This article offers a structure and a way of thinking so that it’s possible to reliably and quickly identify the area that holds the system’s constraint. This is a fundamental step in the TBLS strategy because it enables to identify the company’s leverage point, making to everyone clear where future projects should be deployed.

1. How to identify the area that holds the
constraint?
Ricardo Anselmo de Castro
ricardo.anselmo.castro@tecnico.ulisboa.pt
Abstract
This article offers a structure and a way of thinking
so that it’s possible to reliably and quickly identify
the area that holds the system’s constraint. This is a
fundamental step in the TBLS strategy because it
enables to identify the company’s leverage point,
making to everyone clear where future projects
should be deployed.
Key-words: TBLS, constraint, hot spot.
In «First Time Through Improvement Model» I
described the solution that companies should adopt
in their continuous (and disruptive) improvement
programs. The solution is part of the TBLS business
strategy I developed myself. Let me transpose it
again: “deploy improvement projects ONLY where
current stability is lower than expected AND IF it’s
a leverage point of the company (hot spot or
constraint)”.
I want to turn explicit the way that one should
identify the area/department that holds the hot spot
(from now on I’ll use indistinctively the words
constraint, hot spot or leverage point). This should
be recognized as a fundamental step in order to
achieve quantumm leaps of improvement. Against
common thinking that to make money one should
collect one cent, plus one cent, plus one cent, the
hot spot concept follows the Archimedes’ instead:
«give me a leverage point and I’ll move the Earth».
In order to find the area / department that holds the
constraint we must, first and foremost,
operationally define it because this concept cannot
mean different things to different people. According
to TOCICO dictionary 2nd
edition, constraint is
defined in senso lato: «The factor that ultimately
limits the performance of a system or organization.
The factor that, if the organization were able to
increase it, more fully exploit it, or more effectively
subordinate to it, would result in achieving more of
the goal». My translation to Portuguese is simply:
«The factor that most limits the performance of a
system towards its goal».
The birth of TOC is in production. In this context,
usually it’s not that difficult to identify the
constraint because its definition can be some how
narrower, that is: the resource which its capacity is
farther way to satisfy the demand. For instance,
let’s say that the market weekly demands 100 and
200 units of product A and B respectively. In order
to produce them they must go through two
consecutive stations, where the cycle time is 10
minutes in the first station and 7 minutes in the
second. If the available time to produce is only
2400 minutes that means that the constraint is in the
first station because the total time needed to
produce all the demand is 3000 minutes (above
2400 minutes). Therefore, if we want to sell more,
we must reduce the first station cycle time.
Nevertheless, this is the visible constraint. But what
about top management’s time? Wouldn’t it be fair
to say that top management attention is the
constraint? And what if the constraint is a policy, a
rule or even worse, the way people think? Finding
the correct answer may be quite of a challenge.
Thus, prior to find the real constraint we should
zoom in the system. If we can put some frontiers to
our best guess we’ll be in a better position to dig
further and find the real constraint soon enough. Of
course, we cannot zoom in too recklessly; otherwise
we’ll be looking for the constraint at the wrong
place. So the first question is: where to start?
Whether it’s a for profit or non for profit
organization it’s vital that working capital is above
zero. In contrary there are severe risks of going
banckrupt. The first checkpoint in the TBLS
strategy for this matter is:
1. Is the company facing a negative working
capital, suppliers don’t allow credit, a loan is
hard to get and is there a serious risk of
bankruptcy?
Observe the fact that if this is the case the leverage
point coincides with the most instable area of the
company! This corroborates the «First Time
Through Improvement Model». As a matter of fact,
it’s hard to think that one should improve the
company’s marketing or any other area, if
bankruptcy is very real. Thus, this is the only
situation where there’s no time to make a thorough
(or even any) planning – Titanic is sinking and no
one is interested to know if the table in the first deck
is misplaced or if the fork is parallel to the knife.
Abort any strategy and make money this week – no
excuses! Also have in mind that one should only
say that finance department is the area holding the
constraint if all the question conditions are met.
Otherwise, we may be dealing with a concern, not a
real constraint.

