The theory of constraints is a method that focuses on removing obstacles in business in order to improve organizational performance and profitability.
Below, we’ll learn what this theory is, how it’s applied in business, and similar ideas that can boost business efficiency.
A General Overview of the Theory of Constraints
The theory of constraints, originally developed by Dr. Eliyahu Goldratt in order to help organizations achieve their aims, has become very popular among business professionals around the world.
The theory proposes that a single limitation stands in the way of any business process or function. Reducing or removing the primary constraint to a process, the theory claims, is the best and the fastest way to improve the performance of a goal-oriented system – namely, a business.
It suggests that the best route to improvement is by:
- Identifying the predominant constraint
- Decide how to exploit the constraints
- Subordinate everything else to the decisions made above
- Alleviate constraints
- Repeat the process
These are the five core steps involved in removing constraints.
In addition to these five steps, the theory of constraints makes several assumptions:
- There are three main measures that affect organizational performance: throughput, operational expenses, and inventory
- A chain is no longer than its weakest link – i.e., its constraint
- Profit is usually an organization’s primary goal
To better understand how this theory is applied in the business world, let’s look at the definitions of these terms in detail.
Theory of Constraints: Key Definitions
Here are more detailed definitions of the core concepts outlined above.
- A goal represents the objective of a system, which, in the case of a business, is usually profit
- A goal-oriented system is what the theory of constraints attempts to improve
- A constraint is the limitation on a business or system, which can include physical constraints, market constraints, policy constraints, and more
- Throughput, in business, represents the speed at which cash is generated through sales
- Throughput accounting is a type of accounting that emphasizes the importance of throughput, rather than items prioritized by typical accounting practices
- Operational expense is the organization’s overhead
- Inventory is the capital spent on operational expenses, such as equipment
- The process of ongoing improvement emphasizes the importance of the continual removal of constraints
- Thinking processes are clearly-defined tools that assist with analysis, dialogue, conflict resolution, and decision-making, among other things
These definitions can help us gain a top-down grasp of what the theory of constraints is and how it compares to other process improvement methodologies, quality management systems, and similar business frameworks.
Is the Theory of Constraints Useful for Your Business?
The theory of constraints has received both praise and criticism.
Those in favor of the system, for instance, have pointed out that:
- The theory of constraints makes it easy to prioritize business problems, since the focus is always on the biggest limitation
- It focuses on what matters most in business, such as achieving goals, maximizing throughput, and increasing profits, which can eliminate unnecessary distractions and reduce waste
- Applying the theory of constraints often generates increased capacity and capabilities across the organization
On the other hand, according to critics, the theory of constraints:
- Fails to focus enough on other factors that impact the business, such as employee productivity
- Lacks sufficient real-world case studies to demonstrate its value
- Borrowed heavily from decades of other scientific research, without acknowledging that debt
It is useful to remember that the theory of constraints is, like any other tool, designed with a specific purpose in mind – maximizing throughput and capacity by minimizing limitations.
Other tools, however, have different objectives, so they will naturally generate different benefits, as we’ll see below.
Beyond the Theory of Constraints
Organizations often have other aims besides maximizing throughput and output, such as:
- Increasing agility
- Decreasing waste
- Fueling innovation
To achieve objectives such as these, other types of business frameworks are needed.
- Agile principles can improve workforce agility, organizational agility, innovation, and more
- Quality management systems are designed to enhance the entire organization’s operations by improving quality across multiple aspects of the company
- Lean methods are designed to reduce waste and production timelines, while increasing customer satisfaction
In addition to these rather “general” frameworks, there are also plenty of frameworks dedicated to specific business functions.
A few examples include
- Change management models, which provide step-by-step frameworks for leading organizational change
- Project management frameworks, which include the tools and processes used to execute and manage a project
- IT governance frameworks, which are designed to align IT with the organization’s goals
The narrower a framework is, the more it focuses on achieving specific types of benefits. A change management framework, for example, is far narrower than more general frameworks, such as quality management systems.
Is the Theory of Constraints Useful?
Understanding the purpose of a framework is a prerequisite for choosing the right one, and it can help us better understand how to use the theory of constraints.
For instance, one could argue that the theory of constraints falls somewhere between manufacturing and quality management – after all, it revolves around concepts such as profitability, throughput, inventory, and operational expenses.
But does that make it a useful tool?
The answer to that question depends on your needs and what the framework will be used for.
Those interested in using methods such as the theory of constraints should perhaps study several such methods, then customize and combine them as needed in order to achieve one’s own personal goals.