A Guide to Implementing the Theory of Constraints (TOC)





Next Step



Bottom Line


Supply Chain

Tool Box



& More ...



Current Reality Tree


3 Cloud Method

Future Reality Tree

Negative Branch

Pre-requisite Tree



The Principle of Leverage

Theory of Constraints is a systemic/global optimum approach.  Another systemic approach is known as Systems Thinking.  Systems thinking developed as a methodology for understanding dynamic complexity.  Dynamic complexity is a short-hand term for dependent cause and effect separated in time and space.  Of course dynamic complexity is the sort of thing that we have come to expect to occur in the novel serial processing systems that have developed since the beginning of the industrial revolution and that today we call business.

Systems thinking is also the 5th discipline of Senges’ book by the same name.  This work, and the work of others such as The Living Company by Arie De Geus, have helped bring into focus a refreshing view of business organizations as organic, dynamic, learning and composed of people.  This view rejects the older notions of mechanistic models, reductionist/local optima approaches, and that particular being known as homo economicus.  “Whereas the management curriculum had no place for human beings, the workplace was full of them (1).”

Underlying the concept of systems thinking is the concept of leverage; “seeing where actions and changes in structures can lead to significant, enduring improvements.”  “Tackling a difficult problem is often a matter of seeing where the high leverage lies, a change which – with a minimum of effort – would lead to lasting, significant improvement (2).”  It should be a simple matter then to locate the leverage points?  Unfortunately not.

If it was a simple matter of seeing where the high leverage lies then we would surely be doing it.  The problem is “that high-leverage changes are usually highly nonobvious to most participants in the system.  They are not ‘close in time and space’ to obvious problem symptoms.”  ”Our nonsystemic ways of thinking are so damaging specifically because they consistently lead us to focus on low-leverage changes: we focus on symptoms where the stress is greatest.  We repair or ameliorate the symptoms.  But such efforts only make matters better in the short run, at best, and worse in the long run (2).”

Clearly we need a methodology that allows us to identify leverage points.  Certainly we have used the language of leverage points to date as synonymous with constraints, but we must be careful to distinguish between physical constraints and policy constraints.  In an early section we quoted Goldratt; "We very rarely find a company with a real market constraint, but rather, with devastating marketing policy constraints.  We very rarely find a true bottleneck on the shop floor, we usually find production policy constraints.  We almost never find a vendor constraint, but we do find purchasing policy constraints.  And in all cases the policies were very logical at the time they were instituted.  Their original reasons have since long gone, but the old policies still remain with us (3).”

Thus even if a physical constraint is looking us in the eye, it is very likely that within one or two iterations of the 5 focusing steps we will be dealing with the intangible policy constraints that give rise and find expression as these initial physical constraints.  We need a method to find leverage points which may well be non-physical.  The 5th Discipline although aware of the problem of finding the non-obvious high leverage points didn’t offer much in the way of a solution.  However Theory of Constraints does and the methodology is called the Thinking Process.

The Thinking Process

The Thinking Process is a set of tools; graphical “trees,” which enable us to drill down into our intuition to verbalize the cause and effect relationships that we observe in our businesses day-to-day,  but which are difficult to capture in reports, graphs, accounting statements, and project plans.  It allows us to capture those non-obvious leverage points which are separated in time space and to portray their relationships in a simple and straightforward manner.

It is easy to consider the Thinking Process as an adjunct to the Theory of Constraints, something that is useful for overcoming initial resistance and ensuring buy-in.  However this is not the case, the Thinking Process is absolutely integral to Theory of Constraints.

The Thinking Process allows us to work through the sequence of;

(1)  What to change.

(2)  What to change to.

(3)   How to cause the change.

The Thinking Process performs a number of functions often simultaneously.  It allows us to interrogate the situation in a systematic and logically rigorous way, allows us to analyze and synthesize, communicate the situation, and to generate organizational knowledge.

