Limit Breaks #6: Theory Of Constraints

SCIENCE

“The Goal is about science and education.  I believe that these two words have been abused to the extent that their original meanings have been lost in a fog of too much respect and mystery.  Science for me, and for the vast majority of respectable scientists, is not about the secrets of nature or even about truths. Science is simply the method we use to try and postulate a minimum set of assumptions that can explain, through a straightforward logical derivation, the existence of many phenomena of nature. 
 
“The Law of Conservation of Energy of physics is not truth. It is just an assumption that is valid in explaining a tremendous amount of natural phenomena. Such an assumption can never be proven since an infinite number of phenomena that can be explained by it does not prove its universal application.  On the other hand, it can be disapproved by just a single phenomenon that cannot be explained by the assumption.  This disproving does not detract from the validity of the assumption. It just highlights the need or even existence of another assumption that is more valid. This is the case with the assumption of the conservative of energy which was replaced by Einstein’s more global — more valid — postulation of the conservation of energy and mass. Einstein’s assumption is not true to the same extent the previous one was not “true”.
 
“Somehow we have restricted the connotation of science to a very selective, limited assemblage of natural phenomena. We refer to science when we deal with physics, chemistry or biology.  We should also realize that there are many more phenomena of nature that do not fall into these categories , for instance those phenomena we see in organizations, particularly those in industrial organizations. If these phenomena are not phenomena of nature, what are they? Do we want to place what we see in organizations to the arena of fiction rather than into reality?
 
“This book is an attempt to show that we can postulate a very small number of assumptions and utilize them to explain a very large spectrum of industrial phenomena. You the reader can judge whether or not the logic of the book’s derivation from its assumptions to the phenomena we see daily in our plants is so flawless that you call it common sense. Incidentally, common sense is not so common and is the highest praise we give to a chain of logical conclusions. If you do, you basically have taken science from the ivory tower of academia and put it where it belongs, within the reach of every one of us and made it applicable to what we see around us.
 
“What I have attempted to show with this book is that no exceptional brain power is needed to construct a new science or to expand on an existing one.  What is needed is just the courage to face inconsistencies and to avoid running away from them just because “that’s the way it was always done”. ”
 
-- Eliyahu Goldratt, Introduction to “ The Goal: A Process of Ongoing Improvement ”, emphasis added

***
 
A GENERAL FACTOR OF CORRECTNESS?
 
As soon as I saw that question – “ Is there a general factor of correctness? ” – my eyes lit up –
 
“… is there a General Factor of Correctness?
 
“Remember, IQ is supposed to come from a General Factor Of Intelligence. If you make people take a lot of different tests of a lot of different types, people who do well on one type will do well on other types more often than chance. You can do this with other things too, like make a General Factor Of Social Development. If you’re really cool, you can even correlate the General Factor of Intelligence and the General Factor of Social Development together.
 
“A General Factor Of Correctness would mean that if you asked people’s opinions on a bunch of controversial questions, like “Would increasing the minimum wage to $15 worsen unemployment?” or “Which interpretation of quantum mechanics is correct?” or “are artificial sweeteners safe?” and then somehow discovered the answers to these questions, people who did well on one such question would do well on other types more often than chance.
 
“This is a surprisingly deep and controversial issue, but one with potentially big payoffs. Suppose you want to know whose economic theories are right, but you don’t want to take the time to learn economics. Consider some position that was once considered fringe and bizarre, but now known to be likely true – for example, pre-Clovis settlement of the New World. Find the economists who believed in pre-Clovis settlement of the New World back when doing so was unpopular. Those economists have demonstrated a proven track record of being able to winnow out correct ideas amidst a sea of uncertainty. Invest in whatever company they tell you to invest in and make a killing.
 
“I’m sort of joking, but also sort of serious – shouldn’t something like this work? If there’s such a thing as reasoning ability, people who are good at sifting through a mess of competing claims about pre-Columbian anthropology and turning up the truth should be able to apply that same skill to sifting through a mess of competing claims about economic data. Right?”
 
If you’ve been a reader of mine for a while, you can probably guess my answer:
 
Yes.
 
Yes, of course there’s a general factor of correctness.
 
I had been looking for a phrase along those lines for a while. Certain authors across history seem to have it. As you get deeper into history and science, you start to get a sense for it.
 
But I never had a word for it.
 
I was calling it something like “general truthfulness” or “universal truthfulness” or something along those lines, but I never had a phrasing that I was quite comfortable with.
 
A “general factor of correctness” – yes, that’ll do.
 
You start to get a sense for it, the more you read. “Generally-correct” writing, when I see it, has a sort of reasoning  quality to it.
 
