What is Theory of Constraints?

Exploring the philosophy behind the theory

Satyashri Mohanty
12 Aug 2008

Vector Consulting Group (VCG) helps organizations achieve quantum improvement in distribution, manufacturing and project environments using the platform of the Theory of Constraints (TOC) thinking and solutions.VCG is the largest management consulting firm, in India, specializing in TOC. It has successfully pioneered a new execution based engagement model, wherein significant part of its fees is linked to actual benefits derived by the client.

Managing an organization - is it art or science? Developed by Dr. Eli Goldratt, Theory of Constraints (TOC) assumes it is possible to apply the principles underlying the development of hard sciences, like physics, in area of management of organizations.

In other words, managing an organization can be a science.

Principle of Convergence (The inherent Simplicity)

Hard science (like physics or chemistry) believe in principle of convergence. Why? If we have everything in nature connected to everything else, then an effect can never be in isolation. It has to have a cause. Physicists assume, at a fundamental level, there is a convergence of know-how which explains all other application knowledge. The history of development of fundamental physics (and application physics) is motivated by this quest for finding the unified theory which can explain all the forces and particles in universe. This unrelenting quest for unification over the years has lead to many inventions and discoveries along the way. For example the electro-magnetic theory helped converge the electrical field theory with the magnetic field theory and we got inventions like the Television, X Ray etc.

Similarly in organizations, there are interactions between various departments. An effect (positive or negative) in one department is because of an action in same or another department. (For example dispatches going down because finance department has decided to put a cap on overtime or breakdown time going up because maintenance department has cut the spares inventory to meet their cost reduction targets.

Due to the complex relationships between entities, an action or a decision (a cause) also leads to multiple effects across time periods and departments. Hence problems in organizations cannot be seen in isolation unless we want to just deal with symptoms.

We should solve the root cause. We all know that. What is the difference?

The approach of TOC towards finding the root cause is the search for convergence. As we try and dive deeper to look at causality behind the effects, and think cause-effect-cause then we will see convergence (few causes) rather than divergence (many causes). With such rigorous logical analysis we should arrive at a single core problem for an organizational system (a system of interacting departments with one common goal of making more money), which can be solved to get the next level of improvement. This implies that, at any point of time, we need to just focus on one initiative on the leverage point (or the core problem) to get the next level of improvement. Since the core problem or the leverage point is connected to many issues across departments, any improvement will give rise to a quantum jump in performance of the organization.