Theory of Constraints and Coffee (Dialogue Part 1)
Question: When and how did the Theory of Constraints (TOC) arise?
George's answer: The official beginning of the theory can be considered the year 1984 when Dr. Eliyahu Goldratt published his first book, "The Goal". Unlike Lean philosophy, whose roots lie in Zen Buddhism, TOC's foundations are based on analytical scientific approaches to problem-solving. All TOC conclusions can be proven logically and mathematically.
Q: What connection do constraints and theories have to my practical daily problems?
G: Even among TOC experts, there are ongoing debates that this name might discourage entrepreneurs, as they may think it’s something complex and distant from reality. The name TOC will probably forever remain as a popular brand, but one of the main principles of TOC is: every system, no matter how complicated it seems, has an inherent internal simplicity.
Q: My business is very complex, there are many departments, employees, many suppliers, and very peculiar clients – what simplicity is there?
G: Look at the pictures: which of the two coffee-making systems is simpler, A or B?
If you ask this question to anyone on the street, you’ll probably get the answer: "Of course, A, because I can hardly imagine how many pipes, mechanisms, and electronics are inside B!"
But if you ask the same question to a scientist or a TOC specialist, the answer will be: "No doubt, B, because to make coffee, especially the one I want, you only need to press one button (espresso, cappuccino, latte, etc.), but with A, I have to do many actions, and the result is not guaranteed!"
In other words, the simpler management system is the one that requires controlling the smallest number of elements to achieve the desired result.
We don’t need to get into discussions about coffee flavor differences or the cost of maintaining the equipment. We all are excellent experts in generating various “buts”. Everything has its time, we’ll talk about that later.
But imagine how it would be if you could create a business that could be managed with two buttons: "Profit" and "Big profit". Press the chosen button, and immediately feel exactly the flavor you’ve desired.
Q: That’s pure fantasy – without effort, sweat, and work, you can't achieve anything!
G: Okay, let’s assume that to build a "Profit Machine," you would have to work hard for two to three years (maybe a lot of sweat too – although I don’t like that), but the "button" would be pretty stiff, and to press it all the way, you would need the constant cooperation of several people. Does it look more realistic now?
Q: You’ve seen my business and say that from today’s situation to big profit it’s possible to reach in two to three years? No, business always moves step by step, even very small steps.
G: Here are two possible development paths for the company – the Green and Red lines. Which one do you think reflects a good business development plan?
Q: I think the green one. That’s usually how development plans for companies look. For example, if you bring a business plan to a bank with a Red line, you have no chance – they’ll reject it as unrealistic!
G: Well, you’re right about banks, they always offer an umbrella when the sun is shining, but will snatch it out of your hands as soon as the rain starts!
However, if we look at the development paths of the world’s best, most profitable companies, and not only Google, Facebook, or Apple, but also thousands of smaller, less popular companies, they are all on the Red development line. We can take as an example the 500 largest companies in Latvia. I’m sure you’ll find a significant portion of them on a pronounced Red line, despite the post-crisis situation.
Of course, most companies follow the Green line, but some of them are so green that it looks like a pine needle path. Do you want to choose this road?
Q: Yes, I need to think about that! But you haven’t yet explained how this is related to TOC?
G: The idea of small, incremental improvements is very popular and allows justifying any improvements, even if they lead to real problems for the company. Moreover, this idea is rooted deep in the cultural and mental paradigms that have been cultivated for centuries and are very hard to overcome. The method of small, constant improvements can only be considered a short-term deep defense policy until the system’s (company’s) core problem (that "button" that needs to be built and pressed) is understood. The longer you delay addressing the company’s main problem, the higher the likelihood that soon this company, with you or any other manager, won’t have any problems left, as all the issues will be in the hands of a bankruptcy administrator. TOC teaches and explains exactly how to identify the core problem of the system and how to quickly solve it, leading the company along the red development line.
Can we agree that you see the possibility that:
- EVERY SYSTEM HAS INHERENT INTERNAL SIMPLICITY.
- THE FEWER POINTS IN A SYSTEM THAT IMPACT THE RESULT – THE SIMPLER IT IS (and this does not depend on whether we can describe the system’s construction on one page or if it requires 100GB).
- A SUCCESSFUL COMPANY CAN DEVELOP VERY RAPIDLY (along the Red line), and this naturally happens to all successful companies. And that means there are methods to achieve this.
Q: It looks like I’ll have to agree!