The Thinking Process enables us to work through the sequential layers of agreement to obtain an implementable solution.  We do this using the intuition of the people involved – remember some of the cause and effect relationships will be separated in time and space, but if we include the critical people we will develop an understanding of the whole problem we are dealing with.  Let’s look at verbalizing our intuition and organizational knowledge creation.

Verbalizing Intuition

If we were to limit ourselves in using the Thinking Process to recording cause and effect which is already explicitly understood, albeit separated in space in time amongst individual members, we would in effect be doing “process mapping” which was common while business process re-engineering was popular.  The real power, however, comes from verbalizing our intuition – our tacit knowledge – that which is not yet explicit.

“We grossly underestimate our intuition.  Intuitively we do know the real problems, we even know the solutions.  What is unfortunately not emphasized enough is the vast importance of verbalizing our own intuition.  As long as we will not verbalize our intuition, as long as we do not learn to cast it clearly into words, not only will we be unable to convince others, we will not even be able to convince ourselves of what we already know to be right.  If we don’t bother to verbalize our intuition, we ourselves will do the opposite of what we believe in (4).”

The Thinking process meshes well with the concepts of tacit and explicit knowledge developed by Nonaka and Takeuchi.  Specifically “…tacit knowledge contains an important cognitive dimension.  It consists of schemata, mental models, beliefs, and perceptions so ingrained that we take them for granted.  The cognitive dimension of tacit knowledge reflects our image of reality (what is) and our vision for the future (what ought to be).  Though they cannot be articulated very easily, these implicit models shape the way we perceive the world around us (5).”

Let’s repeat that; although they cannot be articulated very easily, these implicit models shape the way we perceive the world around us.  This is why it so important to verbalize these factors and the Thinking Process gives us just the structured methodology to articulate these ideas that we have been lacking before.

However, there is a further equally important aspect to the verbalization of tacit knowledge – during the process organizational knowledge is created.  “... the subjective and intuitive nature of tacit knowledge makes it difficult to process or transmit the acquired knowledge in any systematic or logical manner.  For tacit knowledge to be communicated and shared within the organization, it has to be converted into words or numbers that anyone can understand.  It is precisely during the time this conversion takes place ‑ from tacit into explicit, and... ... back again into tacit ‑ that organizational knowledge is created (5).”  The trees that are the product of the Thinking Process allow us to convert individual tactic knowledge to explicit group knowledge.

In effect the following is occurring;

(1)  Individuals verbalized their own tacit knowledge as explicit knowledge.

(2)  The group internalizes this explicit knowledge as shared tacit knowledge.

(3)  Organizational knowledge is created.

Let’s not underestimate the importance of tacit knowledge as leverage against constraints.  We will develop the idea further in the section on strategic advantage, but let’s add quote from David Hurst to underline the importance of the issue; “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 (6).”

Indeed it has been said that the Thinking Process “may be the most important intellectual achievement since the invention of calculus (7).”  High praise indeed, but like all things it requires proficiency, and proficiency in this case comes through practice.  However, there should be no lack of examples to practice on.  There are several very good books available to guide you step by step through the construction of your own trees in much more detail than can be attempted here (8-12).  The following pages are really a concise introduction or a ready reminder depending on your familiarity with the subject.

Structured Nemawashi

There is a concept in Japan known as nemawashi which you will see mentioned in Western books on Japanese business.  I read nemawashi to mean the suggestion of an idea by the leadership that percolates down through the company, is made workable, and then floats back up through the management for approval by the leadership.  Sometimes nemawashi is presented as a very Japanese approach.  Well, it is.  But we poor Westerners can emulate this Oriental social norm in a structured way with equal skill.  We have the structure within the existing Thinking Process.  What we have been missing to date is the method to sow the germ of the idea that we wish to develop.

