Applying the theory of constraints for business success

The theory of constraints is a management concept that postulates that all businesses are limited in achieving their maximum success by one or more hindrances. It is used to identify those business bottlenecks so that output is unencumbered and so that - ultimately therefore - financial performance is improved. 

Introduced by Eliyahu M. Goldratt in his 1984 book The Goal, the theory of constraints assumes the position that a chain is not strong when it has a weak link. Therefore, the constraints - those weak links - need to be identified and removed. This ensures that the weakness can no longer damage or hinder the company’s progress and success.

Using the theory of constraints, a company can focus its efforts and attention on the business obstacles and optimise processes so that it sees improved performance or output.

What is a constraint?

A constraint is anything that is hindering a company from achieving its goals. Typical constraints include: time, capacity, materials, people and manpower, capital resources and money. And constraints can come from any area of the business. While the theory originally centred on manufacturing, it’s clear that business hindrances can be seen not only in operations, but also in a company’s functional departments, such as HR, marketing, IT, sales, and accounting and finance.

The five steps for applying the theory of constraints

The theory states that it is ineffectual to improve the strong links; the weak links will still hamper the organisation. So it is imperative to focus on the constraints themselves. There are five steps to follow in applying the theory of constraints as a process:

1. Identify the constraint. You cannot manage an issue until you know what it is, so employ an audit process to pinpoint the bottlenecks.
2. Decide how to exploit and eliminate the constraint. This is done by systematically looking at the issues and applying a process of improvement. All efforts should be focused primarily on the constraint in order to maximise the speed at which income is generated.
3. Subordinate everything else to the constraint. If other areas are putting pressure on the bottleneck, the pressure will increase and continue to handicap the operation, resulting in more firefighting to deal with it. So the actions to fix the bottleneck must take priority.
4. Elevate the constraint. This is about adding capacity to the constraint so that more work can be put through it now that it has been identified, exploited and other pressures have been removed from it. In practice, this often means adding people or money or other resources.
5. Evaluate and check if the constraint is lifted. Sometimes solving one issue may create another. So make an assessment for this and return to step one and repeat if there are new bottlenecks. The initial constraint should also be monitored. 

How can you apply the theory of constraints in your company?

The theory of constraints is very apt for manufacturing and supply chain logistics. But, because it is used to identify and improve methods and systems, it can be applied to any area of the business.

Whatever business processes you have, where you have bottlenecks, you can use the theory of constraints to find effective solutions to a business issue.

For example, your recruitment processes may suffer from hindrances such as: not attracting enough suitable candidates for vacancies; or management not reviewing CVs quickly; or there being slow reference-checking processes. 

And in any project management situation - whatever its focus - there are all kinds of activities going on, all of which aim to converge to produce the final result.  Any bottlenecks in the system will delay or hinder the outcome and the theory of constraints can be applied to solve the issues. 

To achieve your organisation’s or your department’s full potential and to perform to the maximum, the theory of constraints can be a useful tool to eliminate the business stresses that bind and choke efficiency.

Have you used the theory of constraints? We’d love to hear your feedback.