Thinking Process Of The Theory Of Constraints

Published Date: 02 Nov 2017

Dr. Mohammadreza Kabaranzad Qadim [1] 

Saeed Tahmasbinezhad [2] , Ahmad Abaspoor [3] , Delaram Sadeghifard [4] 

Abstract

Nowadays, companies have found that the necessity of strategic planning for their survival in their turbulent environment. Small and start-up companies need a special method for strategic planning, a method based on creativity and flexibility. Thinking process of theory of constraints provides a systematic method for senior management in order to get possible and practical processes through intuition and collective vision.

This research aims to codify a strategic planning through thinking process of theory of constraints in Iranian small and start-up IT companies. Thinking process of theory of constraints presents five trees for strategic planning: CRT [5] , FRT [6] , EC [7] , PrT [8] , TrT [9] .

After drawing the trees, we concluded that the main problem of start-up companies is financial weakness and central decision based on manager/entrepreneur opinion. These problems can be solved through part-time experts leading to providing more free time for chief executive officer (CEO), therefore s/he trains recruits.

Key Words: theory of constraints, thinking process, CRT, FRT, EC, PrT, TrT.

1- Introduction

Nowadays, organizations have found the necessity of having a strategic planning for survival in their turbulent environment, so that they can overcome the environmental threats, use the opportunities, and gain profit considering their knowledge of their weaknesses and strengths. Strategic planning causes the organization to give up its passive stance and respond actively to the environment. We can define strategic planning in this way, "art and science of formulation, implementation, and the assessment of the multiple task decisions which enables the organization to attain its long term goals". As the definition says, strategic planning process includes 3 stages: strategies formulation, strategies implementation, and strategies assessment (Foroozandeh Dehkordi, 1999) (Sarmad Saeedi, 2007).

On the other hand, the recent research agree on the inefficiency of the strategic planning’s traditional models, since these models ignore the trace of creativity and intuition in planning; besides, dynamic planning process won’t be observed in these models (Gupta, Boyd, & Sussman, To better maps: A TOC primer for strategic planning, 2004).

Despite a lot of researches done on strategic planning, a few researches have been done on strategic planning in small and start-up organizations; even if some researches have been done, they were related to creativity and a few of them done on strategic planning of the start-up organizations. Entrepreneurial spirit of the owner influenced the specification of the landscape, and he is the one making insights. A start-up organization has been recently founded and has had no experience, so the assessment of its different sections seems impossible (Mahdavi Mazdeh, Moradi, & Mahdavi Mazdeh, 2010).

Despite these defects, ignorance of the benefits brought about by the strategic planning is impossible. On the other hand, the points mentioned about start-up organizations, their presence in the competitive environment, competition with larger and more powerful companies, and having little time for strategic planning implementation for faster access to competition market necessitate paying attention to intuition and creativity in planning especially strategic planning. Utilization of an approach considering the defects of strategic planning in different stages and proposing some tools for defect elimination seems necessary. Tools concentrating on specific defects and eliminate them. Therefore, an efficient and useful tool is used through utilization of this approach, without questioning the basis for the strategic planning (Mahdavi Mazdeh, Moradi, & Mahdavi Mazdeh, 2010).

The study done on theory of constraints, especially the thinking process, has investigated the features and benefits brought about by the thinking process of the strategic planning in small and start-up organizations. This method has eliminated the mentioned defects through drawing 5 trees in accordance with the stages mentioned for the strategic planning in the traditional way.

Figure 1 shows the relation between traditional strategic planning and strategic planning through thinking process of theory of constraint. As it is shown in this figure, thinking process tools has replaced the three stage of strategic planning.

Figure1, research variables relations

Strategic management tools

analysis

formulation

Implementation

SWOT analysis

Five-forces model

Black box

Short-term objectives, policies, tactics, & rewards

Constraints theory tools

Question1

Question2

Question3

Current reality tree (CRT)

Evaporating Cloud(EC)

Future Reality Tree (FRT)

Prerequisite tree (PrT)

Transition Tree (TrT)

(Gupta, Boyd, & Sussman, To better maps: A TOC primer for strategic planning, 2004)

1-1- the Statement of Problem

Researches and strategists have written a lot of essays about strategic planning defects and suggested different approaches and techniques for the process’s and tools’ development. Strategic planning framework has ignored the effect of intuition and creativity and has not emphasized dynamic programming models (Parsaei, 2006). However, we cannot ignore strategic planning benefits especially in small and start-up companies competing with large companies in a turbulent environment; as well as needing paying more attention to intuition and creativity in planning especially strategic planning for faster development in competition market (Mahdavi Mazdeh, Moradi, & Mahdavi Mazdeh, 2010).

