’s use a truck analogy to explain this better.

The Articulated Truck Analogy

Consider for a moment an articulated truck, the sort that is common in North America but almost
non-existent in Japan. You may know them as “semi trailers”, or “tractor and trailer”. The key
point is that the cab is connected to the trailer through a frame-mounted pivot above the driving
wheels. The cab is articulated with respect to the trailer. Let’s consider the cab to be the
“direction of the company.” The driver turns the steering wheel the direction of the cab changes
in accordance. The trailer, which we will consider to be the “direction of the solution,” usually just
follows on from the direction taken by the cab.

Articulated trucks sometimes however have a small problem, the momentum of the trailer is
greater than that of the cab. If the cab makes a sharp change in direction (and speed) the trailer
will jack-knife – and very likely both cab and trailer overturn. That is to say that if the direction of
the solution isn’t built in accordance with the direction of the company, or if the direction of the
company changes suddenly then you too might find that your strategy – like an articulated truck
– has jack-knifed.

How do we go about formulating a strategy then that avoids such a situation? Well, we use our
5 focusing steps for that. Here they are modified for strategic constraints and using the
language of leverage points (3).

(1) Select the leverage points.

(2) Exploit the leverage points.
(3) Subordinate everything else to the above decision.
(4) Elevate the leverage points.
(5) Before making any significant changes, Evaluate whether the leverage points will and
should stay the same.

In fact in the page on evaluating change we introduced the concept of strategic constraints and a
diagram to represent this process. We then highlighted the strategic nature of the 5 focusing
steps with a discussion on a separate page. On the page on implementation details we once
again discussed the concept of strategic constraints. Strategic decisions occur at both a
physical and a policy level. We drew the model as follows;

Select

Exploit
Strategic Tactical
Subordinate

Elevate

Evaluate

Constraint Non-constraint
Loop Loop

Using the focusing process and buffer management we can be assured that we will be aware of
emergent problems within the direction of the solution before they become real constraints. We
can make considered and proactive (strategic) investment to maintain or change the location of
the constraint consistent with maximal long-term benefit to the firm. While this accounts for no
sudden surprises in the direction of the solution, we also need to check that the potential
leverage points are consistent with the stated aim or goal in order to ensure that there are no
sudden surprises in the direction of the company. There are two approaches for doing this.
Two Ways To Skin A Cat

There are two different approaches to strategy formulation within Theory of Constraints. Both
make extensive use of the Thinking Process. How much of the Thinking Process appears visible
to the participants depends upon the person who is providing the collaboration.

These approaches are;

(1) The Holistic Approach.

(2) The Constraint Management Model for Strategy.

Let’ examine each in turn.

Holistic Approach

Many companies have a pressing operating or marketing/sales problem. They desire a quick
and immediate solution. The temptation in the past has been to provide the training for the
necessary logistical or non-logistical solution to gain immediate relief. However, most often this
simply moves the problem – the constraint – to a new area, an area that was previously not
aware that it was a problem. What is this likely to produce? Resistance!

Rather than have a haphazard step-wise process, it is better to develop a system-wide strategy
and tactics at the highest level at the beginning in order to deal with emergent constraints before
they become a reality. This is the focus of the holistic approach (4). In effect, aligning the
direction of the company and the direction of the solutions.

The “why change” in the holistic approach is generally contained within the 8-set self learning
program CD-ROMs. But one could also use Goldratt’s novels to the same effect – it just takes
more time. These present the current status in a generic and non-threatening way and create
the desire to move in a systemic/global optimum direction. The Thinking process, especially the
use of the 3 cloud method and communication current reality tree is the key tool in obtaining the
alignment on what to change, what to change to, and how to cause the change.

One might say that in this instance the general direction of the company is, initially, well known
but the direction of the solution, and its implementation is not known.

Constraint Management Model For Strategy

Other organizations – not-for-profit especially, may find it difficult to initially verbalize the direction
of the organization/company, and without a coherent unified direction of the company it is
impossible to nail down the direction of individual solutions – be they Theory of Constraint-based
or otherwise. This is the focus of the constraint management model for strategy (5).
The constraint management model for strategy addresses the question of why change through
the use of a strategic intermediate objectives map – essentially a cause and effect diagram of
the absolute necessary conditions required to enable the organization to move towards it’s goal.
The beginning of what to change is obtained by determining the mismatches between these
essentials and the current reality. The current reality tree is the tool that achieves this.

The constraint management model for strategy is an elegant synthesis from a number of
approaches and concepts; one of the most important concepts is Boyd’s OODA loop. Boyd
considered exploiting mismatches a key to survival and growth. “Indeed, the identification of
mismatches is responsible for much of the world’s progress (6).”

The constraint management model for strategy allows you to “bring your own” direction for the
company and maybe your own solutions as well. It uses the intermediate objectives map and
current reality tree as key tools.

Levers Of Control

As you become more familiar with the Theory of Constraints and its various solutions, tools, and
philosophy, take some time to hunt out the work of Robert Simons (7, 8). He proposed business
strategy based around the concept of 4 levers of control, they are;

(1) Beliefs Systems – the core values of the organization

(2) Boundary Systems – the risks to be avoided
(3) Interactive Control Systems – strategic uncertainties
(4) Diagnostic Control Systems – critical performance variables.

The Theory of Constraint logistical solutions, buffer management, constraints accounting, and
the thinking process (especially the holistic approach and constraint management model for
strategy) provide the mechanisms to pursue this original framework.

Summary

Develop your strategy first – and tactics will follow and flow from it. If you develop your tactics
first you will stall within a couple of iterations because the whole organization will not understand
the direction that a part of the organization is trying to take (force). We need a systemic/global
optimum approach to our strategy as well as to our tactics.

References

(1) Pirsig, R. M., (1984) Zen and the art of motorcycle maintenance: an inquiry into values.
Bantam Books, 400pp.
(2) Caspari, J. A., and Caspari, P., (2004) Management Dynamics: merging constraints
accounting to drive improvement. John Wiley & Sons Inc., pg 257.

(3) Newbold, R. C. (1998) Project management in the fast lane: applying the Theory of
Constraints. St. Lucie Press, pp 149 & 152-155.

(4) Goldratt, E. M., (2002) The TOC Self Learning Program. 8 set program. Goldratt Marketing
Group.

(5) Dettmer, H. W., (2003) Strategic navigation: a systems approach to business strategy. ASQ
Quality Press, 302pp.

(6) Hammond, G. T. (2001) The mind of war: John Boyd and American security. Smithsonian
Institution Press, pp 172-173.

(7) Simons, R., (1995) Levers of control: how managers use innovative control systems to drive
strategic renewal. Harvard Business School Press, 217pp.

(8) Simons, R., (1995) Control in an age of empowerment. Harvard Business Review Mar-Apr,
pp 80-88.

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