THE THEORY OF CONSTRAINTS
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
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
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,
IF employees see posters with the words "Work Smarter Not Harder,"
IF employees see posters with the words "Do Quality Work",
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
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
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
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.
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:
The Theory of Constraints and Its Implications for Management
Accounting, Eric Noreen, Debra Smith, James T. Mackey, The North
River Press, 1995.
The 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;
The Goal; Eliyahu M. Goldratt; North River Press.
It's Not Luck; Eliyahu M. Goldratt; North River Press;
The Haystack Syndrome; Eliyahu M. Goldratt; North River Press.
The Race; Eliyahu M. Goldratt; North River Press.
The Theory of Constraints; Eliyahu M. Goldratt; North
(C) Tony Rizzo, 1996. firstname.lastname@example.org
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