The study on theory of constraints especially thinking process shows that this approach uses powerful tools for small and start-up companies strategic planning. Therefore, this question is brought up: how can be used thinking process of theory of constraints for solving the defects arising from traditional strategic planning in formulation of strategy used in start-up companies?

1-2- Importance of research

When a company can be considered competent and powerful that the production and consumption of the organization’s source (financial, possessions, man power, ingredients, ...) are designed according to strategic plan or program for attaining organizational goals (Bahirayi, 2011).

The most important approaches of strategic planning are open system and flexible with environmental changes, collective participation of stakeholders, creative decisions for future considering the current situation, overall and integrative planning, paying attention to creativity; but perhaps understanding and commitment among managers and staff are the most important functions of this kind of planning (Parsaei, 2006).

Nowadays, organizations are competing with each other to attain success, and start-up companies cannot get successful without having goal and exact planning in the competition market. Setting goals and mission and considering internal and external factors in start-up companies are different from big and experienced companies; this difference arises from this problem that start-up companies consider their goals influenced by their view due to the major role of the company’s entrepreneur and owner (Mahdavi Mazdeh, Moradi, & Mahdavi Mazdeh, 2010).

New tools are presented for three stages of formulation, performance, and assessment in strategic planning process _more dynamic than traditional models_ through using thinking process of theory of constraints (Parsaei, 2006).

1-3- Research goals

This research’s goals are: investigation of characteristics of start-up organizations from a strategic perspective, investigation and identification of classic strategic planning tools’ defects in start-up organizations, investigation of proposed model’s characteristics for using thinking process of strategic planning.

1-4- Methodology

Considering the goal of this research, this is "practical" research based on case study methodology. On the basis of the definition of theory of constraints, it is clear that the goal is obliteration of the constraints arisen from policies.

This research has used structured interview with senior executives, proceeding review, and company’s documents during the research.

2- Concepts, Viewpoints, and Theoretical Basics

2-1- definitions and concepts

Strategic planning is a special kind of planning emphasizing weaknesses and strength of organizations and threats and opportunities of environment for success to attainment of long-term goals in the changing environment of business. Theory of constraints is based on continuous improvement and its main focus was on identification of constraints and production bottlenecks for continuous improvement in companies’ achievements (Jafarnejad, 2009) (Spector, 2010). Thinking process of theory of constraints use as a tool for solving the problem of current traditional models and perceptions and identification and elimination of them constraints. CRT is used for system’s constraints identification; FRT for presentation of a proposed solution for conflicts resolution and elimination of all new Undesirable effects (UDEs) in the system; EC for establishing new and fundamental solutions for problems; PrT for identification of main barriers for making changes and presentation of the best solution as well as identification of the sequence of necessary operations for all stages; TrT for presentation of step by step solution and with details for making changes. Five stage process are the logic of the theory of constraints for identification and absolute use of constraints as a repeatable process and a continuous improvement circle (Parsaei, 2006) (Gupta, Boyd, & Sussman, To better maps: A TOC primer for strategic planning, 2004).

2-2- Viewpoints and Theoretical Basics

Every year, a lot of companies are established; these companies are first small and suffer from some financial constraints, management weaknesses, different risks, lack of experience, and competition with major competitors. Therefore, some of them fail after a time, not so long. Start-up companies need identification of goals and an exact planning, benefiting from entrepreneurial characteristics and competitive advantage, as well as employment and entrepreneur opportunities in the market, together with a strategic planning as the minimum tools for success (Mahdavi Mazdeh, Moradi, & Mahdavi Mazdeh, 2010).

Start-up organizations, being in the infancy stage, have the minimum law and an intimate environment, as well as run by the entrepreneur making a single-person show. This individual considers himself the father of this organization and tries to develop this organization; furthermore, he is very sensitive to the other’s intervention in the affairs related to the organization. This organization fights for survival and decisions are taken in a short time in spite of loss of previous experience, therefore managing affairs by the owner manager is natural and he has a major role in formulation of organization’s strategy (Adizes, 1988).

