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Source: Business-improvement.eu
TOC: Unlimited organization
Part of the cover of "The Choice" Goldratt’s Choice

By Dr Jaap van Ede, editor-in-chief business-improvement.eu
Dutch version on Procesverbeteren.nl

With his international bestseller “The Goal”, published in 1984, Dr Eliyahu Goldratt laid the foundation of the Theory of Constraints (TOC). Soon, he grew into a business guru. Many other books followed, in which he expanded the bottleneck theory from production to marketing and finally to supply chains.

In his new book, “The choice”, Goldratt reveals how he came to his ideas: By thinking clearly, like a scientist.

According to Goldratt everyone can do that, but first we if we have to remove at least three mental blockades. First, we think that (business-)reality is complex. However, if you map causes, effects and opportunities, then reality turns out to be astonishing simple. Another flaw in our thinking is that conflicts are seen as a given, or even worse: we tend to conceal them. A third barrier is that we often blame our (business-)partners, or underestimate their commercial insight. Instead we should look for win-win solutions. Are we ourselves the biggest business-constraint?

The book title refers to an internal report, that Goldratt made in 2007 for his consultancy-group. This report was entitled “Freedom of choice”, and describes how a number of big retail chains in Brazil nearly implemented the Theory of Constraints. However, at the very last moment, they withdrew. Some TOC-consultants of Goldratt’s group were disappointed, but not Goldratt himself. He explains why: you can bitch about reality, but you can also accept it as a gift. The latter is “the choice’ Goldratt makes. Everything he undertakes, he sees as a prototype!

Never say you know
So, (business-)life is doing experiments. However, like a scientist, you need to prepare yourself thoroughly first. To do that, you should make logical maps of causes, effects and opportunities. Goldratt stresses, that solutions should be seen as falsifiable. You have to remain alert to every sign that an assumption is not (fully) correct:  never say you know.  In addition, further improvement is always possible, the sky is not the limit.

To think clearly you don’t have to be a genius, says Goldratt. All you have to do is to get rid of several mental constraints. Through a conversation with his daughter Efrat – she has a PhD in organizational psychology – Goldratt explains what he means.

Inherent Simplicity
Our first misunderstanding is, that we think that (business-)reality is complex, so that ‘sophisticated’ solutions are needed. The opposite is true, according to Goldratt. When activities are complex, there are a lot of connections between them, and that reduces the number of degrees of freedom. This concept is called “inherent simplicity”. As Newton said: when you dig deeper, you will found out that nature is simple and harmonious with itself. Therefore, one crucial change is often enough, to realize an astonishing business-improvement.

Finding business opportunities all boiles down to finding a leverage or root cause. In TOC-jargon - lacking in the book because not al the readers are familiar with that - you should probably call this a bottleneck.

To find it, causes & effects should be mapped, and (perhaps faulty) assumptions should be challenged. This can be done by asking for every effect why it is happening, and continue to do this until the root cause is found.

Beware, this is easier said then done!. One pitfall is the use of circular arguments (tautologies) like: “he lost, because he wasn’t motivated”. When you ask if the latter assumption is correct, the answer will be “he lost”. So, circular logic leads to a dead end. For the same reason, the construction “We have difficulty, because people resist change” is faulty.

Who needs to think about this a little longer, this happens frequently when you reed Goldratt’s book. And he is right: If people resist change by nature, why was president Obama elected?

Reading the “The Choice”, although the arguments are clear, is not as easy as “The Goal”.  Much more diverse and complicated situations are described in this new book.  Reading it takes about four hours, and after that the reader remains thinking about it. To me, this makes “The Choice” however only interesting!

A lot more profit
Goldratt’s method reminds me of the “5-why’s tool”, used in Lean manufacturing. Also his plea for a scientific attitude is not unique. Take for example the A3-management method which is used inside Toyota. Managers in that company stress that you should investigate the nature of problems without prejudice, like a scientist, and that solutions should be tested.

The difference is that Goldratt’s approach is grand and compelling.  Side issues should be ignored, he states. Step by step improvements will help, but one cent plus one cent plus one cent is still less then a dime. With unflagging energy Goldratt therefore focuses on finding a few constraints, that stand in the way of making a lot more profit.

This makes the TOC, and also this book, so attractive: The idea that it is possible that the profit in your company might equal the current turnover in only four years. The Goldratt Consultancy Group even markets this as an offer that companies can’t refuse, Viable Vision they call it. Of cause one can have sound doubts about this. But what remains is, that applying the TOC will lead to thinking about major breakthroughs. And that is an aspect, which is currently lacking in many process improvement programs.

The Choice (cover)Title:      The Choice

Author:  Eliyahu M. Goldratt

Additional information:  173 pages, Published by: North River Press (2008)
Pro's en con's
The book shows that Goldratt’s Theory of Constraints has evolved to an almost scientific approach, with the goal to find ground breaking business-opportunities. This can be done by thinking logically, and mapping causes and effects. This approach is useful in any business situation, even if your company does not implement the Theory of Constraints.

+ The book contains many eye-openers, and invites to think yourself

+ There are many business-cases in the book, although anonymized. These alone are certainly worth reading!

