If we apply the Five Focusing Steps to our organization correctly, we should not be surprised if our constraint moves from inside to outside our system. 
When our system is able to produce more than the market is willing to buy, we are faced with an ‘external’ constraint. 
If we look at this situation closely, we will realize that the implications are serious. 
If the market is not willing to absorb our products, then in order to reduce inventory we will slow production down.  
As a result, our staff will have less work and more free time. This will lead us to think that fewer people can do the same amount of work. From here, it’s a short step to cutting staff costs to make the balance sheet look better. 
The irony of this lies in the fact that the very people who contributed to improving the company’s performance can end up losing their jobs. 
If we want to avoid getting caught up in this spiral of nonsense, we have to: 

acquire profound knowledge of our company’s processes 
understand the steps we must take to increase predictability  
understand the strategic importance of excess capacity (see Five Focusing Steps) 
 

The logic of cause and effect forms the basis of Goldratt’s Thinking Processes Tools. We can verbalize this logic as “If…then.” This is the logic of the hard sciences.  
Modern science is not the search for ultimate, objective truths about the universe, given that such truths do not exist. We can merely find valid explanations for natural phenomena. We may therefore define science as the search for a minimum number of assumptions that can explain a maximum number of natural phenomena by means of logical deduction.  
The Theory of constraints is based on a small number of assumptions, such as the output of a system is governed by very few limiting factors, or constraints; the goal of an organization can be measured by Throughput, Inventory and Operating Expenses; when there is a common goal, we can always find a win-win solution. All the rest is derived logically from these assumptions. 

The logical trees of the Thinking Processes tools allow us to find the cause and effect links that are the connective tissue of our reality. Not only can we then connect seemingly unconnected elements, but we can trace them to their logical root, or core problem. These logical links are represented visually by the arrows and ‘bananas’ on the trees. The bananas indicate that the elements leading to a particular entity on a tree are not only necessary, but also sufficient to cause that element. 

Deming stressed that the client is the most important link in the chain. 
If an organization wants to be successful, it must develop the ability to understand and satisfy its clients. 
The emphasis Deming placed on the role of the client can be seen from his diagram of the company as a system. The client is an integral part of the system, whereas in a traditional organization chart, the client is nowhere to be seen. 

How TOC can help us to understand our clients better. 

Using TOC, we can maximize a stable system’s performance by identifying and managing the constraint. If we do this properly, our constraint will move from inside to outside our system. In other words, the market will not be absorbing everything we are able to produce. This kind of constraint is called ‘external’. At this stage, we need to be able to make offers the market will want to buy. 

How can we drastically improve our ability to make advantageous offers to the market? By understanding what our clients want. 
We have to ask ourselves what the criteria are that make people choose to buy a product. 
It is the value they believe they will obtain from their purchase. When someone buys a product, they shift from an undesirable situation to a desirable one, i.e. they solve a problem. The value people perceive our product as having increases enormously if we can show that it solves a problem for them.  

Our clients will have a range of problems, known in TOC as  Undesirable Effects (UDEs). TOC tells us that Undesirable Effects are not independent; they are all connected and derive, ultimately, from the same cause. Using the Thinking Processes tools from TOC, we can identify the problems our current and potential clients have, (their Undesirable Effects or UDEs). We can then discover their core problem, i.e. the root cause of all their problems.  

The Thinking Process tool that rapidly and systematically identifies the core problem from a series of UDEs is the Current Reality Tree (CRT).  If we know our clients’ core problem, then we can drastically improve our ability to formulate offers that will be accepted by the market. 

In order to do this, we have to stratify the data we have on our clients on the basis of the commonality of their Undesirable Effects. This will allow us to arrive at their core problem. According to TOC, a core problem can always be formulated as a conflict. 
A client’s core problem is the assumption that underlies the core conflict they are in. If we manage to identify this assumption and invalidate it, then we know the direction to take in order to formulate an offer for the client that will be a solution to their problems. 

The next step is: how can we get the client to appreciate our offer to the point that they accept to buy it? 
By constructing an offer that no client would dream of refusing, and that is advantageous both for the seller and the buyer.  We can achieve this using the Thinking Processes tools. 
 

Within the context of management, the complexity of a system is an expression of the number of elements we have to consider and control at the same time. 
In TOC, the elements we have to consider are those factors that have the greatest impact on the system’s performance: the constraints. But the number of constraints does not determine the complexity of a system. Complexity is the result of the number of constraints that impact each other.  
It often happens that we get an impression of complexity because we try to manage ‘symptoms’, or undesirable effects, instead of dealing with and removing constraints coming from the mistaken policies (measurement systems, size of production batches, organization of work, etc.) that generate these symptoms in the first place. 

