When I first read the proposal for Reaching the Goal: How Managers Improve a Services Business Using Goldratt’s Theory of Constraints, my reacation was, “Yikes – this is heavy stuff”. For manufacturing companies TOC was groundbreaking. Once I got my head around it – it really become practical to me. I mean we are all faced with constraints – time, money, expertise. Seems like I have 10 constraints a week in my personal and business life.
John Ricketts, the author of Reaching the Goal, sat down and answered some questions for me. The following is a good read for getting your head around this topic. I honestly believe his work is groundbreaking for a services company.
Reaching the Goal takes a highly regarded contemporary management paradigm into brand new territory,” says John Ricketts, IBM Distinguished Engineer in IBM Global Services. “For the past 25 years, The Goal by Eli Goldratt has been a best-selling business novel that tells the story of a factory on the verge of collapse and how it’s rescued by managers who focus their attention on the constraint that limits what the factory can produce. With the guidance of a character named “Jonah,” their actions defy conventional wisdom, but they eventually save the factory – and they do it using only the capacity they already have.”
This body of knowledge is known as Theory of Constraints, or just TOC. Three out of four leading manufacturers today have implemented it, but hardly any service providers have. The reason is simple: Service providers face different constraints than manufacturers. Yet the principles behind TOC are compelling enough to make it seem like TOC should apply to any enterprise.”
In a nutshell, what is Theory of Constraints?TOC is a set of management methods based on a few key principles. For example, just as a chain is only as strong as its weakest link, a company is only able to produce as much as its constraint will allow. Improving productivity of anything other than the constraint won’t improve productivity of the company overall, yet that is precisely what companies attempt to do when they tell every manager to optimize his or her own zone of responsibility. The result is most managers feel pain points that come from well-intentioned efforts by other managers to optimize just their parts of the business. In contrast, TOC says stop the madness, home in on the overall constraint, and focus improvements there. Furthermore, TOC recognizes that just as it’s easier to pull a chain than push it, a company produces more when it stops pushing things into production, in the hope that customers will eventually buy them, and starts letting the market pull things through production. A consistent finding from TOC implementations is thus that most companies have considerable latent capacity that was previously lost in the confusion.
Can you provide some examples of constraints in services organizations?
Some services organizations have a resource constraint: They can’t hire, train, and retain enough people with the critical skills that customers demand. Some have a production constraint: They can’t deliver services at the speed, cost, place, or quality that customers demand. Some have a market constraint: They can produce considerably more than their customers will buy. However, almost every services organization has an information constraint: They have no way to know what mix of services would produce the most profit.
How can TOC be applied to a services company?
TOC in manufacturing has grown over the years to cover more than just factory operations. It now includes applications for distribution, engineering, accounting, marketing, and sales. And its Thinking Process applies to strategy and change. Reaching the Goal (RTG) explains how each of the applications has been adapted for services. For example, rather than using the operations application in a factory, RTG adapts it for business processes. Rather than using the distribution application on goods, RTG adapts it to resource management. And rather than using the engineering application on recurring product development projects, RTG adapts it for diverse services projects.