Theory of Constraints Strategy Strategic Advantage

A Guide to Implementing the Theory of Constraints (TOC)
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Is Theory Of Constraints A Strategy?

This is more of a personal page than most and it revolves around the question; is Theory of Constraints a strategy? Well, my initial and unsophisticated intuition told me it was. And that was a reaction especially to the knowledge provided by an understanding and implementation of drum-buffer-rope. Drum-buffer-rope is certainly a competitive advantage – but does that make it a strategy? Surprisingly the strategists appeared to say no! I was confused. Nowadays, I think that it was the strategists who were then, and are now still, too narrow in their understanding.

Let’s revisit the argument for drum-buffer-rope in particular, and then later develop it to embrace the marketing, sales, and other non-logistical components of Theory of Constraints.

Are The Logistical Applications Of Theory of Constraints Strategy?

During the late 1980’s and early 1990’s American industry in particular became acutely aware of the time and quality advantages that just-in-time (JIT) and total quality management (TQM) afforded companies (1, 2, 3). In an article in the Harvard Business Review and later as a book the concept of “competing against time” or time-based competitive advantage was established (4).

Drum-buffer-rope through its focus on increasing throughput also substantially reduced overall lead time and improved product quality; more so and more rapidly than other methods available and thus appeared to be a perfect mechanism to attain this “new” aspect of competitive advantage. Surely therefore one could develop a business strategy on such operational effectiveness – just as others before have used novel financial or marketing aspects to gain a strategic advantage.

Not so! Operational effectiveness is not a strategy it was proclaimed (5). “Operational effectiveness was necessary but not sufficient.” The key to this argument was that the rapid diffusion of best practices soon rendered any advantage useless. In fact, “the most generic solutions – those that can be used in multiple settings – diffuse the fastest.” I ask you, do these guys live on another planet?

What about just-in-time? Stunningly effective, absolutely generic, but with slow and very limited diffusion. Why is it that with industry standard machinery and freely available know-how such a technique has been quite limited in its uptake (even in those industries to which it is most suited)? To help to solve this paradox we should consider what David Hurst has to say (6);

“…The lean production process had given Toyota control of fine scales of detail as yet inaccessible to its mass-production-based rivals. The customers could tell the difference and called it ‘quality.’

…Toyoda and Ohno did not invent a technology so much as they invented a social process that changed the technical system. Their subsequent success was the result not just of introducing new technology but of introducing a new sociotechnical system.”

What does drum-buffer-rope do? Especially the 3rd step of the focusing process – subordination – it introduces a new social process that changes the technical system. This is why just-in-time and drum-buffer-rope are both true strategies. It is impossible for competitors to mimic the solution even when they know it well. They must actually implement it. And to do that they must be prepared to also change their social process.

In order to change the social process we need to reframe our environment from the former reductionist/local optima approach to a systemic/global optimum approach.

In fact, you might recall in our discussion of accounting for change Jones and Dugdale have already, and independently, argued in a similar fashion that ABC accounting and TOC are different socio-technical systems (7). In fact they went as far as to suggest that they are different moral systems. Thus it seems that from two different angles; the similarity between just-in-time and drum-buffer-rope, and the dissimilarity between ABC and Theory of Constraints, we can argue that Theory of constraints is a new socio-technical system.

To the extent that most businesses are unable or unwilling to change their social process, both just-in-time and drum-buffer-rope by virtue of their operational effectiveness remain true strategies.

We might conclude that when generic solutions are transferred easily that they are modifications or extensions of existing solutions within the predominant paradigm – the reductionist/local optima approach. Conversely when transferal isn’t easy we might suppose that the solution is part of a different paradigm – in this case the systemic/global optimum approach.

So yes, absolutely, drum-buffer-rope is a strategy.

Are The Non-Logistical Applications Of Theory Of Constraints Strategy?

A proper implementation of the logistical parts of Theory of Constraints; drum-buffer-rope, distribution/replenishment, and project management, means that a company should be able to offer a greater range of goods more quickly and more profitably than its competitors. Essentially it becomes a flexible supplier. Flexibility is a crucial attribute to long-term survival.

Upton argued that there are 3 aspects to flexibility (8);

(1) Mobility.

(2) Product range.

(3) Uniformity of Performance.

Where; mobility is the plants ability to change nimbly from one product to another, product range varies from small numbers of different products to large concurrent amounts of similar products, and uniformity of performance means the same levels of quality and quantity regardless of product or volume (no sweet spots). Plants with good mobility have good product range and good uniformity of performance. Coincidentally Upton based his research on as uniform an industry as he could find – paper mills. If you can imagine a set-up on a paper machine, a machine that occupies a factory itself, you will begin to appreciate the concept. Although Upton argued for flexibility at a plant level, I believe it is generic to corporate levels as well.

The logistical components of Theory of Constraints pass the flexibility criteria. But what of the non-logistical components?