You can see this in the writing of excellent researchers, historians, and scientists – they spent a lot of time laying out the circumstances that cause them to investigate something, they look at from all angles, and they follow things to their conclusions – and are surprised by them.
 
If you’re never surprised by your investigation into something, that should be a huge red flag. After all, if every conclusion you find after investigating something turns up what you already expected to find, wouldn’t that be odd ?
 
If you look at the writings of a “generally correct” author – someone like Richard Feynman or Paul Graham – you find them stumbling onto counterintuitive things, and outlining their reasoning throughout.
 
Pick any Paul Graham essay – one like his 2009 piece “ Relentlessly Resourceful ” – and you can see him walk around the topic some, think it through, find the conclusions, reason through them some more, test the ideas, caveat them, and eventually come to conclusions.
 
Or take any given chapter from Feynman’s memoir, “ Surely You’re Joking, Mr. Feynman ” – and you start to see a pattern. Something happens, you reason through it, you follow the reasoning to its conclusion, and you refine from there.
 
When you read the writings of Miyamoto Musashi from Sengoku Japan, or Xenophon’s account of fighting in the Persian Civil War, you get a sense of correctness  from it – or, perhaps they err at times, but they err honestly. There is a general search for truth, observation, and surprise  in their writings. You read Musashi’s Book of Five Rings  or Xenophon’s Anabasis , and you realize these are people honestly and wide-rangingly searching for the true nature of things.
 
This brings us to Eli Goldratt.
 
***
 
LIMIT BREAKS #6: THEORY OF CONSTRAINTS
 
“... and most importantly, I wanted to show that we can all be outstanding scientists. The secret of being a good scientist, I believe, lies not in our brain power. We have enough. We simply need to look at reality and think logically and precisely about what we see. The key ingredient is to have the courage to face inconsistencies between what we see and deduce and the way things are done. This challenging of our basic assumptions is essential to breakthroughs.”
 
The Goal  by Goldratt is one of my favorite books. I sat down to skim it to write this chapter, and I wound up reading the whole book again – for the sixth time. I’ve recommended it to almost everyone I know in any type of industry or entrepreneurship, and it always gets universal acclaim.
 
In this chapter, we’ll look at one of his core ideas – the Theory of Constraints  – but we’ll spend even more time looking at why this generally correct idea isn’t applied more often.
 
“The theory of constraints (TOC) is a management paradigm that views any manageable system as being limited in achieving more of its goals by a very small number of constraints. There is always at least one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the organization around it. TOC adopts the common idiom "a chain is no stronger than its weakest link." This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the outcome.”
 
--  Wikipedia: Theory of Constraints
 
The basic idea of the Theory of Constraints  is a rather simple one: you identify what is the current “bottleneck” or “constraint” to achieving the goal you’ve set out for yourself, and you go to work immediately and directly on that. Non-obviously – and Goldratt lays this out well in the book – working on non-bottlenecks produces at best marginal gains, rather than huge gains.
 
That’s true  and we’ll cover it, but it’s not the hard part of understanding and implementing TOC in your own life.

The hard part is thinking .
 
***
 
THE THEORY OF CONSTRAINTS, SIMPLE VERSION
 
Imagine, for a moment, a company that only does one thing: turns raw iron ore into a strong steel alloy, selling finished steel ingots.
 
This might involve five steps –
 
1. Purchase raw iron ore from supplier.
2. Heat the raw ore and filter it to remove impurities.
3. The alloy process to the raw iron into a stronger type of steel.
4. Packaging the final alloy into a shippable form.
5. Selling the finished alloy to a customer.
 
The simple idea of the Theory of Constraints is that, at any given time, one of those five steps is the “constraint” – the weakest part of the process.
 
If you can’t find enough raw iron to buy, it doesn’t matter how good the rest of the purification and alloy process is.
 
If you the heating and filtering process is limited in your factory, it doesn’t matter how good the rest of the processes are.
 
And so on.
 
Finally, if there’s not enough demand – if you don’t have enough customers wanting to buy the finished product – then it doesn’t matter how good you are at making this steel alloy, until you can find more sales.
 
In other words, if you have an infinite supply – you can buy as much raw iron as you want – and if you have more demand at profitable prices than you’re currently serving, meaning you’ll make more sales and profit if you make more steel – then whichever is the slowest or lowest-capacity process in Steps #2, #3, and #4 is what’s holding you back from selling more steel and being more profitable.
 
***
 
THE EASY PART IS EASY; THE HARD PART…
 
The easy part of the Theory of Constraints  is rather easy. You walk around and observe what’s the slowest or weakest part of a process. You improve that process.
 