TOC allows us to analyze the undesirable effects in our current reality in such a way as to identify the core problem in the form of a conflict. This reveals to us the root cause of the undesirable effects that afflict us daily. We can then create a solution that solves the central conflict, and thus eliminates the negative effects the conflict generates. 
In TOC this solution is known as an ‘injection’. 
This general solution then has to be broken down into a network of individual practical solutions and actions. By applying these, we will not only eliminate the negative effects without generating new ones, but we will create their opposites, i.e. desired effects. 
This kind of solution has to be created and developed consistently. It also has to be continuously checked to make sure it corresponds with a constantly changing reality.  This involves continually  processing and managing a large quantity of information, which itself generates complexity. We can manage this complexity with the Future Reality Tree. This is the TOC tool for planning and testing the implementation of injections, and indicating if further actions are necessary.  
 

The Theory of Constraints boldly asserts that, in a situation where there is a common objective, conflicts do not really exist. What we have are conflicting positions that people adopt to protect some need. These needs are legitimate and necessary for the satisfaction of a desired objective. Needs are never in conflict, and the positions are based on assumptions. By invalidating the assumptions that lead to conflicting positions, we invalidate the conflict. 

A widespread approach to solving conflicts is to find a compromise solution. In TOC there are no compromises: they can only limit our ability to find real solutions and jeopardize our chances of achieving the goals we have set ourselves. 
If we use a  compromise to solve a conflict, we end up not satisfying one of the two needs. When the two conflicting positions correspond with  two individuals, one of the two gets the better of the other: it is a win-lose solution. 
Both of the needs in question are legitimate, therefore it is conceptually and ethically wrong to favor one need at the expense of the other. 
Moreover, when we are dealing with a conflict between two people, the person whose need is not satisfied in a compromise solution inevitably feels resentful, and this damages good communication. 

The tool developed by Goldratt for solving conflicts is a logical diagram called a 
‘conflict cloud’. 

As stated above, the conflict is not between the two needs but between what the two people involved believe must be done to protect the two needs. This is what gives rise to the conflicting positions. 
What really matters are the needs.  
To solve the conflict and protect the two needs, we have to find the way to uncouple the needs from the respective positions. 
How can we do this? 
Any logical connection is based on at least one assumption. 
If we can identify the assumption and then invalidate it, we will uncouple the link between the needs and the position and the conflict will cease to exist. 
The solution that invalidates the assumption is called an ‘injection’. 
This is called a ‘win-win’ solution because both of the needs (or the needs of both parties) are satisfied. 
 

The limiting factor. 
We can define a constraint as the factor that limits a system in achieving better performance towards its goal. 
The simplest analogy for understanding this is the idea of the chain: if we want to know how strong a chain is, we have to look at its weakest link. 
In a chain of dependent events, the constraint is the weakest link that determines the strength of the chain. 
The TOC focusing process (see Five Focusing Steps) allows us to identify and manage the constraint. 
This process is made possible by using the Thinking Processes Tools (TP). 
There are specific applications for different environments (Drum Buffer Rope for production, Critical Chain for project management…) 
 

The organization chart is the way we  traditionally represent our organizations. However, if we look more closely at this model, we can see how ineffective it is in explaining the way a company works. 
There are three main reasons for this: 

1. It does not show the relationships among the various functions 
2. The client is not represented anywhere 
3. There is no way of seeing what happens when we act on a process, i.e. there is no feedback mechanism 

The systemic diagram drawn by Deming shows these three elements clearly. The two diagrams represent two completely different ways of managing: the hierarchical model and the systemic model. 

The idea behind the hierarchical model is that quality and productivity equal the sum of the performance of individual components (people and functions). 

The systemic model, instead,  emphasizes the way the individual components of an organization interact. 

The more integration there is among the components of the system, the better the results will be. 

These two models are conflicting, but they have a common objective: to manage the organization successfully. 

What is the need that the hierarchical model protects? 
The organization chart shows us immediately the hierarchical dependencies: who reports to whom. So the need that lies at the heart of this model is control. 

On the other hand, in order to successfully manage our organization, we have to understand  the interdependencies among the various components, and therefore mange according to the systemic model. 
To solve this conflict we have to identify and invalidate the assumption that binds one of the two needs to the respective position. 

In order to manage an organization successfully, we have to exercise control (need) and therefore manage it using the hierarchical model (position). 

