The theory of constraints is a management concept, asserting that all businesses are limited in achieving their maximum success by one or more obstacles.
It's used to identify business bottlenecks that could be preventing progress, so that organisations can iron out any issues that are preventing them from reaching their full potential (& improve overall financial performance).
What is the theory of constraints?
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 business constraint?
A business constraint can be anything that's stopping 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.
How to apply the theory of constraints in 5 steps:
The theory states that it's not effective to simply improve the strong links within your organisation; the weak links will still hamper the business.
So, it's important to focus on the constraints themselves. There are five steps to follow in applying the theory of constraints as a process:
Identify the constraintYou can't manage an issue until you know what it is, so completing an audit to pinpoint the bottlenecks is a good place to start.
Decide how to exploit and eliminate the constraintThis 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.
PrioritiseIf other areas are putting pressure on the bottleneck, the pressure will increase and continue to affect the operation, resulting in more firefighting to deal with it. So the actions to fix the bottleneck must take priority.
Elevate the constraintThis 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.
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 to your company?
The theory of constraints is 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 prevent the outcome - and the theory of constraints can be applied to solve the issues.
The theory of constraints can be a useful tool to help achieve your organisation's full potential, and prevent blockers in efficiency.