If there’s a line out the door of customers that want to buy hamburgers from you, and you can’t make enough hamburgers, you look at why: are we running out of hamburger patties? Can the grill only hold six burgers at a time? Does it take too long to cook the burgers? Are we running out of buns? Is the cashier taking too long to take people’s orders, and they’re getting aggravated and leaving?
 
The Theory of Constraints says something that’s correct, but counterintuitive – improving the area that’s not the current bottleneck won’t give you much gains.
 
It’s kind of obvious – if the biggest thing holding you back from making more sales is that only six hamburger patties can be on the grill at a time, and the cooking process is already as fast as it can be, then pretty much the only way to make more burgers would be to get more grill space.
 
Anything else you did – taking customer orders a little faster, putting the burger on the bun a little faster, etc – any of these might be small improvements, but wouldn’t lead to a huge improvement the way that getting more stove space would.
 
The easy part of the Theory of Constraints is easy – you study to see where your bottlenecks are, and then you do some mix of increase capacity, re-design how the resource is needed, increase efficiency, etc, until that place isn’t the bottleneck any more.
 
It’s very simple on the surface, yes, but why is it hard to do in practice?
 
***
 
PROBLEM #1: INGRAINED ASSUMPTIONS
 
The Theory of Constraints is a simple way to evaluate the performance of a system, identify what’s holding back higher performance, and set about to improving performance.
 
It’s terrific.
 
But often, the biggest bottleneck or constraint to higher performance will be held in place by some ingrained assumption, a “sacred cow” that’s hanging around.
 
When Goldratt was looking to popularize his work in operations during the early 1980’s, he got a lot of pushback from executives using outdated accounting methods. Eventually Goldratt declared, “Cost Accounting is productivity's public enemy number one."
 
“When cost accounting was developed in the 1890s, labor was the largest fraction of product cost and could be considered a variable cost. Workers often did not know how many hours they would work in a week when they reported on Monday morning because time-keeping systems were rudimentary. Cost accountants, therefore, concentrated on how efficiently managers used labor since it was their most important variable resource. Now however, workers who come to work on Monday morning almost always work 40 hours or more; their cost is fixed rather than variable. However, today, many managers are still evaluated on their labor efficiencies, and many "downsizing," "rightsizing," and other labor reduction campaigns are based on them.
 
“Goldratt argues that, under current conditions, labor efficiencies lead to decisions that harm rather than help organizations. Throughput Accounting, therefore, removes standard cost accounting's reliance on efficiencies in general, and labor efficiency in particular, from management practice. Many cost and financial accountants agree with Goldratt's critique, but they have not agreed on a replacement of their own and there is enormous inertia in the installed base of people trained to work with existing practices. ”
 
--  Wikipedia: Throughput Accounting: History
 
We don’t need to get into all the details behind the history of it, but cost accounting made a lot of sense in the 1890s when it was developed. It worked pretty well. Similarly to how Isaac Newton’s laws of motion worked pretty well for astronomy, but weren't the final definitive version of physics.
 
By the 1980s, the conditions that had made cost accounting very useful had largely changed. The biggest thing is that most labor costs were no longer “per piece” but were for a fixed amount of hours per week. As such, assigning the per-hour labor cost of each laborer to each piece of work they did… well, it was a creaky system. It would sometimes output very odd and incorrect things, where a factory would turn down a profitable contract and keep a laborer idle and doing nothing instead, because the cost accounting numbers (incorrectly) showed a particular job would be unprofitable. Traditional cost accounting methods would also stop a manager from assigning more labor to the bottleneck station in production – to save ten or twenty dollars, the manager might be giving up hundreds or thousands or dollars of revenue. Absurdities like those.
 
We all have ingrained assumptions, but obviously, they can be hard to realize.
 
For instance, there’s a lot of graphic designers who believe they “can’t code” – even though a designer with basic coding skills might make double or triple the income on an hourly basis, a lot of people just assume they can’t do it.

Or maybe they’re not even assuming they “can’t” – they’re just not thinking about it.
 
You might improve every aspect of a graphic design process, but the final constraint on higher profitability from that profession might just be where the supply and demand rates are for that field. Subtly shifting one’s focus, skillset, or market might be the necessary if you wanted to be more profitable.
 
“But we’ve always worked in this field, in this way” – yes, that’s precisely the problem many people have, without even realizing they have it.
 