Let’s return to David Hurst once more (6);

“The most dysfunctional constraints are usually those that are tacit rather than explicit. Elements of formal organization such as restrictive rules and policies are at least easily identified and can be changed. The more insidious constraints are the strictures imposed by … the almost invisible influence of culture, and the pervasive effects of growth in organizational size.”

Hurst isn’t talking about constraints in client or vendor organizations; he is talking about constraints in our own organizations.

Now consider the marketing and also sales components of Theory of Constraints. What do they address? Constraints. Whose constraints? Our own organization’s constraints!

It’s not enough to be logistically flexible; one must also remove internal constraints. Which ones, tacit or explicit? The tacit ones. Is that easy? No! More importantly, is it easy for your competitors to imitate? Absolutely not.

Let’s illustrate the difficulty for competitors to imitate – in this instance a systemic/global optimum approach brought about by a leaning organization in the steel industry – pretty standard stuff surely? “A close look at Chaparral reveals an organic learning system so tightly coupled that CEO Forward says he can tour competitors through the plant, show them almost ‘everything and we will be giving away nothing because they can't take it home with them.’ His confidence derives from the fact that the knowledge management organization is comprehensible only as an organic whole (9).”

If you are operationally flexible and remove internal constraints that are almost impossible for competitors to imitate, does that constitute a strategy? Absolutely.

Both the logistical and non-logistical components of TOC constitute real strategy.

Pulling It Altogether - Subordination

It’s good that we used a learning organization example. Did you also notice Hurst’s use of the words tacit and explicit to describe internal constraints? We saw the same terminology used by Nonaka and Takeuchi much earlier to describe the externalization of individually held tacit knowledge and the creation of explicit organizational knowledge as a consequence (10). Organizations that create explicit organization knowledge are learning organizations – they have what Goldratt would call an on-going process of improvement. Nonaka and Takeuchi didn’t have a mechanism for this knowledge conversion; but we do – the Thinking Process. We can generate strategic advantage in the non-tangible aspects and it remains totally invisible and inaccessible to others.

In fact we can also generate strategic advantage in the tangible aspects and be quite sure that it will also remain invisible and accessible to others even though it is plain to see. Bottleneck awareness, exploitation, and elevation isn’t anything new to the reductionist/local optima approach – even thought the implementation usually falls far short of the real potential. We saw this in the page on process of change, we tried to envisage the reductionist/local optima approach as follows;

All the elements of the systemic/global optimum approach are there but subordination is ignored. The real cultural change is subordination – subordination of the local optima to the global optimum. Of course we also drew this;

And of course we also know how to do this. It is a reframing from the reductionist/local optima approach to the systemic/global optimum approach. And we know that such a change is a change in meaning only. Thus we can generate strategic advantage in the tangible aspects of our business and it remains invisible to others. They are block by their own understanding.

We can produce a new sociotechnical system – and it is a change in meaning only.

Summary

Let’s leave the last word to Air Force Colonel, John Boyd, someone for whom strategy really did mean life or death on a personal level in active combat as well as at the level of the nation-state (11).

He defined strategy as "a mental tapestry of changing intentions for harmonizing and focusing our efforts as a basis for realizing some aim or purpose in an unfolding and often unforeseen world of many bewildering events and many contending interests."

Its aim was "to improve our ability to shape and adapt to unfolding circumstances, so that we (as individuals or as groups or as a culture or as a nation-state) can survive on our own terms."

Theory of Constraints allows us as individuals and as organizations to shape and adapt to unfolding circumstances so that we can survive on our own terms.

References

(1) Schonberger, R. J. (1982) Japanese manufacturing techniques: nine hidden lessons in simplicity. The Free Press, 260 pp.

(2) Womack, J. P., Jones, D. T., and Roos, D. (1990) The machine that changed the world. Simon and Schuster, 323 pp.

(3) Schonberger, R. J. (1986) World class manufacturing: the lessons of simplicity applied. The Free Press, 253 pp.

(4) Stalk, G., Jr., and Hout, T. M., (1990) Competing against time: how time-based competition is reshaping global markets. The Free Press, 285 pp.

(5) Porter, M. E. (1996) What is strategy? Harvard Business Review, Nov-Dec, pp 61-78.

(6) Hurst, D. K., (1995) Crisis and renewal: meeting the challenge of organizational change. Harvard Business School Press, pp 120-123.

(7) Jones, T. C., and Dugdale, D., (2000) The making of "new" management accounting: a comparative analysis of ABC and TOC. Proceedings of the Sixth Interdisciplinary Perspectives on Accounting Conference, Manchester, U.K., July, pp 20-21.

(8) Upton, D. M., (1995) Flexible Manufacturing. Harvard Business Review, Jul‑Aug pp 74-84.

(9) Leonard-Barton, D. (1995) Wellsprings of knowledge: building and sustaining sources of innovation. Harvard Business School Press, pg 7.

(10) Nonaka, I., and Takeuchi, H. (1995) The knowledge-creating company: how Japanese companies create the dynamics of innovation. Oxford University Press, 284 pp.

(11) Hammond, G. T. (2001) The mind of war: John Boyd and American security. Smithsonian Institution Press, pg 161.