The Theory of Constraints

The Theory of Constraints (TOC) is a novel approach to managing operations, developed in the early 1980s by Dr. Eli Goldratt, a Ph.D. physicist from Israel. In the early 1980s, Goldratt developed a computer software package called Optimized Production Technology (OPT), for scheduling complex manufacturing systems. The package used the linear programming technique. However, customers were never told precisely how it worked. So, although copies of OPT were sold to a number of companies, the software was not exactly a thumping success, probably because managers will not use a tool they do not understand.

To advertise his ideas more effectively, in 1984 Goldratt wrote The Goal, a book that translated the general logic embedded in OPT software into the fictional account of a plant manager who solves production, quality, and delivery problems.1 To further develop the concepts introduced in The Goal, Goldratt founded the Avraham Y. Goldratt Institute, an institute catering to educating managers on the principles and concepts of TOC. Many managers and consultants have since adopted these principles, modified them, and applied them to a variety of settings.

The Cost World Perspective

The conventional approach to managing a firm is based on the "cost world" perspective. With this perspective, cost control is a key measure that drives decision making. For instance, the cost world perspective could block a push to achieve a competitive edge through parts-per-million quality simply because it is not cost-effective. It could also prevent the firm from achieving a competitive edge through high inventory turns.

The cost world tends to place emphasis on efficiency of operations. Typically, this leads to "local optimization" in which the goal is to perfect specific parts of the organization. Such local thinking is, however, often