Saturday, April 14, 2012

Focus and Leverage Part 102

A few years ago I had a client ask me what the essence of the Theory of Constraints was and I’d like to share my response to him with you.  This client had gone through my basic TOC training and I thought he had a good grasp of TOC, so his question sort of surprised me.  We decided to go to lunch so that we could have a lengthy discussion about his question.  The following is how I answered his question.
Organizations are made up of systems and all systems are really subsystems of larger systems.  Systems are not the same as processes, but there is an interrelationship between the two.  For example, several processes that are linked together to produce a product or deliver a service make up a system, but the system created is part of a larger system.  It’s one thing to produce a product or deliver a service, but it doesn’t end there.  We have other systems such as accounts receivable that must also exist if we are to get paid for our products or services.  This collection of interrelated subsystems, make up the larger system.
The Theory of Constraints teaches us that within a system there will always be a subsystem or process that limits our ability to move closer to our goal….it’s undeniable.  This limiting factor is referred to as the system constraint in TOC jargon.  This constraint can be internal or external, physical or it can be a policy or procedure, but for sure, it must be our focal point for improvement because unless and until we identify the constraint and exploit it, we simply will not move closer to our established goal.  Our goal can be at the system or the subsystem level.  For example, if our goal is to make money (i.e. system level goal), then the only way we will achieve this goal is to first, identify the leverage point and second decide the best way to exploit it.
At the subsystem level, our goal might be to increase throughput, so again we ask the question at this level…what is preventing us from moving closer to our goal (i.e. increased throughput).  Once again, we are looking for a subsystem constraint or leverage point and until we find it and exploit it, our subsystem goal will remain elusive.  Suppose now that we have studied this subsystem and discovered that one of the steps in the process is the leverage point for this process…..the step with the least amount of capacity.  At this still lower level subsystem, we find that there is another constraint or leverage point that is limiting our ability to realize our throughput and subsequently our system goal of making money.
This hierarchy of interconnected systems and subsystems, each with its own separate goal and leverage points is the starting point for understanding the true essence of the message of TOC.  If we don’t understand our system and how it is interconnected, we will end up making improvements that will do nothing for the system.  Yes, there may be local improvements for sure, but unless the system improves, true improvement is not happening.  Unless we learn how to recognize our interrelated leverage points, the bottom line will simply not change.  This is the major problem with most improvement initiatives around the world!  Isolated Lean or Six Sigma projects that improve parts of the process without improving the system as a whole are typically a waste of human resources.  Oh sure, they make us feel good, but if they aren’t improving the total system, then they won’t impact the bottom line.  This then is the essence of the Theory of Constraints… improvements rather than improvements made in isolation.
When we were finished with lunch my client thanked me and said for the first time in his career, he can see and understand the bigger picture.  He also told me he now understood why his company’s continuous improvement initiative had stalled and leadership had become impatient because they weren’t seeing the positive gains in the bottom line that they had been told would occur.  From that day forward, this General Manager applied the lessons from our lunch and there was almost immediate and significant bottom line improvement.  He now knew and understood that defining the leverage point and focusing improvements on it was the only way to go.  It’s a simple, but compelling message from TOC, so if you want to jump start your improvement initiative, remember our lunch time discussion.

Bob Sproull

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