The Law of Constraints

Written by

Sergio Caredda

Posted on

September 24, 2024

Edited on

September 24, 2024

Key Concepts and Implications of the Law of Constraints

Goldratt, as well as a number of other practitioners, have identified five steps that help mitigate the impacts of the theory of constraints, identifying a “Five Steps” methodology that to a certain extent anticipates some of the tools today common in Lean and Six Sigma (Nave, 2002).

Fig.2: The Five Steps to mitigate the Law of Constraints (Goldratt, 1994)

1. Identifying the Constraint

The first step in applying the Law of Constraints is to identify the constraint within the system. This could be a physical limitation (like a machine with limited capacity), a policy constraint (such as an organizational rule that hinders efficiency), or a resource constraint (like a shortage of skilled labor).

Example: In a manufacturing process, the constraint might be a particular machine that operates more slowly than other machines in the production line, thus limiting the overall throughput.

2. Exploiting the Constraint

Once the constraint is identified, the next step is to make the most effective use of this constraint. This could involve ensuring that the constraint is always working at maximum efficiency, eliminating any downtime, or adjusting workflows to ensure that the constraint is not idle.

Example: If a bottleneck is identified in a factory’s assembly line, the company might focus on ensuring that this machine is never idle by scheduling maintenance during downtime and keeping it supplied with materials.

3. Subordinating Other Processes

All other processes in the system should be adjusted or subordinated to support the constraint. This means aligning the pace and priorities of other parts of the system to ensure that they do not overwhelm or underutilise the constraint.

Example: In the same manufacturing example, if the constraint is a slow machine, other machines and workers should operate at a pace that aligns with this machine’s capacity, rather than producing excess work-in-progress that clogs the system.

4. Elevating the Constraint

If the constraint continues to limit system performance, it may be necessary to elevate or increase the capacity of the constraint. This could involve investing in additional resources, equipment, or technology to expand the constraint’s capacity.

Example: The factory might decide to purchase an additional machine or upgrade the existing one to increase the throughput of the constrained process.

5. Continuous Improvement

After addressing the current constraint, the process should be repeated to identify and manage the next constraint. The Law of Constraints is an ongoing cycle of identifying, exploiting, subordinating, and elevating constraints to continually improve system performance.

Example: Once the initial bottleneck is resolved, another part of the production process may emerge as the new constraint, requiring similar attention.

Applications of the Law of Constraints in Organisations

1. Project Management

In project management, the Law of Constraints can be used to identify the tasks or resources that are limiting the progress of the project. By focusing on these constraints, project managers can develop strategies to speed up project completion.

Example: In a software development project, a particular team member’s availability or a specific technology might be the constraint. Managing these effectively can help keep the project on schedule.

2. Supply Chain Management

The Law of Constraints is widely used in supply chain management to identify bottlenecks that limit the flow of goods and materials. Addressing these constraints can improve the efficiency of the entire supply chain.

Example: A retailer might find that delays in a particular supplier’s delivery schedule are the constraint. By working with the supplier to improve reliability, the retailer can enhance the overall efficiency of its supply chain.

3. Operational Efficiency

Organisations can apply the Law of Constraints to improve operational efficiency by focusing on the processes or departments that are limiting overall performance. This helps to optimise the use of resources and improve productivity.

Example: A hospital might identify that the bottleneck in patient flow is the availability of operating rooms. By optimising the use of operating rooms or adding more rooms, the hospital can improve patient throughput.

4. Strategic Decision-Making

The Law of Constraints can guide strategic decision-making by helping organisations focus on the most critical issues that limit growth or performance. This ensures that resources are allocated where they will have the greatest impact.

Example: A company looking to expand might identify that its constraint is the capacity of its sales force. By focusing on recruiting and training more salespeople, the company can achieve its growth objectives more effectively.

The Law of Constraints applied to the Organisation Evolution Framework

This law as an interesting consequence in terms of the approach I have been following with the Organisation Evolution Framework : when we consider the Value Delivery Chain defined through the Operating Model, we understand even more why it is important to apply intentionality in its design.

As a matter of fact we can expand the original formulation of Goldratt to the overall consistency of the elements of organisation design, and state the law as follows:

The overall value generated by an organisation is determined by the weakest component of its design.

Impact on Intentional Design

The above formulation impacts especially the Value Narrative or our organisation design, a particular interaction between three of the Critical Elements of the Organisation Evolution Framework.

The Value Narrative is the continuous interaction between the Definition of Value defined by the organisation’s purpose, the Value Proposition defined by the Business Model and the Value Delivery Chain defined by the Operating Model of the organisation.

It ultimately defines the capability of the organisation to create and deliver Value aligned to its purpose.

The first biggest impact of the new formulation of the Law of Constraint, is that if one of the above elements is not intentionally defined, and there is no congruency between the elements, the organisational capacity to create and deliver value will be limited by its weakest component.

If Purpose is not defined intentionally and any emergent artefact is weak, this will cause the organisation to default to a financial valuation model, often leading to short-termism (see De Geus’s Law) and results that will most probably be below the potential of the organisation.
If the Business Model is not defined intentionally, the organisation will probably under-deliver in terms of the perceived value of its product or service, ending in a competitive strategy based most probably on price.
If the Operating Model is not defined intentionally and not congruent, the organisation will probably dissolve value creation due to bloated bureaucracy, siloed effects, inward looking processes etc., resulting in poor productivity.

All of the above show how relevant the Law of Constraints can become in terms both of the analysis of our Organisation Design components, but also as an element for our Intentional Design practices.

The “Laws of Organisation Design” Collection. This article belongs to a series focused on the different principles and laws that govern organisational behaviours, decision-making and group work, and that should be taken into account in organisation design projects.

The Laws of Organisation Design

Law of Requisite Variety
Law of Alignment

Conclusion

The Law of Constraints emphasises the importance of identifying and managing the bottlenecks that limit the performance of any system. By focusing on these constraints, organisations can make targeted improvements that lead to significant gains in efficiency and output. This principle is widely applicable across various fields, including manufacturing, project management, supply chain management, and strategic planning. It also can be expanded in a wider formulation to encompass organisation design elements, thus becoming a framing concept into the impact of inconsistencies in design and outputs of an organisation. Understanding and applying the Law of Constraints can help organisations achieve their goals more effectively by ensuring that their most critical limitations are addressed first.

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