TOC has been criticized as being focused solely on the short-term. Exploiting a capacity constraint, while subordinating everything else to the exploitation scheme, is a typical effective and fast way to get more from the goal in the short-term.
In the long-term, provided the constraint is already exploited and subordinated to, we are guided to elevate of the constraint. The constraint would then move to the market. Further market expansion, using mafia-offers, will cause the emergence of a constraint back into the organization and so on. This is the classical description of how the five focusing steps work in the long-term.
When the constraint is in the market – how should management decide where to focus their efforts to expand the demand?
Theoretically, every expansion of the market, when no internal constraint is active, should be encouraged. But, arbitrary market efforts might eventually cause the emergence of the “wrong” capacity constraint, not the one that yields the best bottom-line.
The notion of the “strategic constraint” could guide us to expand the market so that the emerging constraint would be that particular resource. With this target in mind what market should be the focus of the marketing and sales efforts? Would you base your plan on products with high throughput per strategic-constraint-unit (T/sCU)? Actually if you do so you definitely going to end up with another constraint – not the strategic one which would not have enough load to even come close to be a constraint.
Is it good to have an internal strategic constraint?
Not to my mind! There is an effective rationale to maintain spare capacity to ensure flexibility in answering market opportunities, while offering excellent reliability to the existing clients. I’m aware that not always reliability is a decisive-competitive-edge, but when it is not then it is still a necessary condition. An internal constraint is always a threat to the reliability and fast response.
TOC never ignored the impact on the long-term, but let’s admit that the major focus, exploiting the constraint, was on the short term. There is a simple explanation why:
The further we look into the future the higher is the impact of uncertainty
And thus any approach to the long-term is subject to possible failure. However, we cannot and should not ignore what we can do NOW to reach the ever-flourishing state we like to have in the future.
The focus on the short-term considers resources, capabilities and opportunities we already have. It does not consider creating new value for potential clients. Coming up with a decisive-competitive-edge takes time to synchronize, integrate the various parts into an effective launch that expands the market demand. We also need to build the appropriate infra-structure, resources, capabilities and robust processes, to handle this growth.
Thus, we can easily identify two critical flows within any organization:
- The current value-flow – the short-term generation of T.
- The flow of initiatives to increase the value to potential clients, enter new markets and possibly limit the growth of OE and I relative to the growth of T. These initiatives together construct the actual Strategy of the organization.
The two flows use mostly different resources. The current-value-flow is all about getting orders, responding fast and ensuring good quality. The main efforts come from Sales and Operations.
The flow-of-initiatives is quite different. It includes Marketing, as the function that looks to new opportunities and R&D that come with new answers to the various markets. The key gross initiatives try to expand the market demand, or elevate the value perception of the market. Those key initiatives derive initiatives to prepare the appropriate infrastructure, like bringing in new capabilities, resources and new processes. Other initiatives build control mechanisms to warn from developing threats.
The resources for the flow-of-initiatives are mainly managers and high-level professionals. High enough budget is another needed resource.
Both flows are critical to the success of any organization. Of course, there are many other flows in an organization like the flow of incoming payments, the flow of information and the flow of human resources. The above two flows seem to me as the key ones for achieving the goal.
Both flows are constrained, but not by the same constraint!
It has been my own view since the mid-90s that the current-flow is almost always constrained by the market and sometimes also by lack of capacity of an internal resource. Forcing the clients to subordinate to the internal constraint of their supplier is a very damaging to the future of the organization.
However, the flow-of-initiatives is always constrained by an internal resource. There should be always more ideas that might improve the future performance than the capacity of either the budget or the human resources.
This is how I interpret Eli Goldratt saying that the ultimate constraint is management attention!
I doubt whether there are many cases where management attention truly limits the current-value-flow. Once the basic TOC methodology is implemented and the level of WIP is about right we should not expect to have operation managers loaded up to the level where damage is unavoidable.
But, when it comes to striving to ensure future growth and stability – management attention is the strategic constraint. The most obvious exploitation scheme is focusing on the most beneficial ideas. Planning carefully the Strategy based on TOC, preferably using the S&T format, is the best way to achieve not just the exploitation, but also the proper subordination processes, giving the right priorities to the rest of the organization.
This is, to my mind, what the long-term TOC should be.
7 thoughts on “Short-Term and Long-Term TOC Or the Two Critical Flows”
Hi Eli, thanks for sharing the inspiring article. May I know what is S&T format?
