THE THEORY OF CONSTRAINTS

Tony Rizzo

The Theory of Constraints is a management philosophy that treats a corporation not as a collection of independent processes but as a complete system. The originator of the Theory of Constraints, Dr. E. M. Goldratt, often explains his theory with a simple but effective analogy. He likens a corporation to a chain. Just as the links of a chain work together to form a complete system that is capable of transmitting a great force, so too the various divisions and departments of a competitive corporation work together to generate great profits for the stockholders.

 

The Theory of Constraints maintains that every system is subject to at least one constraint, which prevents the system from achieving infinitely high levels of performance. For the system that is a corporation, the often unidentified constraint prevents it from achieving infinite profits, just as a chain’s weakest link limits the chain’s capacity to transmit force. Do such constraints exist? Do we know of any corporation that reports infinite profits? We need only look at the very finite profits reported by every corporation, to verify that indeed something exists that limits profits. That something is a constraint on the performance of the corporation. The Theory of Constraints provides the theoretical framework and the tools with which a team of knowledgeable executives can continually identify the constraint in their corporate chain and improve its performance, thus improving the performance of the entire corporation.

THE THINKING PROCESS TOOLS —

The Thinking Process tools exist for the purpose of managing change. There are five tools in the set. The five tools are: the current reality tree, the evaporating cloud (a conflict resolution diagram), the future reality tree, the prerequisite tree, and the transition tree. These let a team of executives identify what to change in the organization, what to change it into, and how to implement the change.

LOGIC STRUCTURES —

The current reality tree, the future reality tree, and the transition tree are sufficiency-based logic diagrams. They consist of a collection of simple declarative statements that are linked with cause-and-effect relationships. The conflict resolution diagram and the prerequisite tree are necessity-based logic diagrams. The difference between the two types of logic diagrams is explained below. A necessity-based logic diagram is one that identifies conditions that are merely necessary for a particular effect to exist. However, these conditions need not be sufficient to cause the effect. For example, it is necessary that I ingest food, if I am to survive. Clearly, the effect in which I’m interested is my continued survival. But, while ingesting food is a necessary conditions, it is obviously not sufficient for my survival. Other conditions must exist. These include the conditions that I breathe air and that I drink water, among others. A sufficiency-based logic diagram is one that identifies all the conditions that are necessary and SUFFICIENT to cause a particular effect. For example, consider the statement "An electric light shines inside the room." This effect does not exist without cause. Three things must exist before the effect "An electric light shines inside the room" can exist. One is that there must be a working electric light inside the room. Another is that the light be plugged into a working outlet. A third is that the light’s switch be in the "on" position. Each of the three causes is necessary for the effect to exist, but it is insufficient. Together, the three necessary conditions are also sufficient to CAUSE the effect. The cause-and-effect relationships between these statements are read as follows: IF (there is a working electric light inside the room), AND IF (the light is plugged into a working outlet), AND IF (the light’s switch is in the "on" position), THEN (an electric light shines side the room.) If we consider the following example, then we may see why sufficiency- based logic constructs are such powerful tools. Let’s say that we want to improve the quality of the output of our organization. We want to have the effect "The defect rate of our manufacturing operation is less than five percent." Let’s say, too, that currently the defect rate is nine percent, and that a run-chart shows that our manufacturing system is in a state of statistical control. At this point, many would resort to exhortations, in the form of posters that proclaim "Work Smarter Not Harder," or "Do Quality Work." But rather than accept this widely used method to improve quality, let’s see if in fact such tactics are sufficient to cause our desired effect. Let’s embed the conditions in a sufficiency-based logic construct: IF we need to lower our defect rate from nine percent to five percent, AND IF employees see posters with the words "Work Smarter Not Harder," AND IF employees see posters with the words "Do Quality Work", THEN the defect rate of our manufacturing operation decreases from nine percent to five percent. Obviously, the two conditions that we hope will cause the desired effect are not sufficient. They aren’t even necessary. So why do so many companies have such posters on their walls? Maybe it’s best that we discuss the individual tools at this time.

THE CURRENT REALITY TREE —

The current reality tree is a sufficiency-based logic diagram that captures the experience and intuition of the involved individuals. The current reality tree is painstakingly constructed with the strict application of a handful of rules of logic. It’s construction is perhaps the most time-consuming part of the strategic planning process. But every second of effort is worthwhile, because the current reality tree lets us identify the root causes and, at times, the core problem for our organization, i.e., the one condition that, when eliminated, takes with it _ALL_ the unwanted effects. Identifying the root causes and the core problem is a vital part of any improvement process. By identifying and attacking these, we avoid wasting resources and time in fighting mere symptoms. We are able to treat the disease, so that the symptoms don’t return. The current reality tree is the tool that shows us the root causes and the core problem.