***
 
PROBLEM #2: SEARCHING FOR BASIC PROCEDURES AGAINST OUR NATURE
 
This quote from Goldratt stood out to me –
 
“This is not going to be easy. We all are action-oriented and searching for basic procedures is almost against our nature…”
 
We explored automation last chapter – and we noted that it’s always faster to do another individual action than it is to standardize a way of doing things.
 
The Theory of Constraints is a very effective way to identify the point of greatest leverage in a system – the point which, if you improve it, will make everything much more effective.
 
But it requires slowing down from “doing things” and getting into a detailed mode of study. You need to take observations and make hypotheses of where things are slowing down, and how they could be improved. Sometimes, it’s not obvious how to best make improvements, and you might need to brainstorm dozens of ways and try the most promising potential methods out to see if they work.
 
This is unnatural. Time and space must be created to study how things are already working, identify what’s holding them back from working better, and brainstorm and test potential improvements to elevate performance.
 
***
 
PROBLEM #3: LACK OF A GOAL, OR A BAD GOAL
 
Goldratt’s book is titled The Goal.
 
It takes a bunch of concepts from operations management that are normally boring to most people, and turns it into a novel where a manager of a failing manufacturing plant has only a short time to turn it around or the plant will be closed.
 
Interestingly, the first problem that the protagonist of the novel runs into is not knowing the goal of his plant should be . There’s a bunch of competing and conflicting mandates from headquarters, “cut costs” and “increase efficiencies” being the two biggest ones, and yet, the plant keeps losing money no matter how many costs are cut.
 
The protagonist takes a while to get to what the goal  ought to be (spoiler: profit), and it becomes very clear and obvious and straightforward to him once that happens – but many other senior managers stay in a zombie-like commitment to little tactical pieces that are bad goals.
 
For instance, “market share” is a common goal for businesses. But Apple has  only around 15%  of the market share of smartphones... and yet Apple makes  91% of all profits  in smartphones .
 
Whoa.
 
Bad goals come with hidden assumptions baked in – for instance, you say “our goal is to get market share” but the hidden assumption is that that will lead to profit, whereas that’s not always universally true.
 
On the other end of the spectrum, often people struggle because they don’t have any goal at all. For health and fitness, for instance, it’s relatively easy to do a Theory of Constraints type analysis on what’s holding you back from higher performance in any particular sport, or to any particular concrete benchmark.
 
This is why people training for a marathon, triathlon, or who are part of a competitive sports team tend to get so much more consistent gains out of their training – given that they’re training towards a specific goal, it becomes easy to optimize their training. In the absence of a goal, it’s very easy to mess around with a “little of this and a little of that.”
 
***
 
GUIDANCE
 
The Theory of Constraints  is simple, but there’s a lot of technical details that can make life easier, help you account for things like statistical fluctuations, and help to visualize and improve systems.
 
It’s worth learning deeper on, and I can’t recommend Goldratt’s  The Goal  highly enough. It’s a masterpiece – and everyone I know who has read it, loved it.
 
With that said, the basic idea of the Theory of Constraints  is simple – whatever the current constraint is to higher performance, go to work on that for the biggest gains.
 
The three biggest reasons you might not do it – ingrained assumptions, the unnaturalness of searching for procedures instead of “just doing things”, and the lack of a goal or a poorly-chosen goal.
 
I think all of these can be addressed in a single way – through doing regular reviews.
 
Every single week, I do a very simple form of a weekly review where I ask myself three questions,
 
1. What’s really  going on?
2. So what do I do about it?
3. What matters; what doesn’t?
 
If things are going marvelously and this week is the same as last week, those questions can be breezed through in about 15 seconds. But if something is going wrong, they can be a good prompt to journal and think through things.
 
In this way, you start gradually creating a record of what’s going right and wrong – when you look back on a string of weekly reviews, you can see if any of the same problems are re-occurring frequently, and then go to work on those.
 
At the end of every month, I look over all my weekly reviews, and compile them into a monthly review that’s rather similar.
 
From there, I pick a personal goal and theme for the next month.
 
In this way, you don’t need to have the totality of “meaning of life” 100% figured out to set goals – setting one and tuning for it for just 30 days can go a long ways towards improving performance in a particular area.
 
Periodically, it makes sense to take a week off to just inventory everything that’s going on , and study all the weak points and constraints to what you’re doing .
 
I like to do this on long train journeys – on Amtrak in the United States, going from San Francisco to Chicago by train is a marvelous few days to journal, write, think, and examine things.
 
But wherever you do it, you ought to do it periodically – examining everything that’s going on, clarifying that your goals are relevant and appropriate, looking to surface hidden assumptions, and then looking for the constraints to greater performance – in order to break through on them.