Ethan, S&T stands for Strategy and Tactic Tree, and it is a format to verbalize the strategy so everyone can find what they need to do. I suggest you go on http://www.harmonytoc.com. I believe it contains an excellent tutorial on it.
I would argue that the vast majority of Management Attention is very focused – keep their job amid the chaos that exists in most middle and large companies. Pushing TOC into this managers world (in place of more than 80 other improvement processes) will result in the conflict of : Personal job security ⇐ ⇒ Improving the company. I would propose that this is the ultimate constraint.
Overall direction comes from higher level executives, right up to the CEO. The reasons for their promotions to the executive ranks has often has relied on successful implementation of an improvement methodology – they cut cost, improved efficiency, increased profits, slashed inventories, reduced burden per part, increased throughput, etc. More than 80 processes, including TOC, can be one of these processes.
But executive turnover is about two years, so managers below them are forced to be conservative in their commitments – say they are going to do it and take on some safe activities, but keep your overall focus and actions on the tried and true measures and methods that have kept them safe.
And so it is with TOC – executives who implement TOC (either with or without success) have moved on in two years. TOC’s paradigm is so radically different than most other improvement methods that it will end up being set aside for the new executive’s (or CEO’s) favorite process. Standing your ground with TOC is tantamount to falling on your sword.
Thus, TOC advocates must convince executives and their managers that the move to TOC is both beneficial to the company and provides job security (and possibly job enhancement) . And it must be successfully ingrained in the organization is less than two years, or it will swept away by other methods.
Hi Kevin, while I wrote a lot about the conflict “Personal job security ⇐ ⇒ Improving the company”, my conclusions are not as pessimistic as yours. I also define a constraint to a flow as a continuous type of limitation that any small change in it has an impact on the measurement of the flow. With this definition the existing conflict is a flawed policy, with huge negative consequences, but technically it is not a constraint. I went deeper on the issue of “what is a constraint?” in my webinar on “Re-evaluation of the five focusing steps” and is available for free from the TOCICO site to any TOCICO member.
TOC advocates who fall on their sword have failed to truly understand TOC. Instead of blaming we need to understand the other side and consider it in our actions. I also think that when new executives coming in – pushing TOC aside could be quite a risky move for them. We can implement TOC in such a way that pushing it aside is a clear risk. We can also help the new executive/CEO to construct his own new initiative within the TOC support. However, we need that TOC be part of the overall Strategy of the company to be able to do that!
The cloud: “Personal job security ⇐ ⇒ Improving the company” does exist, even though we always need to evaluate how strong it is. After all not every move to improve the company would endanger my job. Most of the improvement ideas would not. Then we do have the responsibility to evaporate the cloud. One way is to be able to reduce the risk. Another way is to convince the top management and board to clearly and visibly take the risk, because the possible negative is low and the possible positive is huge. When the organization develops a Strategy, a plan to reach more from the goal, then some of the aspects of the conflict will be solved. I fully agree that the conflict is real and – WE NEED TO FIND BETTER WAYS TO EVAPORATE IT!!!
Kevin, on second thought the core cloud of any executive in an organization is:
Operate upon on my own personal interests versus Operate upon the interests of the organization I work for.
Whenever there is a real conflict –> it is a major core cause for many UDEs.
Job security is certainly part of personal interests. In Europe and in other countries the real threat on job security is not too big., but then the chances for promotion is a related issue and that could be in real risk.
Your post reminds me of thoughts I had about a generic cloud some years back. It seems to me that many (all?) clouds may be framed as conflicts between the needs of now versus the needs of the future. One must save for the future, but there will be no future if one does not eat today. And humans have a bias toward the near term, so it is easy to call for cost cutting or other measures that increase today’s profit at the cost of tomorrow’s productive capacity. A lack of management attention to maintaining the balance between short and long term increases the likelihood of crises that almost require sacrifices of future capacity to sustain the organization today.
Your post describes perfectly a situation I witnessed (in 2015). Despite repeating warnings to top management, we could not get their attention and ultimately the constraint moved to the market.
While trusting us to cope with the problem that was assigned to us, top management’s attention shifted onto another fire to fight, sales did simply ignore their earlier commitment to push sales and when the internal constraint got elevated, the demand did not follow.
Given the inertia in this kind of market (pharma products), the lost opportunity counts in months and millions of currency units!
PS: I enjoyed meeting you in Paris!