2-2-1- Strategic Planning Defects

Of course, strategic planning like other necessary tools used in management and organizations is not free from defects and faults. Business environment can be defined by some characteristics like complex and non-linear changes, continuous changes of paradigms, and competition without classification of domains; furthermore, these characteristics weaken the possibility of accurate prediction of the future environment. Another case is competition dimension, today’s markets are saturated and competitive; today there is the concern of being or not being. In this situation, strategy’s classic approaches based on generalization of the current environmental condition to the tomorrow in which strategy is implemented lose their effectiveness (Parsaei, 2006) (Sarmad Saeedi, 2007).

2-2-2- Theory of Constraints

This theory is called by this title due to the attitude considering this system as a chain in which the weakest link (barrier or constraint) should be strengthened and reinforced for its reinforcement (Jafarnejad, 2009) (Spector, 2010) (Parsaei, 2006).

Thinking process of the theory of constraints is used by managers as a tool for identifying, solving and eliminating policy constraints, the current perception and traditional methods. In fact, thinking process is a systematic method prepared from the future and prevents unpredictable bad results (Parsaei, 2006).

Goldratt used some tools called five logical tree and the laws governing for the application of theory of constraints: CRT, conflict resolution figure, FRT, PrT, and TrT together with the laws called floor of the bet limit (Parsaei, 2006).

We should answer 3questions for using this technique:

1. What to change? Identification of constraints.

2. What to change to? Formulation of a complete solution with the aid of injection for making changes in the system. TOC emphasizes this point that just simple proposed solutions can be used for organizations in a real condition.

3. How should we make the change? Preparation of the necessity of the proposed solution in the previous stage for using and performing the plan and the proposed solution (Jafarnejad, 2009) (Spector, 2010) (Parsaei, 2006).

3- Discussion

Now it is the time for implementation of the proposed pattern. Therefore, the present researcher chose KPH co. serving services for IT, since it is among the small and start-up companies, very sensitive to the strategic changes and defects, reacting rapidly; furthermore, serving IT service has been boomed in recent years and has been considered an important element of the service economy.

The interview with CEO showed that the most important concern of this organization is strategic bottleneck. On the basis of the basic concepts, CRT is one of the most practical tools for elimination of this problem. Therefore, we decided to discover the origin of this problem of the organization through drawing this tree, and put other affairs on this way for solving and eliminating this problem through 5 stage process of the theory of constraints, then continue that to the stage of the formulation of strategies

3-1- Situational Analysis _ Drawing CRT

Current reality tree (CRT) is trying to find the main problem of the organization through using logic of causality in order to answer this question "what to change?". The Team of experts consists of CEO and organization’s senior managers and those involved in strategic area of KPH co.; those involved in market’s strategic planning, product, sale, and the support are introduced for interview. Then some meetings are arranged in order to identify current problems, i.e. those weaknesses and threats in SWOT (traditional method), through using brainstorming technique. These problems cause UDE. After the identification of the UDE effects, organization’s main problem is written at the top of the page and other elements are accrued to it by logic of causality. Figure2 shows CRT chart.

Figure2, Current reality tree

Low profit of the projects, weakness in marketing and sales activities mentioned by experts as the most important reasons for the failure of the organization on the way of attaining its goals, and they are shown in the figure 1. Then other UDE are shown and after completing the tree, the end of each branch is marked entitled entry points. These points are the central roots (CR) among which fundamental problem is chosen.

3-2- Strategy Formulation- drawing EC

Next step in strategic planning process is strategy formulation that is called "black box". Thinking process tool that is called Evaporated Cloud can be used for making brighter the black box. Evaporated cloud is the main part of the thinking process and leads to creative solution or injection, finally conflict resolution.

For drawing this chart, first the goal accepted by both sides will be chosen as the main goal that is in contradiction to the main problem. In KPH co., access to favorable financial situation is a common goal. Then the conflict preventing organization’s attaining the goal should be identified. KPH co. identifies use of expert, use of low-priced inexperienced recruits as the important conflicts causing a serious problem for the organization. If organization uses experts, the projects’ revenue will be increased; if organization uses inexperienced recruits, the costs will be decreased. Therefore, the organization is placed in a dilemma. On one side, considering CRT, if organization uses expert, CEO has much more free time to train personnel requesting CRT. How can the organization please both sides considering these conflicts?

The Evaporated Cloud chart is shown below:

Figure3, Evaporating tree

EC chart is read from left to right. There are our hypotheses above vectors. We should do in this way in order to assess the validity of these hypotheses: for attaining goal A, requirement B should be observed because positive cash flow will be increased if the sale increases, also to the end and at the end of the branch.

