II. What holds you back?

Definition – what is a Constraint

Now that you’ve visualized what your business will look like at 50 crores,  you know the goal, and, of course, you know where you are now. The distance to the goal is also clear.The next question you need to ask yourself is, “What’s stopping me?”, “What is the biggest change I’d have to make?”

This we call The Constraint.

For instance, you may need 10 salespeople, while you currently have 0,  or maybe the market around your current location just isn’t big enough for you to grow to that size; maybe you need to operate out of multiple locations. If you try to think of the single biggest factor that’s preventing you from getting to 50 crores, you will get a sense of what your number one constraint is – that’s what you will need to work on. That is the essence of the Theory of Constraints. The speed of your system is determined by the slowest process, not the fastest. Every system has a choke point, a bottleneck; every chain has a weakest link. You have to determine what that is.

Is it the market? Very unlikely! Only Apple may have that problem, because they’ve already sold to everyone on the planet! Typically, the constraint is not outside, it’s within. Now, that may not sound like good news, but it actually is! Let’s say you take an exam – you didn’t prepare for it and you failed the exam. Good news or bad news? Surprisingly, that’s good news! Because it means the constraint is within you and, therefore, within your control. Next time you give the exam, just make sure you’re well prepared!

Three Kinds of Constraints

In general, we can identify three kinds of constraints:

1. Self-image.

If I don’t think I am capable of doing something, that will itself prevent me from doing it. We have found this to be more pervasive in real life than we are willing to admit. How many times have our parents told us – you are too lazy to do anything..a girl cannot be good at Math, you are not as good as your brother..you are the son of a brahmin, you can never be a businessman..

All these create mental blocks, which we do not even recognize. ‘I am not Shah Jehan, how can I build the Taj Mahal’… so you never think of building a Taj Mahal.

 

2. Real-world constraints – these are constraints that are actually out there in the real world, and have to be identified and dealt with.

3. Policy constraints – these are self-imposed constraints, that we, as an organization, impose upon ourselves. These are not real constraints; just mental blinders that we put on ourselves. We call this the ‘Bhishma’ effect. Bhishma took a self-imposed pledge, which rendered him incapable of doing anything. Of course, he did it deliberately. Today’s managers, however, create self-imposed rules that then go on to become unwritten policies. Here’s a very common example of a self-imposed policy constraint – “I can’t pay more than X amount”

 

I need a very good sales person; I’ll need to pay him Y, which is more than I make. That’s something most bosses can’t handle.

Another example – “As CEO of this company, I must see every customer communication.” This is a very common one in small companies. This essentially limits the company’s growth to the CEO’s twenty four hours. He or she becomes the bottleneck. In our experience, this is the most common constraint – the CEO is the bottleneck. He’s the person who decides the growth of the company. The growth is determined by his bandwidth. Since he cannot go beyond his own bandwidth, the company cannot grow beyond the capabilities of the CEO.

It’s very likely that you may find that you are the number one constraint – the person who’s preventing the company from growing because you are restricted by your bandwidth or your capabilities. For example, you may say, “I’m only good at technology; I’m not good at selling. I’m also afraid to hire someone who’s better than me at selling. So my company cannot grow.”

This is a very powerful realization – to be able to admit the possibility that you may be the problem. Once you admit that, however, you are ready to move to the next stage – which is to ask yourself, “Okay, I’m the problem. What can I do about it?”

Identifying your number one constraint is not as difficult as it seems – you really don’t need to do any major research or analysis. You know how your business functions – you should be able to identify the biggest constraint to its growth. Do this exercise along with your team – they also need to understand the constraint.

Some Examples of Constraints

CASE STUDY

1. The CEO, a client, asked the consultant to help him recruit 2 salespeople to expand his salesforce. We asked him, why 2, why not 10? A strange question, but it forced the CEO to recognize that, if he had even 2 more salespeople, they didn’t have much to sell.. his constraint then wasn’t lack of salespeople, it was lack of offerings..
2. Some years ago, we worked with a small company doing excellent work in outsourced product development space.. a few days observation led to the realization that the company’s constraint was that it had 3 founders, which meant there were 3 opinions on every subject.. we immediately figured out a way to demarcate their responsibilities so the company was no longer confused on every subject. A policy constraint, in a way..
3. Why are Professors at IIM Ahmedabad paid less than the starting salaries of their fresh graduates? Is IIMA short of money? certainly not. It turns out to be a policy constraint – somebody decided many years ago, that an IIM professor should be paid the same as a joint secretary in the government..so many IIMs, IIMA no exception, has seen an exodus of faculty to consulting and industry. A simple policy change could have made a difference.

