December 30, 2008

Theory of Constraints as Applied to Organizations

Filed under: Ideas — Robert John Ed @ 10:23 pm

Chances are that I’m not the first to think of this, but the biggest and most valuable idea to come out of our Operations class is the Theory of Constraints.  I’m wondering if the theory can be actively applied to organizations in order to increase their overall efficiency.  The theory states that an operations sect of an organization can only move as quickly as the slowest aspect of it’s operations.  That means that a factory can only move as fast as the slowest link in the chain.

This is detailed very well in The Goal, a book about turning around an operational initiative and marital strife.

Let’s empty the feline from the satchel:  the only way to improve operations is to elevate the constraint (also known as a bottleneck), which means adding capacity (more machines, increase efficiency of said machines, etc.) or improve processes to optimize the use of the bottlenecks (cut down on waste, QC before bottleneck).  The increase in the bottleneck increases the overall ability of the operational initiative.

After learning about this, it only stands to reason that an organization is seriously constrained by the individual aspects of the company.  So if a modern corporation is made of parts such as R&D, Operations, Sales, Logistics, Marketing, General Management and incalculable variances of those many practices, can organizations be viewed as operational initiatives in their own right?  I’m not so sure.  The idea here is that an company is constrained by one aspect (the worst) of all the needed pieces to run the company.  So if they constraint is R&D, the company will likely lag behind the market and play catch up.  Or if the constraint is general management, the company may lack efficiency in all aspects of their core operations.  If it’s strategic management, the company probably couldn’t last over the long haul.

What to learn here?  Well, I’m not sold that this idea is correct in the sense that individual pieces of an organization can be elevated at all times.  Yet the idea that one aspect of a company lags behind others seems valid.  I thought about a good Seth Godin piece that seemed relatively similar.  The main idea: organizations of all kinds excel at certain aspects of company performance due to the people that run the companies.  Not necessarily the people who originated the companies.  Managers who view the organization as independent pieces of a puzzle can attempt to systematically improve aspects of the company and build stronger companies in the long term.  The trick is not upsetting other pieces in that process.  If I were a general manager, I’d set up a timeline process for all the company and what it offers, then try to isolate the individual performers and benchmark them against the competition or against a perfect world if competition isn’t readily available, then think about ways to improve it.  This is potentially ideological and immature pedagogy, take it with a grain of pepper.

UPDATE:  Looks like this is hardly groundbreaking.  After another read through the Wikipedia article, there are somewhat vague inferences to applying TOC to sales and marketing.  Chances are I’m late to the boat, as usual.


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