THE EVAPORATING CLOUD —

Once we have identified the core problem, it is necessary for us to identify a solution to the core problem. Frequently, a valid solution is the condition that is the opposite of the core problem. For example, if an organization’s core problem is an ineffective advertising policy, then the solution of choice might be "We have an effective advertising policy." But is it always this simple? Not a chance! Think of it. The core problem is probably one that has existed for a long time. Most likely, everyone in the organization knows that it is a problem, but they probably don’t know that it is the source of most of the organization’s headaches. If the core problem has existed for such a long time, perhaps years, why hasn’t it been solved earlier? The answer is conflict. Within the organization there exists a conflict that feeds it. Within the organization there are interests that would be jeopardized by the solution to the core problem. Therefore, the problem persists. The organization simply learns to live with it. This is where the evaporating cloud comes in. With the evaporating cloud we uncover the conflict. We also uncover the assumptions or the real conditions that cause the conflict. Why? Because once we uncover the reasons for the conflict, we know where to focus our attention. Frequently, when the assumptions that feed the conflict are verbalized, the involved parties realize immediately that they’ve been laboring under false assumptions. In such instances, the conflict evaporates rapidly, just like a cloud of steam. At other times, the assumptions are quite valid. They are real conditions that exist in the
organization’s environment, and they pose a real threat to the people whose interests fuel the conflict. Under these circumstances, we can still resolve the conflict. Often, we can identify some action that we can take, to make at least one such condition no longer valid. Thus, again, we evaporate the conflict and unshackle the organization. This is how we identify what to change and, partially, what to change it into. We say partially, because the solution isn’t yet complete. To flesh out our solution, we need the next tool.

THE FUTURE REALITY TREE —

The future reality tree is another sufficiency-based logic construct. However, it differs from the current reality tree in one important way. While the current reality tree links undesirable effects, the future reality tree begins with our solution of choice and links desirable effects. The future reality tree is a what-if exercise. With it we get the chance to evaluate and improve our solution, before we begin implementing it. With the future reality tree we are able to identify what is missing from our solution. Remember, it is a sufficiency-based construct. So, if we’ve failed to identify all the necessary and sufficient conditions with which to cause our desirable effects, the future reality tree makes the deficiencies apparent. But there is another, equally important reason for using the future reality tree. With some careful thinking, we can also use it to identify what negative effects our solution is likely to cause. Why is this important? Because it gives us the opportunity to improve our solution, by modifying it so as to avoid those negative effects entirely. Why cause problems that we can avoid?

THE PREREQUISITE TREE —

The prerequisite tree is a necessity based logic structure. It’s purpose is to help us identify all the intermediate steps that we need, to reach an ambitious goal, such as our chosen solution. To build the prerequisite tree, we begin by listing all the obstacles that stand between the organization and its stated objective. Then, for each obstacle, we identify a condition that overcomes the obstacle. This is usually a mutually exclusive condition. For example, if one obstacle were, "We don’t have an advertising plan in effect," then a condition that would overcome it might be, "Many customers are calling and requesting our product." In other words, the condition that many customers are requesting our product becomes an intermediate objective, among many others. This is how, by focusing on individual obstacles, we identify the smaller objectives that lead us to our more ambitious goal.

THE TRANSITION TREE —

The transition tree is the fifth and last of the Thinking Process tools. The transition tree is our step-by-step implementation plan. With it, we literally transition the organization, from its current state to the desired future state. The transition tree is a slightly different kind of sufficiency-based logic structure. To build the transition tree we identify those actions that we need to take, given our current environment, to achieve the intermediate objectives that we identified earlier with the prerequisite tree. The parenthetical statement, "given our current environment," is crucial. Our actions must make sense, in light of the organization’s current state and environment. For this reason, with every logic construct of the transition tree we identify what action to take, why the action is needed, and why it is sufficient to meet the need. The effort that we put into building a transition brings us more than the obvious benefit of having a thoroughly thought-out plan. Since the transition tree causes us to identify the reason for each planned action, it also helps us tremendously when the time comes for us to delegate sections of our plan to subordinates. When we do delegate sections of our transition tree, our subordinates’ need for explanation and justification is satisfied automatically. This powerful feature of the transition tree helps us overcome much of the resistance to change that is an integral part of human behavior.

SUMMARY —

The Theory of Constraints and the Thinking Process tools are already being used to great effect in many companies throughout the world. These companies manage change, rather than letting change manage them. Many of them already have reported astounding results. For example, Avery Dennison reported a 20% increase in market share only 18 months after adopting the Theory of Constraints. One Vice President of Texas Instruments recently reported that that company improved operations to the extent that it could defer a $600 million investment in new plants. Results such as these suggest that the Theory of Constraints will soon sweep not the nation but the world. Last year, Toyota expressed an interest in the subject.

Partial TOC Reading List:

Theory of Constraints and Its Implications for Management Accounting, Eric Noreen, Debra Smith, James T. Mackey, The North River Press, 1995.

Goldratt’s Theory of Constraints- A Systems Approach to Continuous Improvement; H. William Dettmer; A.S.Q.C. ISBN 0-87389-370-0.

Critical Chain; Eliyahu M. Goldratt; North River Press; ISBN 0-88427-153-6.

The Goal- A Process of Ongoing Improvement; Eliyahu M. Goldratt; North River Press.

It’s Not Luck; Eliyahu M. Goldratt; North River Press; ISBN 0-88427-115-3.

Haystack Syndrome; Eliyahu M. Goldratt; North River Press.

The Race; Eliyahu M. Goldratt; North River Press.

Theory of Constraints; Eliyahu M. Goldratt; North River Press. (C)

Tony Rizzo, 1996. tocguy@lucent.com This article may be reproduced only in its entirety. Any reproduction must include the author’s name. This article may be published in formal publications, either in print or in electronic form, without written permission from the author.