I would have liked to have introduced this thought much earlier in the page on agreement to change or in the page on leadership and learning.  In fact it is still too early because the extra piece that we need is called an Intermediate Objectives Map.  Dettmer shows how to use an intermediate objectives map to set the direction of a company when determining a company’s strategy (13).  The intermediate objectives map can also be used equally to set the objective for tactical problems.  It is a “stripped down” pre-requisite tree of the goal or objective and some pre-requisite necessary conditions.  It allows the leadership of the organization to sow the germ of the idea that they want the organization to develop.  The remainder of the Thinking Process tools allow for that development of the idea to take place.  Indeed this sequence provides for something that I will call structured nemawashi.  This is the development of true consensus by the internalization and socialization of a leadership idea until it is owned by the whole organization.  Dettmer’s constraint management model for strategy is structured nemawashi.  We will discuss this further in the strategy section on the constraint management model for strategy.

The ownership in structured nemawashi comes about through an understanding of the explicit cause and effect between the solution that is developed by the organization and the objective that was originally proposed by the leadership.

Let’s consider next then, explicit cause and effect.

Cause and Effect

You might like to consider the Thinking Process tools as LEGO sets for constructing business solutions, or dare I say it, as “transformer toys” for adults because too often one tool has a habit of transforming into another as you work with it.

Let’s have a look at the simplest case.

We can read this diagram by saying; “if” cause “then” effect.  We have simple statement that if the cause is present then we expect the effect to be present as well.

Let’s look at this the other way around.  What if we start with the observed effect, we might call this a symptom.

We need to ask ourselves what is the underlying cause of this symptom.  Maybe there are two underlying causes giving rise to it.

Fortunately life isn’t usually so complicated (even though it sometimes feels like it is).  More usually we have several symptoms arising from one common cause.

In either case the Thinking Process tools are incredibly powerful.

In most cases, even where we know that there is a singular common cause, we are forced to treat the symptoms as two separate problems requiring two separate solutions.

It is a characteristic of complex problems that they require simple solutions to be resolved.  If we try to resolve a complex problem with a complex solution, we can be sure that we haven’t addressed the underlying causality and the real problem hasn’t been removed.

The Thinking Process tools allow us to derive simple solutions to complex problems and to implement these solutions.

Which Tool For Which Occasion?

There are different Thinking Process tools or trees for different occasions.  Most often you will encounter them in a structured sequence as you try to move from your current reality to your future desired reality.  In this respect it is useful to re-read the page on agreement to change.  In fact let’s repeat a table from the page on multi-layers accessed off the page on agreement to change.  Treat this as a kind of road map for choosing the right tool for the right occasion.


5 Layers (14)

6 Layers (15)

9 Layers (16)






There is no problem




Raising problems that are out of our hands

Disagreement about the nature of the problem

The problem is different

Don’t agree about the extent of the problem

Current Reality Tree




The problem not under my control

Don’t agree about the nature of the problem



The proposed solution cannot possibly yield the desired outcome

Disagreement about the  direction of the solution

I have a different direction for a solution

Don’t agree about the direction of the solution

Injected Cloud



Disagreement as to whether the solution will result in the desired effects

The solution does not address the whole problem

Don’t agree about the completeness of the solution

Future Reality Tree


The proposed solution will lead to negative outcomes

Disagreement that the solution has no disastrous side effects

Yes, but the solution has negative outcomes

Can see additional negative outcomes

Negative Branch Reservation


Raising obstacles that will prevent the implementation

Disagreement that the solution is viable in the environment

Yes, but the solution can not be implemented

Can see obstacles

Pre-requisite Tree




It’s not exactly clear how to implement the solution


Transition Tree


Raising doubts about the collaboration of others

Unverbalized fear

Undefined / fear



Note that the transition tree isn’t specifically dealt with here, but it is covered in detail in the texts.  As you read through the following pages refer back to this table and to the page on agreement for change.  The concepts are strongly interrelated.