Why? What is the assumption?. 
Because the hierarchical model is the only way that allows us to exercise enough control over the organization. If we divide the organization up into functions and control each of them, then we can control the whole organization. 
If we can invalidate this assumption, or find another way of exercising control, then there is no longer a reason for using the hierarchical model. 

Let’s look at the meaning of the word ‘control’. 

In the context of managing organizations, control means checking up on the performance of the components of the system under our responsibility and intervening when necessary to correct or improve them. 

But today, organizations have to cope with increasing complexity and their various components are increasingly integrated; the single functions have ever less control over their work. Indeed the various functions are all strictly interdependent (e.g. production, engineering and logistics). The output of their process depends greatly on how other components of the system behave. 
For this reason it is more useful to identify functions in terms of centers of specific competence. Thus the control they exercise is in terms of the know-how they contribute to the system. 

So if the hierarchical model is not able to satisfy the need for control essential for good management, what new way can we adopt? 
TOC teaches us that when we look at an organization systemically, the only place we have to exercise control is on the constraint. 

We should therefore concentrate our attention on the constraint of the system, and make sure that the mechanism for exploiting and subordinating to the constraint (buffer management) works correctly, and we should control and reduce the variation of the main processes that impact the constraint. 
 

Control charts were developed in the 1920s by Walter Shewhart to measure the variation of a process. This information is what allows us to understand and improve a process.  

A control chart looks like a time series graph. However, it does more than record the values of a series of performances in a given period; it provides us with information about the behavior of the process that generated those performances. 
A process can be in statistical control, i.e. its behavior is predictable within certain limits of variation, or out of control.  If it is out of control we are unable to predict  the results of the process in the future. 
How does a control chart allow us to understand the behavior of a process? 
As well as the horizontal and vertical axes, it contains 3 horizontal lines. The position of the central line is calculated by obtaining the average value of the data we are recording (e.g. number of units sold, number of defective pieces produced, etc.). The position of the upper and lower lines are calculated by multiplying the average value by 2.66. The result is added to the average value to obtain the upper line, and subtracted to obtain the lower line. These are the upper and lower control limits of the process. They are not something we decide – they are a result of the process itself.  
A healthy process shows little variation around the average value. If all the values plotted on our chart fall inside the control limits, then our process is in control. (See first chart.) 
 
We can spot a process that is out of statistical control when we see points beyond the control limits, or when eight or more consecutive points fall on one side of the average value line. (See second chart.) 

One of the basic tenets of Deming’s management philosophy is the need to shift from an economic model based on competition to a new paradigm based on cooperation. 

What Deming advocates is a work environment free from barriers between hierarchical levels and functions. A system is a network of interdependent components that work together to achieve a goal. So in  order to optimize global performance, everyone has to pull in the same direction. If individuals and functions keep ‘doing their best’, with the aim of optimizing their local results, there will be an enormous loss of energy and resources at the expense of the overall goal of the system. 

This idea applies not only for companies, but also wider systems, from our clients and suppliers up to society as a whole. 
In modern western culture there has been the prevailing assumption that competition is an intrinsically positive attitude,  that it is advantageous for the whole economic system, starting from companies, their employees and clients. 

This mentality inevitably involves a winner and a loser (win-lose). Deming replaced this model with the idea of win-win, of working together as a system where the goal is the good of the system. This approach can only benefit those who work towards it. 

In order to take this first, essential step towards transforming the western way of managing, we have to re-think the prize awarding system used in our companies. Every form of incentive aimed at improving the performance of individuals and single functions, i.e. local optima at the expense of global optimum, is an obstacle to this. 
 

The root cause of a group of Undesirable Effects (UDEs).  

According to the Theory of Constraints, the Undesirable Effects (problems) we experience in our reality are not independent from each other. They can be traced back to a core problem that generates all of them. 
This concept is based on the assumption that a small number of causes are responsible for a large number of effects. For example, the strength of a chain is determined by its weakest link. By using the cause-effect logic of the TOC Thinking Process Tool called the Current Reality Tree (CRT), we can identify the core problem that generates a list of UDEs. 
 

We can define the Critical Chain as the sequence of activities that determines the duration of a project, taking into account the dependency of activities and resources. 
The tasks along the chain are the ones that cannot be shifted forward in time (this would lengthen the project duration) or backwards. 
It is called “critical” because improving any point along the Critical Chain can speed up completion of the project. 
It is called chain and not path because it takes into account the dependency not only of the activities, but also of the resources. 

 
If we consider a project as a system, then the critical chain is the constraint of the project.