Theory Of Constraints – A Theory Towards Growth!
“Improve productivity!” “Increase efficiencies!” “Reduce costs!”
What if someone tells you all of these approaches are absolutely NOT the way to go, when it comes to your organization? Or your life?
Today we were introduced to one of the most fascinating and effective theories of managing and driving growth – for your organization and for your life, The Theory of Constraints, by Mr. Chandrashekhar Chaudhuri, a NITIE alumnus and Theory of Constraints Expert at Goldratt Consulting. Previous to consulting, he held several positions in Godrej India, where he was able to convince Mr. Adi Godrej to implement TOC, making Godrej the first organization in India to do so. Let me sum up all the thoughts he presented to us, and then some more!
What is the Theory of Constraints? A few examples for background
The well-known Eicher Motors was on the verge of closing down one of its divisions, blaming the market for its losses. Godrej Locks was suffering from major over-production issues, owing their problems to unpredictable consumer preferences. Both these organizations were attributing their failure to perform to external factors.
This can never be the case, according to TOC! The Theory of Constraints says that an organization is a whole system of connected processes, rather than a collection of independent processes. And there is only one ‘constraint’ which hinders an organization. This ‘constraint’ is the ‘weakest link’ in the system. Identifying this one constraint, comes only second to identifying the “one ultimate goal” of the organization. The underlying aim of the TOC is to bring in “focus” in the organization towards this goal. As once stated by Dr. Goldratt himself, if the entire Theory of Constraints can be represented in one word, it would be “Focus”!
Applying TOC, Eicher Motors identified their own ‘weakest link’, their payment cycle. Instead of optimizing each department, they focused each department’s attention towards this constraint – and today have achieved close to 98% on-time delivery, up from 25%. The same business unit is now earning revenues of INR 300 crores, with four operational factories. Godrej Locks too worked on the same lines, realizing that trying to ‘impose certainty on uncertainty’ will never work. Their weak link was predictability – so they started “producing only what they were selling”, thus avoiding bulk of their losses. Organizations in every domain and industry have been able to implement this theory and make much progress, recover losses and achieve unprecedented growth. Aditya Birla Group, Hitachi, Intel, Boeing, JCB, Dr. Reddy’s, P&G, Bosch – this is but a very incomplete list of such organizations.
Consulting firms in TOC:
However, most of these organizations are not able to realize error of their ways themselves. They take the help of specialized consulting firms like Goldratt Consulting, Vector Consulting, SynCore Consulting Group to guide them through the process of implementing TOC in their operations. TOC consultants use their experience to custom fit the TOC concepts to each sector and organization, based on their own problems and constraints. An aspiring consultant can get an edge by being certified by the Theory of Constraints International Certification Organisation (TOCICO). TOCICO is a global not-for-profit certification organisation for TOC practitioners, consultants and academics.
The TOC was revealed to the business and management world by Dr. Goldratt, in his book The Goal, way back in 1984. The book gives five simple steps to apply the TOC to any operation. Today this book and its concepts are the basic manual followed by several organizations across the globe, and almost every management student is introduced to it at some point in his 2 years in a B-school. The book itself, makes for an extremely interesting read (rather unlike other management themed books!), since it presents the various ideas of the theory in the form of a novel.
Mr. Goldratt has further exploited this theory in different domains and written several books on the same. It’s Not Luck is the extremely interesting sequel to The Goal, some say it’s better than the first – I agree! Necessary but not Sufficient, explains the application of the TOC to the IT sector, while Isn’t it Obvious is a description of how TOC can be useful in the Retail industry. The Choice, Critical Chain are other books by him, all encapsulating the Theory of Constraints in different perspectives.
As a management student, one always tries to exploit new and imaginative ways to approach the same old problems of business – since these same old problems cannot be solved by the same old solutions. The Theory of Constraints may just be the approach your business needs to overcome the slump and stride ahead. Take the first step – If you haven’t read The Goal yet, go get your copy!
Rishita is a first year student in the PGDIM course at NITIE, Mumbai. She has graduated as a BE from Birla Institute of Technology, Mesra and now plans to focus on the Supply Chain domain. Talking to people, reading books, and watching TV series are her passions – anything that tells her a story!
You can see more of her work on neptuneriki.insideiim.com