Eliyahu Goldratt: Theory of Constraints

Eliyahu Goldratt was an Israeli business thinker, who popularised his approach to transforming the performance of business processes with a novel. Co-written with Jeff Cox, The Goal has been one of the most influential business books of the late Twentieth Century.

Eliyahu Goldratt

Eliyahu Goldratt

Short Biography

Eliyahu Goldratt was born in 1947 and lived his life in Israel. He studies Physics at university, gaining his BSc at Tel Aviv University, and his Masters of Science and Doctorate of Philosophy degrees from Bar-Ilan University. His PhD research was into the physics of fluid flow, and afterwards, he applied this thinking to systems within organisations.

He used an algorithm that he had developed during his doctoral studies as the basis for creating production scheduling software, which he called Optimized Production Technology. In 1975, he founded a company with the same name, to implement the software within Israeli companies.

The company grew, opening subsidiaries in the US (1979) and the UK (1982), changing the business name to Creative Output. It started to provide training alongside software implementation. In 1984, Goldratt published ‘The Goal‘. This was a business book, about process optimizaton, in the form of a novel. Jeff Coz provided the creative writing, while Goldratt set out the principles. The Goal became an international best seller.

The book’ success, and Goldratt’s response, created tensions with the company’s shareholders, and in 1986, he left Creative Output and founded AGI, The Avraham Y Goldratt Institute (named after his father). Through the late 1980s and the 1990s, Goldratt continued to develop his ideas, which became known as The Theory of Constraints (or sometimes just as TOC).

In 1997, Goldratt retired from AGI, but continued to found consulting businesses and write books, applying his Theory of Constraints to arenas like marketing and project management. He died at a relatively young age, in 2011.

The Theory of Constraints

The Theory of Constraints was not new when Goldratt conceived it. There are many antecedents both for its primary application in process engineering and for other applications like the Critical Chain approach to project management, set out in his 1997 book, ‘Critical Chain‘.

Indeed, many of Goldratt’s ideas are applied in Lean Manufacturing, and overlap substantially with those of Taiichi Ohno. The essence of Goldratt’s approach is three questions and a five step process.

The questions are intended to direct changes that will optimise a system. They  are deceptively simple:

  1. What to change?
  2. What to change to?
  3. How to make the change?

The principle that Goldratt based his theory on is also very simple. If there nothing is preventing a system from achieving higher throughput, then its throughput would be unlimited. This is obviously absurd, so there must be constraints. When you find the constraints and lift their capacity, the system’s capacity and productivity (to achieve its goal) will increase. So the steps for doing this are:

  1. Identify the system’s greatest constraint.
  2. Decide how to exploit the system’s constraints.
  3. Subordinate everything else to the above decisions.
  4. Elevate the system’s constraints.
  5. When you have lifted the system’s constraint, go back to step 1.

Goldratt likened the limiting resource or asset, which constrains the rest of the system, to a drum. Its beat determines the rhythm of the system. If you cannot raise its tempo, you must do everything you can to avoid wasting its capacity. To maximise throughput at this constraint, other elements of the process, that feed it, need to have surplus capacity, to create a buffer  and reduce risk that, if they fail, the constraint will kick in.

This is a principle Goldratt applied in a variety of contexts, and there are now a great many of businesses that consult on these applications.

Goldratt’s legacy has been a highly analytical approach to finding cause and effect. Some criticise it for its simplicity and others because it may not produce the most optimal solutions. And of course, others are concerned about the extent to which he did or did not acknowledge his debt to earlier thinkers. His 2006 article, ‘Standing on the Shoulders of Giants‘ does explicitly reference the Toyota Production System very clearly.

For us, however, the message is clear. The Theory of Constraints is widely used and has made a large contribution to the productivity of many businesses. So for that reason, any manager should have at least a passing understanding of its principles.

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