A Dialogue between TOC and SWOT

SWOT Analysis table with main objectives

It is not easy for TOC people to evaluate ideas created outside the TOC community, because of three interconnected reasons.

The first is the damaging tendency to assume that TOC challenges everything that is not part of the TOC BOK.  I hope we get over this reason.

Another reason is the specific terminology used in TOC, which can be different from the use of those terms elsewhere. Just think of the term ‘constraint’ and how the use of it in TOC is different than the rest of the world.

The third reason is that the TOC school of thought implies a certain sequence of analysis. It always starts from the goal or an important objective and asks the question:

What prevents you from achieving more?

It is a must to create enough bridges and dialogues with other sources of relevant managerial knowledge into TOC to expand its scope and also its power.

Let’s check the relationships between TOC and SWOT analysis. SWOT, the acronym of Strengths, Weaknesses, Opportunities and Threats, is basically a marketing picture of the organization, brand or just a product.  The objective of SWOT is to lead the mind to improve the impact of the strengths, noting the potential opportunities and grabbing the best of them, reducing the damage from weaknesses and becoming more careful from threats.  The idea is that every part of SWOT impacts marketing, so the appropriate planning would take it into account.

SWOT starts with the Strengths assuming they are the key to identify the target markets and to emphasis these aspects in the marketing campaign. TOC, on the other hand, starts its analysis with the weaknesses of the organization as a whole. These weaknesses are the key reason to the current state of the organization.  TOC uses several types of weaknesses – constraints, core problems, flawed policies (policy constraints) all lead to identification of flawed assumptions that can be challenged.

The basic assumption behind this part of TOC is that the core weakness, in capacity, capability and possibly in the market perception, is the key leverage point, the most immediate opportunity to do much better in relatively short time.

It took time for TOC to recognize the role of the strengths in outlining the way to vastly improve the future of the organization. I see the insight of defining the Decisive-Competitive-Edge (DCE) a key development of TOC.  Goldratt defined DCE as “Answering a need of potential clients in a way that no competitor is able to.”  A TOC way to spot a need of the potential market, its pains that are taken now as “natural” or “part of reality”, is to look for possible UDEs of the market, by developing a branch of a current-reality-tree starting with the products, services and delivery.  But, in order to be able to solve an UDE certain key capabilities are required to provide the development of an answer to that need.

So, the unique capabilities of the organization, like fast, yet reliable, flow of products, are the key strengths of the organization.  These capabilities are the source of new opportunities, which means the ability to combine an unanswered need in the market with the ability to answer that need.  The logical cause-and-effect branch can start with the unique capabilities and then deduce the undesired-effects in the market that could be solved by those capabilities.

For example, fast and reliable flow could solve urgent situations of potential clients badly needing the products, when the current standard of delivery is too slow to solve such an urgency. The next step in the analysis is estimating the value for the potential clients  receiving quick and reliable delivery and whether this solution could provide new business for such a client knowing there is a satisfactory, even if somewhat more expensive, answer to such emergencies.  Such an analysis should come to the conclusion that the organization should not “waste” the unique capability by selling the fast-response to everybody, even when no urgency exists, without charging more for it.

The usual SWOT analysis looks on the strength of a product or service from the perspective of the market. These strengths are all due to certain capabilities of the company. Knowing better the unique capabilities, coupled with sensitivity to the pains and needs of the market, are critical for identifying new opportunities.   Strengths and opportunities have to be bundle together to get the full effect.

The last part of SWOT is threats. From marketing perspective threats can be competitors who might find better ways to compete. Another type of threats is economic and cultural happenings that might negatively impact future sales.  These are mostly external events, where the company might not be prepared to handle.

There is a definite need to look not just for external threats, but also to internally developing threats.  For instance, the retirement of a key professional whose unique capabilities are behind some of the current strengths.  Another one could be turning cash to become a constraint when too high long-term investments draw too much of the current financial assets.

TOC has, generally speaking, neglected the issue of threats, both external and internal.  The notion of an UDE is the closest signal that TOC might note and lead the user to draw the fuller cause-and-effect picture.  UDE is defined as well-known undesired-effect. The missing part in the current TOC BOK is constantly monitoring for new emerging effects that have the potential of becoming most undesired, sometimes even disastrous.   I have already written a post about “Identifying the emergence of threats”  (https://elischragenheim.com/2015/09/24/indentifying-the-emergence-of-threats/).

SWOT in general encourages detailed definition of market segments, those that enjoy the strengths and care less about the weaknesses. TOC did not fully developed, to my mind, a technique to develop clever market segmentation where features, delivery service, variety of the product mix, are all used to define the clients that should get the best value, and by that define the targets.  It is not too difficult to develop such TOC-influenced tools.

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Published by

Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

8 thoughts on “A Dialogue between TOC and SWOT”

  1. Interesting food for thought (as always!).

    In Dr. Alan Barnard’s terminology, Strengths would be “Mermaids”, Opportunities would be “Pot(s) of Gold”, Weaknesess would be “Alligators” and Threats would be “Crutches/Risk of Injury”.

    TOC Thinking Processes analysis does threats, in my view, by identifying potential negative results (Negative Branches) and obstacles to successful buy-in, implementation, and sustainment.