4. Eli Goldratt used to tell this story in his seminars: in working with some hospitals, he realized that the bottleneck was the Operating Theatre (OT) – yet the data showed that OTs were lying unused more than half the time. Why was this so? Because the handlers who had to bring the patients to surgery, were batching their operations..to optimize a relatively inexpensive and unspecialized resource, the constraint was lying idle!

5. A more every-day example: what determines the speed of traffic on a busy city street? Probably the auto-rickshaw in front of you, not the Lamborghini you are driving..it is the slowest of the vehicles that matters, not the fastest..

Frequently Asked Questions

Q: I feel I have many constraints, not just one. Is this normal?

A: You may have many constraints but the limiting constraint is the one that breaks first, the one that will trip you up before the others do. In general, it would be an incredible coincidence if more than one kicked in at the same time, since they are generally driven by difference forces.

Q: How do I find my constraint? Is there a method?

A: No, there is no method. Since you know your business best, you are the best person to identify the constraint. You may need help only if the constraint happens to be you! Two thought experiments you can try: test any candidate constraint by asking – If I double the amount of this, will my business/throughput increase? If the answer is no, it is not your constraint. Whenever a business manager asks for 1 more salesperson, for example, we always ask – why not 2? Why not 10? That forces the discussion of whether the constraint is really sales, or something else altogether… if you had more 10 more salespeople, what would they sell? And so on..

One client, a small firm, is currently going through a planning exercise for the next year, where they are being encouraged to think big, not 10% growth. We find that there is a recurring theme in all the team’s plans: we have sales people, we have clients willing to buy, what we don’t have is people to craft solutions for each client. Bingo! There’s the constraint. One doesn’t have to look too hard.

In a manufacturing plant, of course, the bottleneck is clearly visible, it is the workstation where work-in-process is piling up. If the finished goods warehouse is this point, then the constraint is probably sales, not otherwise.

Alternatively, you can extend the same visualization exercise – when my business grows to 10x, which part of the system will fail first? What do I find it difficult to visualize myself having or doing, at that level?  In any case, the current stress on your system will guide you to the correct answer – for instance, one of my current clients did a very simple business planning experience calling for 40% growth and could not imagine how he was going to deliver the business – there just aren’t enough people of a certain kind. Clearly, that is the constraint.

Q: Can my constraint change over time?

A: Yes, the constraint will definitely change over time. When you have fixed the first one, and the engine hums along for a while, something else will become the constraint, then you have to fix that. In our experience, this will not happen for 2-3 years at least so there is no need to fear being jerked around by the constraint.

Q: If the constraint is one of self-image, what can I do about it?

A: This is a typical challenge of change. The fact that you are capable of recognizing that there is an issue with your self-image, is itself a big step. Only those who are capable of stepping outside their current reality frame to see what they really are, are capable of change. So congratulate yourself on having broken through the mirror and decide not to be bound by the self-image! This kind of change does not take time, it only takes an instant. Holding on to it is a different matter, however – we have to learn to talk to the elephant in its language, again – which is the language of visuals, stories, mantras. Get up in the morning and tell yourself –‘I can fly’, visualize yourself flying, then you can fly. If you want to build a Taj Mahal, sketch it and put it in front of your desk so you can see it all the time .. and so on

Q: Which kind of constraint is easiest to deal with?

A: Policy constraints are probably the easiest – all you have to do is change the policy.. changing your own mind-set is probably the hardest.

Q: What should I, as CEO, focus on?

A: The Constraint! Nothing else is worth focusing on, because nothing else can result in improvement in throughput. Fortunately, the CEO has the luxury of choosing what to focus on, other mere mortals don’t. So take full advantage of it.

Q: Does ToC say I should improve ONLY the constraint? What about TQM then?

