Fundamentals of TOC · Lesson 1 of 6
The goal
Before you can improve anything, you need to know what “better” means. Who decides the goal, and what separates a goal from a necessary condition?
Every improvement effort starts with a quiet assumption: that we know what we are trying to improve. In most organisations, if you ask ten managers that question, you get ten answers. Let’s start there.
Pause and think: what is the goal of a company?
- To make the highest-quality products
- To win the largest market share
- To survive
- To make more money, now and in the future
- To delight customers
All of these come up in every class I teach, and all of them matter. But for a company owned by shareholders, only one is the reason the company exists. The owners put in their money to make more money, now and in the future. Quality, market share and happy customers are ways to get there, or conditions you can’t ignore on the way.
Who has the right to decide the goal?
The owners. Not the CEO, not the sales head, not the consultant. Whoever owns the system decides what it is for.
For a listed company the answer is plain: people buy shares to make more money now and in the future. That is why Dr. Eliyahu Goldratt, the creator of the Theory of Constraints (TOC), pushed back so hard on mission statements like “to survive” or “to be number one”. Surviving is not why anyone invests. Being number one in market share is fine as long as it makes money. If it doesn’t, the shareholders will rightly ask why you bought it.
Other systems have other owners and other goals. A charity hospital’s goal might be to treat more patients well, now and in the future. A school’s might be to help more children learn. For them, money stops being the goal and becomes a necessary condition. That leads to the next idea.
Goal and necessary conditions
A necessary condition is something that, if it is not met, will seriously block you from reaching the goal. It is not the goal itself, but you cannot ignore it.
Think of a road trip. The goal is to reach the destination. Fuel in the tank is a necessary condition: run out and the trip ends. But nobody says the goal of the trip is “to have fuel”.
For a company, two necessary conditions almost always apply:
- Satisfy the market, now and in the future. Customers who are let down stop buying.
- Provide a secure and satisfying environment for employees, now and in the future. People who fear for their jobs or hate their work don’t improve anything.
Notice the words now and in the future in all three. They stop you from cheating. You can make more money this quarter by cutting quality, firing half the staff or squeezing suppliers, but you would be breaking a necessary condition and paying for it later.
Exercise: sort each statement for a typical company
- Make more money, now and in the future
- Customers satisfied enough to keep buying
- Employees who feel secure and want to stay
- Keep every machine and person busy all the time
- Cut costs in every department
- Become number one in market share
- Products that meet the promised quality
Why this matters in practice
When the goal is fuzzy, every department picks its own. Production chases efficiency, purchasing chases the lowest unit price, sales chases volume, finance chases cost. Each one looks good on its own scorecard, and the company as a whole can still go nowhere.
A clear, short statement of the goal and the necessary conditions gives everyone the same yardstick for every decision: does this help the whole system make more money, now and in the future, without breaking a necessary condition? That yardstick is what the rest of this course builds on. The next lesson turns it into numbers you can use every day.
Check your understanding
Answer all five. Get four right to complete the lesson.
1. Who has the right to decide the goal of a company?
- Its senior managers
- Its owners
- Its customers
- Its employees
The owners decide what the system is for. Customers and employees matter a great deal, which is why they show up as necessary conditions.
2. What is a necessary condition?
- A target that should be pushed as high as possible
- The real goal, hidden behind the money
- Something that, if not met, seriously blocks progress toward the goal
- A legal requirement only
Like fuel on a road trip: you must have enough of it, but it isn’t why you’re travelling.
3. A company raises this quarter’s profit by cutting product quality. What has it done?
- Hurt the future by breaking a necessary condition
- Moved closer to the goal
- Nothing important, since profit went up
- Changed its goal
The goal is to make more money now and in the future. Letting the market down breaks a necessary condition, and the bill arrives later.
4. For a charity hospital, money is most likely…
- The goal
- Irrelevant
- A means, like market share
- A necessary condition
Its owners set a different goal, such as treating more patients well. Without enough money it can’t do that, so money becomes a necessary condition.
5. Why does a clear goal help day-to-day decisions?
- It lets each department set its own targets
- It gives everyone the same yardstick for judging any decision
- It removes the need for measurements
- It makes cost cutting unnecessary
Without it, each function optimises its own scorecard, and those scorecards often pull against each other.