Dr. Eliyahu M. Goldratt worked as an educator, author, scientist, philosopher and business leader during the course of his career. But one of his greatest accomplishments involved finding a unique way to teach a business theory he called The Theory of Constraints – a theory that remains popular in the modern business world.

Goldratt wove his theory into the central plot of the 1984 novel “The Goal,” which centers on a manufacturing manager who has just 90 days to save his plant from a threatened shutdown. Naturally, the Theory of Constraints helps save the day, protecting hundreds of employees from losing their jobs.

The novel stands as one of the crowning achievements in the life of an unconventional thinker.

What is the Theory of Constraints?

The Theory of Constraints (TOC) focuses on making workflow as efficient as possible. It provides a method to identify the biggest limiting factor – what Goldratt called a “constraint” – that impedes completion of a goal, as well as a way to improve or eliminate that constraint.

The Theory of Constraints looks at a project as the culmination of a chain of many small tasks. The slowest task in the chain dictates the speed of the entire process. The theory focuses on improving these tasks, leading to more efficient production and higher profits.

Constraints can come in many forms. They include issues with suppliers, materials, equipment, and employees. Two issues he focused on were deadlines (he felt people tended to pad deadlines) and multitasking, which he did not favor.

A “Slayer of Sacred Cows” in Business

Eliyahu Moshe Goldratt was born on March 31, 1947, in Mandatory Palestine, a geopolitical entity that dissolved in 1948. He grew up in the new country of Israel, the son of Rabbi Avraham-Yehuda Goldrat, who also worked as a journalist and politician. Goldratt earned an undergraduate degree from Tel Aviv University and a master’s degree and doctorate from Bar-Ilan University.

From early in his business career, Goldratt became known for having issues with traditional approaches to business. Goldratt was “an educator, author, scientist, philosopher and business leader. But he was, first and foremost, a thinker who provoked others to think,” according to the Theory of Constraints website. The site states that others often characterized Goldratt as “unconventional, stimulating, and a slayer of sacred cows.”

After working with manufacturing companies for a time, Goldratt co-founded his own company, Creative Output. The company produced Optimized Production Technology, a software program that ranks among the first to provide manufacturers a production management methodology designed to make operations less wasteful and more profitable.

However, Goldratt was not completely satisfied with the results of the software. He continued to develop a theory that could make processes more efficient. This eventually led to the Theory of Constraints, but Goldratt chose an unusual way to convey his new theory to business leaders. He put his creative talents to work and authored a novel.

The Goal and Other Business Novels

In “The Goal,” the central character, Alex Rogo, is a plant manager who faces challenge after challenge during a 90-day period in which he must save his plant or face closure by the plant’s corporate owner, UniCo.

Through the efforts of Rogo, Goldratt explains the Theory of Constraints. The plant has a huge backlog of orders and an inability to get quality products shipped in time to customers, even as the plant’s inventory continues to grow. Rogo, overwhelmed by the problems he faces, has a chance run-in with his old college physics professor who gives him the advice he needs to begin taking on the challenges at the plant.

Rogo directs his team to find ways to improve production flow. During this process, they discover the constraints that impede production as well as the fact that these constraints can shift over time. The plant eventually becomes the most productive plant the corporation owns. UniCo promotes Rogo to corporate headquarters.

Ultimately, Rogo learns “the goal” is to increase profits, not make improvements for the sake of making improvements. Every change must support better profitability. The book emphasizes using three metrics to track success.

  • Throughput: The rate at which a business generates money through sales.
  • Inventory: All money invested in purchasing materials to make products, as well as investments in plants, property, and equipment.
  • Operating expense: The cost of turning inventory into throughput, including employee salaries and building and equipment rentals.

While managing inventory and operating expenses is important, Rogo learns increasing throughput has the biggest impact on profitability. Part of increasing throughput is to identify constraints.

The book also offers (through the college professor character) a five-step process to overcome constraints.

  • Identify: Find what is causing system constraints
  • Exploit: Use existing resources to make quick improvements to the constraint
  • Subordinate: Review other processes to assess their impact on the constraint
  • Elevate: If the constraint still exists, consider further actions to remove it as a constraint
  • Repeat: Once one constraint is solved, move on immediately to the next one in a cycle of continuous process improvement

According to a review quoted on Amazon, the Economist wrote of “The Goal”: “A survey of the reading habits of managers found that though they buy books by the likes of Tom Peters for display purposes, the one management book they have actually read from cover to cover is The Goal.”

Goldratt Becomes a Consultant

The novel changed Goldratt’s life. As more business leaders and academics read and valued the book, Goldratt became more famous. He left Creative Output in 1985, establishing the Avraham Y Goldratt Institute (AGI) named after his father. AGI focused on promoting the Theory of Constraints.

He also further developed concepts within the theory. For example, Thinking Processes offers a series of steps to help businesses achieve focused improvements and Critical Chain Project Management provides a method for planning and executing projects.

He also continued to write novels.

It’s Not Luck (1994) – In his sequel to “The Goal,” Goldratt follows Rogo in his job at the corporate offices of the UniCo. He applies the Thinking Processes in areas such as marketing, distribution and developing business strategy. The book also addresses root cause analysis, among other process improvement tools and techniques.

Critical Chain (1997) – This book follows a professor trying to achieve tenure at a university, as well as a business school’s attempt to increase enrollment. The book explains how to apply TOC to supply chain management.

Necessary But Not Sufficient (2000) – Co-written with Eli Schragenheim and Carol A. Ptak, this novel follows a business dealing with the implications of rapidly evolving technology. It applies TOC to enterprise resource planning.

Goldratt died in 2011, but his business theories live on. His unique approach to using fictional settings to explain the benefits of the Theory of Constraints is one of his most important achievements, as it made his ideas more accessible to millions of business people worldwide.