A: Logically, yes, there is a contradiction between the two paradigms. TQM tells you to improve everywhere, ToC says there is no point in improving everywhere, 95% of your efforts will be wasted, because only the improvement in the constraint will result in improved performance.. strengthening the links of a chain that are NOT the weakest link, will not strengthen the chain one bit!

There are several such fascinating corrolaries – Finance theory tells us to make an investment in a new machine if the Net Present Value of the investment is positive. ToC tells us that, unless the machine is on the bottleneck, there is no point in investing in it! Conversely, almost any investment in the bottleneck facility may be worth it, because it will have huge impact on throughput.

After Identifying the Constraint

What after we have identified the Constraint?

Dr. Goldratt warns us against rushing to the mrket to buy more of whatever the constraint is – more sales people, more offices, because all that will add cost. Before we go there, he enourages us to:

1. Squeeze the most out of the Constraint – or ‘exploit the constraint in more civilized language. Don’t waste what you have! If the constraint is a particular machine, make sure it is working all the time, not down because somebody needed a break for tea. If your constraints is salespeople, make sure you use them for sales, not for filling out reports or picking up the CEO at the airport! After you have done that,
2. Subordinate everything else to the constraint. Every other function in the company, every other link, must now orient itself to helping this consraint function well – not because it is the strongest but because it is the weakest! Remember, if the constraint fails, the entire chain fails and we lose the entire throughput of the system. If we need to change policies, role definitions, incentives, so be it. If, in Dr. Goldratt’s example of hospitals, it means orderlies have to bring one patient at a time, and spend the entire day going up and down the campus, then that is what they have to do. In the original ToC book ‘Goal’, the protoganist describes his experience leading a boy scout group on a hike. Halfway through, the group realizes they are not going to make it on schedule – they are being slowed down by one kid, who is a bit out of shape, and carrying a heavy rucksack. So what does he do? He has to get someone else to carry the rucksack, since the group cannot just leave the kid behind! This an example of subordinating everything to the constraint.

Needless to say, this is easier to say than do – every organization has a focus, a center of gravity. Subordinating everything to the constraint requires a deliberate changing of the center of gravity. Until now, delivery folks were the kings, now suddenly you want sales people to be uppermost in everyone’s minds – not easy to do! Fortunately, we don’t have to do this headstand every day.. only when the constraint changes, which will not be more often than once every couple years, we hope. Onl after step 2 is done, do we go to step 3

3. Only after all this is done, go and get more. “Elevate the capacity of the constraint’ in civilized language. Hire more salespeople, buy more machines, because you have done all you can wih the resources you have. This will add cost, so it is to be done only after the first 2 steps are thoroughly completed.

It should also be immediately clear that a Constraint is really a lever (a positive word!). A small improvement in the performance of the constraint can have huge impact on overall performance because it immediately results in improved throughput of the entire system.

EXERCISE

My constraint is

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

‘Exploit the Constraint’ requires me to:

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

‘Subordinate everything to the Constraint’  requires me to

 

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

Finally, to ‘elevate the constraint’ ,  I have to

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise:

What’s my number one constraint?

 

What you’ve done so far, then, is to first, visualize where you want to be; second, identify, what it is that is preventing you from getting there. You are now ready to move to step 3!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Frequently Asked Questions

1. I feel I have many constraints, not just one. Is this normal?
2. You may have many constraints but the limiting constraint is the one that breaks first, the one that will trip you up before the others do. In general, it would be an incredible coincidence if more than one kicked in at the same time, since they are generally driven by difference forces.
3. How do I find my constraint? Is there a method?
4. No, there is no method. Since you know your business best, you are the best person to identify the constraint. You may need help only if the constraint happens to be you! Two thought experiments you can try: test any candidate constraint by asking – If I double the amount of this will my business/throughput increase? If the answer is no, it is not your constraint. Whenever a business manager asks for 1 more salesperson, for example, I always ask – why not 2? Why not 10? That forces the discussion of whether the constraint Is really sales, or something else altogether… if you had more 10 more salespeople, what would they sell? And so on..

One of my clients, a small firm, is currently going through a planning exercise for the next year, where they are being encouraged to think big, not 10% growth. We find that there is a recurring theme in all the team’s plans: we have sales people, we have clients willing to buy, what we don’t have is people to craft solutions for each client. Bingo!