2. If the answer is no to all the previous conditions
(which we all hope), the following question is in
respect to people. Again, one should expect to find
the highest level of instability (stress). The main
question to be answered is:
2. Is turnover high, high degree of dissatisfied
employees and serious conflicts?
The situation repeats itself: one should only say that
people management is the area that holds the
constraint if all the question conditions are met.
Unfortunately not everyone has the same
understanding and perception of reality so it’s likely
that will be some debate (this flowchart is applied
during the TBLS strategic workshop). Therefore,
it’s important to confirm if the predicted effects are
present in the system. In other words, if it’s true
that people management is the hot spot what would
be the observable effects that one should see
immediately in the system? Here is a list of typical
effects:
 frequent discussions among peers?
 repeated recruitment activities for the same
positions over and over again?
 strikes?
 high absentismn?
 employees questionnaires with low scores?
If there’s an agreement that this is not where the
company is bleeding most, participants should
move to operations management. For instance, in
industry this area coincides with production. In a
software company we may be talking about the
areas that are related with software development or
project management. The main question is:
3. If tomorrow we had a sales increase of more
than 20% would due date performance, flow of
work or products’ quality suffer?
Contrary to previous scenarios we should expect to
see a relationship among question conditions. For
example, if quality decreases, production flow will
also be affected. The higher the number of
predicted effects present, the more likely is to say
that production (or suppliers) is holding the
leverage point:
 angry customers because due dates are not
being met?
 high number of complaints due to products
low quality?
 long wait lists (orders with more than one
month old)?
 high work in process spread in the
workplace?
 extra time needed in order to comply with
customers’ demands?
 missing raw materials or other relevant
information coming from the supplier?
If the area that is holding the constraint is none of
the above, that means that the constraint isn’t
internal rather external. Therefore, marketing or
sales should have from now on our full attention.
Goldratt clearly differentiates these two areas:
marketing – bring the market to desire your
product/service.
sales – closing a deal.
Why should we start with marketing first? Because
it will be very difficult to increase sales
effectiveness if customers don’t see any value in
our preposition. The company should make use of
the concept “right the first time”. First the company
should work on a mafia offer or blue ocean
solution. Only then sales will be important. The
question to find out if marketing is holding a
leverage point is:
4. Why, as your customer, should I do business
with you? (Don’t forget that value equals quality
divided by price).
Customers are always looking for value in their
transactions. If the answer to the previous question
is identical to our competitors, customers will shut
down their ears and their decision will be based on
price, because everybody is claiming the same
things: “we are very good”, “we have a great
reputation”, “customer comes first”…to make long
story short: bla bla bla. The only way to sound
different is either by developing a marketing offer
that solves a customer core problem or by
developing a blue ocean strategy. Here are the
common predicted effects when the constraint is in
marketing:
 excessive capacity to produce all the
demand?
 new customers won’t come to us but we
have to go to them?
 low number of leads and low hit ratio?
 competitors are performing as well as or
better than us?
 fierce competition – war prices, too much
market segmentation and no focus on the
non-customers?
At last, sales. If all the previous answers to
questions in bold are no, one should pay attention to

3. the way sales are being managed. The predicted
effects are:
 leads should be high, but hit ratio is low?
 Sales process is not properly designed?
 No prioritization system in place to manage
leads?
A legitimate question would be: does the sequence
through which we cover the flowchart influence the
final answer? In respect to identify if the leverage
point is internal or external the answer is no. Our
conclusion will be the same no matter the sequence
we do this exercise. This is due to the predicted
effect thinking. For instance, if the constraint is
external it is expected that all the demand is
fulfilled. If that is not the case one should conclude
that the constraint is internal. Also, the ability to
conclude if the external constraint is in the market
or in sales remains, regardless of what sequence we
took.
But, if we are dealing with an internal constraint,
we may end up with different answers, depending
on which route we took. For example if we do the
exercise in reverse starting by operations, then
people management and then working capital the
following scenario may occur: it is possible to see
all the operations predicted effects, leading us to
wrongly conclude that operations are holding the
constraint, when in fact the leverage point would be
in working capital instead.
As long as TOC is not proved as false, any system
has only one constraint. In order to avoid false
diagnosis or long diagnosis in time I claim that the
sequence: 1) working capital, 2) people
management and 3)
operations is the best to
follow because it most
likely coincides with the
decreasing path of
instability (level of stress)1
.
CONCLUSION
The goal of this paper is to standardize the way a
company may find the area that holds the
constraint, with the use of a flowchart. If internal,
the constraint is either in short-term finance (lack of
working capital), people management or
operations/suppliers. If external the constraint is
either in marketing or sales. It is the author’s belief
that by looking to reality and using the predicted
effect reasoning it is possible to quickly and
reliably identify the area that holds the business
leverage point. This will enable a thorough analysis
regarding the constraint itself. The flowchart is the
sixth step taken in the TBLS business strategy.
References
[1] Castro, Ricardo A. (2014) Doubting – The TBLS
Business Strategy. Leanpub.
[2] Cox III, J., Schleier, J. (2010). Theory of
Constraints Handbook. McGraw-Hill.
[3] Goldratt, Eliyahu M. (1984). The goal. North
River Press.
1
Please read the paper
«First Time Through
Improvement Model» from
the same author.