Business guru Eliyahu M. Goldratt, in his 1984 book The Goal, presents a paradigm shift in management philosophy with the Theory of Constraints. This theory views any manageable system as constrained in achieving its goals. Goldratt’s approach encourages organizations to identify these constraints and restructure their operations, focusing on continuous improvement.
Though the book is from the 1980s, it can still have applications today, forty years after its publication. One entrepreneur, Denny LaVé, has launched an experiment inside his company, Precision Precast Erectors, LLC, to create a new leadership model using the Theory of Constraints.
This theory-based process encompasses five steps:
- Identifying the system’s constraints.
- Deciding how to exploit them.
- Subordinating everything else to that decision.
- Elevating the system’s constraints.
- If a constraint has been broken, return to the first step.
The repeated steps lead managers to break through constraints systematically. This theory provides a robust framework for organizations to systematically identify, address, and overcome limitations in achieving their goals.
How to Identify and Contend with Constraints
The Theory of Constraints defines a “Constraint” as anything impeding a system from achieving its goals. Given this context, constraints can be internal (i.e., involving equipment, people, or policies). The best time to identify constraints is early, during project development, bidding, or estimating phases. Identifying potential logistical issues, site constraints, staffing limitations, or equipment availability is crucial to project evaluation. The methodology then guides the team in focusing improvement efforts on the most constraining factors, systematically seeking ways to increase efficiency and capacity. Even if certain elements are not directly under a company’s control, highlighting these issues allows a collaborative approach with contractors. These become leverage points to improve efficiency and ensure project completion.
Mental models held by people within the organization can also cause behavior that becomes a constraint. It is also essential, therefore, to emphasize the significance of employee treatment. In the model employed by Precision Precast Erectors, employees and contractors appreciate working for the company because of the respect and value leaders place on their teams. The internal hierarchy operates on the principle that leaders are accountable to their teams, and in turn, the downstream employees are considered clients. This approach nurtures a culture of care, protection, and mutual respect, creating a work environment where safety is most important and employees feel valued.
Another instance where the company identified constraints was when there were delayed deliveries of raw materials, hindering project timelines. It was able to address the problem by pinpointing the constraint early in the project planning phase. PPE established partnerships with reliable suppliers and implemented just-in-time inventory management systems.
A similar instance where PPE applied the TOC in its operations occurred when it recognized that outdated machinery was limiting its production capacity. It strategically exploited this constraint by retrofitting existing machinery with modern automation technology. Doing so enabled the company to significantly increase its efficiency and output without incurring substantial costs.
Paradigm-Changing Outcomes Become Iterative Improvement
In the above examples, constraints were identified, and leaders decided how to exploit them through collaboration with contractors or a shift in the company’s approach to leadership hierarchy. By prioritizing these issues (subordinating everything else), the company elevated them to become fixtures of their culture. Now that contractor collaboration and worker appreciation are core components of the company’s operation, they are no longer constraints. These limitations have been breached, enabling the company to identify and address additional constraints.
Each project becomes an opportunity for further improvement. The company focuses on strategic, iterative improvement, recognizing that while some constraints may be resolved, new ones will always emerge. This continuous improvement mindset ensures Precision Precast Erectors remains agile and adaptable in a dynamic business environment.
Enhancing Focus for Strategic Improvement
It is worth noting that one of the most significant aspects of TOC is the focus it brings. Since leaders’ attention is often the most valuable resource in an organization, it needs to be directed towards the areas that yield the most significant impact on achieving their goals. Leaders at PPE have been able to channel their focus toward systematically identifying and addressing constraints, allowing them to maximize the effectiveness of their improvement efforts.
About Precision Precast Erectors, LLC
Founded by Denny and Lou LaVé, Precision Precast Erectors, LLC, is a leader in the highly competitive construction industry. The company is a five-time Inc. 5000 listee and has been featured in prominent publications, including Construction Today, Business View Magazine, and The Spokesman Review.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. and Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. © 2024. Nasdaq, Inc. All Rights Reserved.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.