+ Goldratt is a good writer, he keeps you in suspense

-  Some of his propositions are over-simplified

-  Repeatedly stressing that “thinking clearly” is a “way to live a full life” becomes a bit irritating

The book can be ordered by:
North River Press

In the book, Goldratt gives many business examples. To clarify the concept of inherent simplicity, opportunities for improvement in an (already successful!) apparel company are discussed. Soon after the start of each season, this company struggles with shortages in the high running articles. And at the end of each season, they are left with a stock of less popular clothes. The first problem is labeled positively (!) by the managers as ‘sold-out’.  The other problem they disguise as “outlet sale”.

Although there is clearly a conflict, this is seen as normal in apparel industry. After all, it is impossible to make an accurate forecast. By cause-and-effect analysis Goldratt however finds a solution: let’s skip the forecast, and start each season with only a small inventory. New clothes can then be ordered just-in-time, based on the consumption pattern during the first few weeks of the season.   

With this example Goldratt proves that (1) there is a indeed a simple solution for a complex problem , and (2) that managers often see conflicts as a given. So that is the second constraint that blocks them from thinking clearly!

In this case the root-conflict is “ordering more to prevent shortages of high-runners”, versus “ordering less to prevent a surplus of unpopular clothes”. This conflict is based on a wrong assumption, namely that all clothes should be ordered in advance, based on a forecast.

So, if you find a ground breaking business-opportunity by mapping causes and effects, this probably only is a good solution if it is based on correcting such a wrong assumption.

Goldratt claims that it is possible to solve each conflict, because “nature is harmonious with itself”. You only have to challenge the underlying assumptions, and to investigate which idea is wrong! 

According to Goldratt we do not only disguise conflicts, we also have a tendency to blame others. That stands in the way of finding win-win solutions, for example for the relation between a supplier and an OEM-er. Goldratt suggests that we start by investigating what are ‘wins’ for the other party.

Another pitfall is that we underestimate the commercial insight of others. How often it is said that small shops will not understand the advantage of replenish-to-consume?

Extreme position
To make his point, Goldratt often takes an extreme position. His daughter seems not able to prove that his propositions are not always true. However, we do not know if she was completely free in doing that.

Take for example the proposition “every conflict can be solved” (without compromise). As an example Goldratt uses an airplane wing which should be strong and light, a conflict. Goldratt doesn’t try to solve this, so let’s try to do this ourselves. One could say, the assumption that light and strong cannot be combined is not correct. Indeed, there are already some materials that have both properties. However, for building an air plane still a lot of compromises are needed.

In addition, nature is not always “exceedingly simple”, as Goldratt claims. Remember Einstein. “Gott würfelt nicht”, he wrote in despair, because he couldn’t believe that processes in quantum mechanics are not always predictable. So, in nature there are cases where there is no causality between cause and effect! And what about chaos theory?

Goldratt sees the world as a system of interconnected causes, effects and opportunities. In a business context this is a very useful concept. In addition, it might also help to solve some ordinary conflicts between humans. However, personally I think the TOC should not be presented as a complete view of life. In the book, Goldratt’s daughter says repeatedly that she wants “to life a full life”, based on the ideas of her father.
I think however that not all conflicts between humans can be solved, or at least some compromise is needed. Humans often act irrational and do not always have a common goal. This is the crucial difference with the people inside the companies discussed in the book. The do have a common goal: suppliers, OEM-ers and retailers form a supply chain in which the overall throughput should be as high as possible.

These are all minor points, as it seems reasonable to assume that Goldratt deliberately didn’t want to make many nuances. In addition, the fact that I came to the reflections in this paragraph, proves how provocative the ideas of Goldratt are!

A common goal:  Goldratt's response

Dr Eliyahu GoldrattI visited Eliyahu Goldratt in his house in the Netherlands, for a response to my review.

‘I am impressed', Goldratt says. 'Besides that, I like what you are doing on the websites procesverbeteren.nl and business-improvement.eu. Barriers between different improvement methods like TOC, Lean and TQM should be removed.'

'I recently wrote an article about that: Standing on the shoulders of Giants. In that article, I want to show that all improvement methods originate from one source: the ideas of Henry Ford and Taiichi Ohno. We should give them full credit for their point of departure, that striving for maximum flow should be the goal. Automatically, that will lead to cost reduction and thus more profit. That this often didn’t work outside the automotive industry is not because the concept is wrong, it is because it should be adapted for specific situations.’

Higher goal
In the review, it is stated that the assumption that every conflict can be solved is not correct, because people do not always have a common goal. ‘I do not say that I prove that every conflict can be solved’, Goldratt reacts. ‘I believe that this is true, and demonstrate how that helps me. I agree that the people in my examples do have a common higher goal. So maybe we should conclude that the proposition should be: If there is a common goal, thén conflicts can be solved. But I think that in more then 90% of the cases there is a higher common goal, even outside business life. The TOC is also applied in relational therapy, and that is for a good reason. The problem is that people often are looking for a compromise, and then it looks as if there is no acceptable solution. Instead, you should challenge the assumptions which are fueling the conflict. Then it will often turn out, that a compromise is not needed anymore.’

Starting point
In the review it is also stated that nature is not always exceedingly simple. ‘That I also do not want to prove, but I take it as a starting point. And my results again show that this works. If you understand the cause and effect relations, that does however not always say that you can predict what will happen. Sometimes there is non-linear behavior, this is e.g. the case with chaos theory. Finally, a remark about quantum mechanics. No-one understands that completely because it is so far from our daily experience. And because 99% of our conflicts are daily life, I think it is better to concentrate on those situations.’

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