Adopt the idiom ?A chain is no stronger than its weakest link? to management and what you will get is Theory of Constraints (ToC), a management philosophy that was introduced by Eliyahu Goldratt in his book titled The Goal. Although ToC?s applicability in India is still limited, there are some consulting firms that are using it in some or the other form. ?Avenir Management Services is working with several brands across India to help them to assertively create their preferred future,? says Sanjay Ghoshal, the founder director of Avenir, in an interaction with FE?s Vikram Chaudhary. He also shares that ToC, as a body of knowledge, has seen significant development and expansion over the last two decades, and more. Excerpts:
What is Theory of Constraints?
ToC is a practical philosophy that helps organisations achieve significant and sustainable growth. The basic tenet of ToC is that if we look at any system or organisation from a holistic or global perspective, there are very few levers that can provide significant results. Rather than focusing on a multitude of initiatives across the organisation, ToC professes to focus on these few levers at a time to get big results.
ToC not only touches the hard logical angle but also provides insights on human behaviour. In most conventional organisations, the management prefers to manage by dividing the organisation into parts and then trying to optimise these parts. As a result, the measurements of these parts often conflicts (sales function gets measured on revenue or volume sold, whereas production gets measured on volume produced ? now if each function tries to optimise then what is produced and what is required by the market may not be aligned, resulting in severe conflict). ToC teaches us to abandon local measures and focuses on global picture, which, in turn, helps organisations create harmony among people.
How has Avenir succeeded in establishing this management paradigm in the field of consulting?
Before starting any engagement, we invest a lot of time with the management to share ToC knowledge. We regularly conduct knowledge sessions and encourage people to appear for ToC fundamentals examination. This helps in establishing ToC philosophy.
What sort of investment would be required for the application of ToC?
The main investment required is the commitment, attention and time of the top management.
Does this theory apply better to a small-sized company than a large-sized company ? or does it apply better to a manufacturing company than to a services company?
ToC is applicable not only to small organisations but some large Indian companies such as Tata Steel and Godrej have also implemented and benefited from ToC. Implementation of ToC requires paradigm change, and often this means changing some deep-rooted policies. The common belief is that it is easy to get these policy changes in smaller organisations and that is why this misconception.
We consider ToC as a philosophy, hence its applications are not limited to a particular vertical. Having said this, ToC applications are well developed in the manufacturing, distribution and projects environment (EPC, infrastructure, IT, research, etc), and the applications in services sector are still in the development stage. The philosophy of ToC for both manufacturing or services is the same; however, the specific applications might differ.
How do you enable companies achieve significant increase in their bottom line?
By implementing ToC we not only stabilise operations but also free up capacity. In a capacity-constrained situation, ie where demand generated is more than capacity to deliver, this increase in capacity through implementation of ToC increases sales. In a demand-constrained situation, ie where demand is not enough to match the capacity, we help our clients to find sweet spots in the market to increase sales through a structured approach.
When there is a sales increase without a significant increase in fixed or operating expenses, the impact on bottom line is dramatic.
What other solutions you provide apart from ToC?
Our single offering to the clients is significant and sustained growth in the bottom and top lines. We follow ToC philosophy to attain this objective.
