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Theory Of Constraints (TOC)
Avraham Goldratt Institute (AGI) is the birthplace of the Theory of Constraints (TOC). It was founded as an educational institute in 1986 by Dr. Eli Goldratt, author of the bestseller The Goal, It's Not Luck, and Critical Chain. Today, AGI is home to the world's foremost TOC experts and practitioners, with 14 offices across six continents. AGI is the world's largest consulting firm specializing in the application of TOC to achieve significant bottom-line results in organizations as diverse as industry, services, government, education, military and healthcare.
What Is TOC?
The Theory of Constraints (TOC) is an overall philosophy developed by Dr. Eliyahu M. Goldratt, usually applied to running and improving an organization. TOC teachings consist of:
Problem Solving Tools - called the Thinking Processes (TP) - which logically and systematically answer three questions essential to any process of ongoing improvement:
Daily Management Tools - taken from the Thinking Processes (TP) - are used to significantly enhance vital management skills, such as:
Proven Solutions - created by applying the Thinking Processes (TP) in specific functional areas such as Sales and Marketing, Production and Materials, Project Management, Finance, Accounting, Engineering, and Purchasing. Many of these solutions are discussed in detail in the books: The Goal, The Race, It's Not Luck, and most recently, Critical Chain.
The Avraham Y. Goldratt Institute offers introductory seminars and detailed implementation-oriented workshops in New Haven, CT, cities around the world and on a dedicated, on-site basis.
In light of today's competitive pressures and a rapidly changing environment, many organizations have decided that they must have a process of on-going improvement. For an organization to have a rapid process of on-going improvement, certain basic questions need to be answered faster and more effectively. Those fundamental questions are:
The Jonah Program is for individuals and management teams who want to accelerate the improvement process in their area of responsibility or throughout their organization. It is also for thos. who want to accelerate the improvement process in a subject matter or specific area of interest. The Jonah Program focuses participants' common sense and intuition through the Theory Of Constraints' Thinking Processes. The results are detailed answers to each of the three questions for the selected subject. Participants also gain the tools needed to apply the same rigorous process to other subject matter.
In learning the Thinking Processes, participants gain proficiency in thinking and communicating in two logical constructs: causality and necessity. The process begins with each individual defining the subject matter for analysis. Using these definitions to establish the boundaries of their topic, participants verbalize problems or Undesirable Effects that exist within their subject matter.
Using the Evaporating Cloud, participants learn how to identify and construct conflicts for several of the problems. They then learn how to find the deeper conflict that is at the core of the other conflicts. This Core Conflict appears to underlie the existence of most, or all, of the subject matter's Undesirable Effects. Verifying that this Core Conflict leads to most of the verbalized problems is accomplished through the use of the Current Reality Tree. This tree is interwoven with policies and measurements illustrating the relationships that exist between the Core Conflict and the more apparent problems. Once the Core Conflict that underlies most of the problems has been found, "What To Change?" can be answered.
Building on this new understanding of the subject matter, the course's focus moves toward the second question, "What To Change To?" The task is to find a way to break out of the Core Conflict. The participants learn how to find the erroneous assumptions that created the core conflict. This is the key to the direction of the solution and begins to answer "What To Change To?"
The initial direction for a solution is not the same as a complete solution. Once the direction is established, it must be fully developed into a solution. To do so requires the Future Reality Tree. Using this tool, the participants check which Desired Effects will result from the initial idea, recognizing that the initial idea is usually not sufficient to cause all of the Desired Effects. The process of building a Future Reality Tree highlights the missing elements allowing a more complete solution.
It is also important that the solution does not create any new, devastating Undesirable Effects, so participants learn how to identify and deal with potential negative outcomes ahead of time. The Negative Branch Reservation tool identifies, defines, and addresses the potential, significant negative outcomes. This process further completes the solution that answers "What To Change To."
At this point, the participants are ready to begin answering the third question, "How To Cause The Change?" Answering this question involves use of the Prerequisite Tree, the Transition Tree, and the TOC process for buy-in. The Prerequisite Tree uses the obstacles that block implementation of the required changes to map a path to the Desired Effects. These obstacles become leverage points to identify and sequence the intermediate objectives that must be achieved to create the new mode of operation. The process of developing the Prerequisite Tree leads to a clearer understanding of the buy-in required by groups and individuals and also provides a roadmap for the implementation plan.
Transition Trees are then developed to detail the actions that will ensure the objectives of the Prerequisite Tree are met. The real power of the Transition Tree is the clarity it provides around the need for an action and if the action is sufficient to produce the required changes.
All organizational improvement efforts require the active collaboration of others. In order to properly achieve the buy-in of others, it is important that it be done in a way that works with the normal process people employ when evaluating a proposed solution. Failure to work within this process usually creates the impression that people are resisting change. This natural process is what has been defined in TOC as the "Six Phases of Buy-in." Following the six phases minimizes resistance to change and the solution is enhanced through the collaboration of those whose buy-in is needed.
The tools used to achieve each phase of buy-in are formulated from the tools and analysis done earlier when answering "What To Change?" and "What To Change To?" Even though this is the natural process employed when evaluating solutions, it is not often the process employed when trying to achieve buy-in or when selling a solution. A significant amount of time is devoted to internalizing this process to increase participants' level of successful buy-in.
Upon completion of the Jonah Program, participants have learned and practiced the TOC Thinking Processes, buy-in process, and have created a robust solution with detailed implementation plans to accelerate their subject's process of on-going improvement.
The organizations that want to significantly improve their bottom line performance, but can only do so by effectively addressing the external factors constraining their performance - external constraints such as insufficient market demand, poor supplier performance, or the unwillingness of the financial institutions to provide the necessary capital. In order to effectively address an external constraint, the organization must construct and present an offer that:
Such a win-win is what we call an "unrefuseable offer."
To construct and present such an offer requires that we create a shift in the way that our offer is valued by the external constraint: from one that is based almost solely on "price" - where the other important elements of our offer are left virtually unquantified (the ones that can make or break the deal); to one that is based on "price related to bottom line benefits." Hence, one of the major elements to be addressed in providing an external constraint with an "unrefuseable offer" is quantifying the value of the offer in terms of its impact on the external constraint's bottom line. Bottom line here doesn't necessarily mean Net Profit - it might mean Return-On-Investment, Inventory Turns, Cash Flow, or keeping within Budget. What's important in doing this is looking at the bottom line through the eyes of the external constraint and determining what it considers to be important. Quantifying the offer in this way enables the external constraint to value the organization's offer on the basis of the "bottom line benefits it gets for the price" rather than simply the "price."
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