    Eli, you are so right that we need to have bridges, focus on results for our clients, and stay away from jargon!

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    1. Kathy, Mermaid, pot of gold, alligator and crutches are original Goldratt terminology. Alan does use them in his very important further development of the basic matrix-of-change into a double-cloud structure and its related questions.

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  2. Eli, I enjoy reading your work to see the incisive way your mind cuts through the topic honestly as opposed to just seeking support for the TOC dogma.

    TOC’s lack of focus on Threats is interesting and true to my way of thinking. I spoke to Goldratt about it and he explained that he didn’t think the TOC body of knowledge should encompass everything that it agreed was beneficial. He said that these beneficial non-TOC elements of a business could be left alone, as long as guidance as to how the Cost World might mistakenly corrupt them was provided.

    I have a few contextual weaknesses that TOC does not address of which management of a business should be cognizant.

    The first is organizational structure – is the company’s structure an obstacle to better exploiting its current constraint? I find this is (almost) always true for companies that have plateaued in terms of sales. Once the structure is functional to produce more profits (or goal units), positions will have necessarily been defined for the work required. Properly done, the combination of work for each position will fit some human personality, avoiding conflicts. For examples, a role will not require both vast patience and a strong sense of urgency or a highly tuned social empathy along with a deeply contemplative bent or a freewheeling independence while simultaneously requiring behavior of a precise and highly organized fashion. Opposite personality traits, simply blend to the norm.

    My second is the degree to which people are utilized in roles that suit them. Properly defined characteristics must be matched with folks who have them, otherwise discontent and turnover will result. In stable environments, time theoretically fixes mismatches, as turnover eventually produces good matches but who has the time and stamina to wait and what company’s competitors will will allow them to succeed in the interim? People who love their work are a competitive advantage, both because of what they can do and how they safeguard management attention.

    The last weakness is the fragility of TOC in a Cost World context. Being closer to right is no protection. When everything is going well, optimizers will appear who work to keep everything the same, except with a few cost savings. Imposed efficiencies (rather than flow resultant efficiencies) mitigate effectiveness. It always seems like a optimal trade-off, at the time. But, as Professor John Seddon says “managing costs ALWAYS results in higher costs.” And, worse, mitigated flow which means less value. Thus begins the slide towards bureaucracy and death.

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    1. Some important insights Henry. I think that the organizational structure should reflect the skills of the people at the different roles. This means that when a new executive enters a position he/she fits the specific skills, or it might require a certain change in the structure. I don’t think there is an optimal structure, but there could be misalignment between the character/skills of the executive and the specific requirements resulting from the definition of the current structure. I like to think of a flexible structure that changes according to personality of the holder of the role.

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  3. We just went through a SWOT analysis at my workplace. That was a top-down exercise involving department heads. At the same time, one of the directors and I had been involved in a longer term TOC analysis, which wasn’t sanctioned by the organization as a whole.

    We found SWOT helpful just because it was sanctioned and reflected a wider variety of viewpoints, some of which the director and I hadn’t anticipated.

    However, we also found SWOT lacking compared to TOC because the brainstorming sessions that came up with challenges and potential solutions had no appreciation for the concept of sufficiency – they’d identify two or three obvious efforts for improvement for each area, but wouldn’t justify sufficiency. As a result, they missed some necessary and counterintuitive components, without which success is impossible.

    The Thinking Tools hammer home the point of sufficiency, asking whether potential solutions are truly sufficient to solve problems.

    We also found that some solutions identified in the SWOT session tended to be vague and unactionable, like “Stronger Leadership On Our Teams”. I’m sure it felt insightful to say in the room, but once you plug it into an S&T tree as a strategy, it’s pretty clearly unhelpful.

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  4. Thanks Eli, and Henry, and tunesmith. Not so sure about TOC being weak at threat analysis. I think that application (usage) of TOC/TP is often weak, and that may be a flaw in how we teach it. Specifically, any Future Reality Tree (or the Strategy/Tactics Tree associated with the change) should contain the environmental assumptions that the causality is dependent on. Those connections and their assumptions form a “risks register” that, in my experience, directly correlates with SWOT Threat reasoning. if any assumption becomes invalid, or threatens to, then that is a risk in the design of the reality (whether future or transitional). Historically, this has resulted in such an early-awareness radar for such companies that they are often ready very early for transitional threats. Indeed, many view it as a “threat response buffer” and have a collection of possible threats and a menu of response strategies. For example, COGITA Business Services in NZ was completely ready fully one year in advance for a competitive threat posed by a supplier behaving inconsistently with prior assumptions. Flair International was ready more than a year in advance for the threat of both Chinese imports and a Japanese supplier changing the rules of supply. I would hope that newcomers to TOC do not overlook this. I’m not saying TOC “does everything” (for example, I’ve commented previously about weaknesses in behavioural shaping), but threat analysis is definitely in my TOC toolbox.

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  5. Thanks Eli, you make it clear for me.
    last week I was in ISO 9001:2015 QMS training course, the SWOT analysis was dominating the discussion there, I kept thinking about it from the TOC point of view.

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