Proof-Reading Trees

There is a group of concepts know as Categories of Legitimate Reservation (17).  Essentially they provide the rigor for checking the validity of the cause and effect construction.  The concepts are; clarity, entity existence, causality existence, cause insufficiency, additional cause, predicted effect existence, and tautology.  McMullen considers; “Their titles alone say a lot.  Their simple and systematic use delivers more.  You start using them right away by figuring out what they mean from their names, or you can consult logic-tree reference sources to read pretty much what you’ve already figured out yourself from just thinking about the names (18).”

In fact there are a number of published sources of the categories of legitimate reservation.  For completion, these concepts are explained on a separate page.  When you start to build your own trees check the categories of legitimate reservation until you feel that you have internalized them.  And of course the best way to check a tree’s validity is to give it to someone else to read.


The Thinking Process is integral to the systemic nature of Theory of Constraints and allows not only analysis of problems, but also the construction of solutions and the communication and effective implementation of those solutions.  Over the following pages we will examine 4 different tools, the current reality tree, the cloud, the future reality tree, and the pre-requisite tree.  We will also examine some derivatives, the negative branch reservation, the 3 cloud approach, and the communication current reality tree.  We have seen some of these trees already, now we will learn the basics of how to construct them.


(1) De Geus, A., (1997) The living company: habits for survival in a turbulent business environment.  Harvard Business School Press, pg 82.

(2) Senge, P. M., (1990) The fifth discipline: the art and practice of the learning organization.  Random House, pp 12, 64, & 114-115.

(3) Goldratt, E. M., (1990) What is this thing called Theory of Constraints and how should it be implemented?  North River Press, 162 pp.

(4) Goldratt, E. M., (1990) What is this thing called Theory of Constraints and how should it be implemented.  North River Press, pg 3.

(5) Nonaka, I., and Takeuchi, H., (1995) The knowledge-creating company: how Japanese companies create the dynamics of innovation.  Oxford University Press, pp 8-9.

(6) Hurst, D. K., (1995) Crisis and renewal: meeting the challenge of organizational change.  Harvard Business School Press, pp 123-124

(7) Noreen, E., Smith, D., and Mackey J. T., (1995) The theory of constraints and its implications for management accounting.  The North River Press, pg 149.

(8) Dettmer, H. W., (1997) Goldratt’s Theory of Constraints: a systems approach to continuous improvement.  ASQC Quality Press, 387 pp.

(9) Dettmer, H. W., (1998) Breaking the constraints to world class performance.  ASQ Quality Press, 288 pp.

(10) Scheinkopf, L., (1999) Thinking for a change: putting the TOC thinking processes to use. St Lucie Press/APICS series on constraint management, 255 pp.

(11) Lepore, D., and Cohen, O., (1999) Deming and Goldratt: the theory of constraints and the system of profound knowledge.  The North River Press, pp 121-148.

(12) Smith, C., In: Smith, D., (2000) The measurement nightmare: how the theory of constraints can resolve conflicting strategies, policies, and measures.  St Lucie Press/APICS series on constraint management, pp 143-176.

(13) Dettmer, H. W., (2003) Strategic navigation: a systems approach to business strategy.  ASQ Quality Press, 302 pp.

(14) Goldratt, E. M., (1996) My Saga to improve production, Avraham Y. Goldratt Institute, 7 pp.

(15) Smith, C., In: Smith, D., (2000) The measurement nightmare: how the theory of constraints can resolve conflicting strategies, policies, and measures.  St Lucie Press/APICS series on constraint management, pp 156-159.

(16) Bakker, P., (2000) Notes from the 4th Annual TOC For Education International Conference, Monterrey, Mexico, August.  Seminar delivered by Rami Goldratt on the 9 layers developed by Efrat Goldratt.

(17) Noreen, E., Smith, D., and Mackey J. T., (1995) The theory of constraints and its implications for management accounting.  The North River Press, pg 161.

(18) McMullen, T. B. C., (1998) Introduction to the theory of constraints (TOC) management system.  St. Lucie Press, pg 73.

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