Now, the contradiction is demonstrated in decision making. On one side, the organization should use experts; on the other side, low-priced and inexperienced recruits should be employed.

Logically, "the use of part-time experts for implementation of the projects" is injected for ensuring the attainment of KPH co. to a good financial condition. These time staff is those secondhand contractors having taken some parts or all parts of the project from the company and are committed to do that, and the organization pays them considering their performance; therefore, costs are decreased and we are always sure of the adequate staffing for implementing the project.

3-3-Continuance of the Strategy Formulation- Drawing FRT

Next step in thinking process is the drawing of FRT. In order to get sure that injection for making desirable effects does not lead to new UDE. In this stage, the injection done in the previous stage is written below and we draw FRT (Future Reality Tree) like logic of causality and URL-like relations. In this situation, one of these three conditions will have happened: 1) Injection brings about the desirable result and does not make UDE. 2) Injection does not lead to the desirable result, in this condition we should refer to EC and start a new injection. 3) Injection leads to the desirable result but makes some new UDE; these kinds of effects should be removed before implementation. May be in this stage some more exact injections will be necessary in order to get sure that new UDE won’t be brought about.

In this stage, organization’s financial capacity will be written as a desirable effect above and the ways for attainment of this goal will be prosecuted through using thinking process logic. FRT is shown below.

Figure4, Future Reality tree

UDEs are achieved. In each line, the squares with rounded edges _ their presence is required_ are the reasons and inputs; the squares are the proceedings mentioned in the previous chapter.

3-4- Strategy Implementation- Drawing PrT

Drawing PrT is necessary for the identification of the barriers on the way of injection of FRT chart. For drawing this tree, the injection done in the previous stages is written on the top of the page and a list of barriers on this way is provided. For each barrier, intermediate goals are determined. Finally, we will have a chart reading it from the bottom to up determine the necessary activities and their priorities for transition from present time to the desirable future. Of course, the correct way of reading PrT is from top to bottom and like EC.

KPH's PrT chart is shown below.

Figure5, Perquisite tree

For example, this chart states the necessity of signing a contract with the contractor for using the experts as the secondhand contractor, because no contract has been signed with the secondhand contractor yet; and so on until the lowest level. The other side of the chart will be read alike.

3-4- Strategy Implementation- Drawing TrT

After drawing, the current barriers on the way of injection done in the previous stages and intermediate goals necessary for overcoming have been specified, but perhaps there are some intermediate goals that are complex and need more explanations. For this reason, we go to the last chart among the charts of thinking process of the theory of constraints, i.e. transition tree (TT). Therefore, the researcher chose one of the intermediate goals of the prerequisite tree (PrT) _ having an important barrier and requesting more complex proceedings; therefore according to the logic existing in drawing CRT and FRT, the researcher drew a chart in more details. This tree is similar to FRT for its attention to the future, but different for being drawn in more details.

Company’s TrT is shown:

Figure6, Transition tree

The experts’ goal "expectation from the contractors is specified through work packages and published in widely circulated newspapers" is identified as a goal with an important barrier on its way and written on the top of the page and continued through using chart’s causality logic to the last level.

4- Conclusion

The research’s conclusions are listed below:

a) CRT has shown that "financial weakness" and "affair’s individualism" are the organization’s fundamental problems.

b) EC has shown the contradiction between "recruits’ employment" and "experts’ utilization" and we have earned the injection of "pert-time experts’ utilization".

c) FRT has shown the steps should be taken on the way of attaining the goal "increase in organization’s financial capacity" laid in EC in order not to cause more UDE.

d) PrT has shown the intermediate goals and barriers should be passed to remove the barriers to the injection of "using experts as secondhand contractors" and the way to transit from the present time to the desirable future.

e) TrT has shown the steps should be taken for attaining this goal "expectations from contractors through using specified work packages and published in widely circulated newspapers" having faced an important barrier and requesting more complex proceedings.

5- Suggestions

The present researcher suggests using the thinking process of the theory of constraints rather than traditional approach of strategic planning for start-up organizations. This method has some dynamic characteristics adapted to the dynamic nature of the small and start-up organizations. This method is very powerful in creating short-term goals and the creative ways for having access to them; furthermore, it presents a framework for attainment of long-term goals.

Researcher suggests simultaneous utilization of the thinking process of the theory of constraints in similar organizations considering industry, size, cash flow, and market for the classification of these organizations’ fundamental problems; furthermore, other researchers can investigate this hypothesis that the problems of similar organizations are the same, but different solutions should be adopted for overcoming those similar problems.