How the Theory of Constraints Helps You Set Better Goals

Working hard and making progress are two different things.

You can put in a lot of work and not make any progress whatsoever. And yet, instead of focusing on progress, everyone seems to focus on hustling and working themselves to the bone.

Don’t get me wrong — hard work is a good thing. But if you’re working hard for the sake of working hard, you’re wasting your time. You have to apply it to the right thing as well.

One of the best ways to find out what that “thing” should be is to use the theory of constraints to look where you can make the biggest improvement.

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The theory of constraints in a nutshell

The theory of constraints (TOC) is a management philosophy that assumes that any given system will only be as productive as its slowest part. It’s mostly used in manufacturing and project management, but it can be applied to general productivity as well.

To give you an example of the TOC, let’s say you have a production line with 3 machines. The first machine feeds into the second one, and the second one feeds into the third.

If the first machine is able to produce 120 units per hour, the second machine 40 units per hour, and the third machine 100 units per hour, the total output will only be 40 units per hour.

Theory of constraints illustration

The middle machine acts as a constraint — a bottleneck — on the entire system. If you wanted to increase the output, improving the first and third machine would be useless since you still have the bottleneck. The only way to improve the system at that point is to improve the capacity of the middle machine.

Once that’s above the capacity of one of the other machines (let’s say you can improve it to 110 units per hour), then you can focus on something else. In that case, another machine becomes the bottleneck and you start the process all over again.

The theory of constraints focuses on 3 things:

  • Inventory: The materials you need in order to produce a product that can be sold.
  • Operational expense: The money spent on turning inventory into something that can be sold.
  • Throughput: The rate at which the entire system generates money through sales.

Applying the TOC to goals setting

Although the TOC was made for manufacturing, you can apply it to general goal setting as well. Doesn’t matter if it’s for a company or your personal goals. Its value is in showing what part of a system you should work on to get the biggest improvement.

Every goal or change is achieved by going through a process. You make plans, you execute on those plans, and the result is the achievement of a goal or change.

These steps are similar to the theory of constraints. Where plans are inventory, execution is the operational costs, and change is the output. The goal of the theory of constraints is to maximize the throughput of a system. In the case of goal setting, maximizing the amount of change made.

But in order to implement the theory of constraints in our goal setting, we first have to look at what we are measuring. If you look at regular goal setting a lot of people focus on what’s referred to as “lag measures”. These are things like increased revenue, weight lost, or the number of users your app has.

The problem with lag measures is that you have no way of directly influencing them. They’re the result of a preceding action.

If you focus on lag measures you become oblivious to bottlenecks. Saying you want to increase revenue by 20% makes it harder to spot the bottlenecks in your system than when you try to conduct 3 conversion rate optimization experiments. When you set lag goals you’re only looking at the end result of the system to see if it works.

What we want to do is look into the system itself. Instead of focusing on the result, we focus on the actions we need to take in order to get that result. These are referred to as “lead measures”. These are things like emails sent, articles written, features shipped.

Lead measures don’t require other people and are fully in our control. Once we focus on lead measures, we can start to look at what part of our system is the most constrained and needs optimizing.

The bottleneck is the part of our system that has the most amount of unfinished work (or plans) in front of it.

For example: Let’s say you’re trying to grow your e-commerce store. You created a user-friendly website, your pricing is on point, and you have a good delivery system. The only problem is you get 2 visits a day to your website, you haven’t gotten round to building up the acquisition part of the store. Acquisition is the bottleneck. Focusing on optimizing conversion rate or pricing would be pointless.

theory of constraints e-commerce example

If you’re looking at this and thinking “well, duh”, you’d be surprised how many times look over this when they’re in the thick of it. And let’s be honest, we’ve all focused on something different when we knew in the back of our minds we should be doing something else. Shiny object syndrome and all that.

Make bottlenecks the focal point of your goals

To maximize the rate at which change takes place, you need to focus on the most constrained part of the system. You need to figure out ways to either relieve the bottleneck so it doesn’t act like a one anymore, or you need to make sure the bottleneck is always working. If you lose time on the bottleneck, you lose time in the entire system.

Let me explain that last part a bit more. let’s use the first example of our production line that has 3 machines. If the first machine (the one that was producing 120 units/hour) loses capacity and drops to 60 units per hour, our throughput remains the same — 40 units per hour. But if our middle machine (the bottleneck that was producing 40 units per hour) drops to 30, we’re only producing 30 units per hour and we’re losing money.

In our e-commerce example, we know acquisition is a bottleneck. So when we set goals for the year/quarter/week, the focal point of our goals should be to relieve this bottleneck by increasing traffic to the point where it isn’t a constraint anymore. If we stop focusing on increasing traffic, the entire business stops growing. If you hired a PPC agency to help you get traffic, it means they should be running ads all the time. If they stop, your entire business loses money. (Also, you should probably invest in SEO.)

Only when we have enough traffic that other parts of our store start having piles of unfinished work in front of it can we start focusing on something else.

The TOC can be applied to different scopes & areas

You can apply this mental model to different levels of your business. You can have a high-level view, where you look at acquisition, conversion, and economics, or you can go down a level and look at what the most constrained part is of a department.

Back to our e-commerce example, we know that acquisition is a problem. And within our acquisition, we find out SEO is a problem. Within SEO, we find we don’t have the links to rank for any good keywords. Going even further, we realize we just don’t have the time to do guest posts or do the necessary outreach.

Drilling down (or having each department drill-down) to what their most constrained part is will reveal the bottlenecks in every system in your business. You can then go back to your high-level view and decide what bottlenecks have priority over the other. The ultimate goal is to optimize the whole system — your business. Not just individual parts.

You can apply this mindset to other parts of your life if you wanted to. If you wanted to lose weight, for example, you can look at the system and see what the bottleneck is. If you’re motivated, exercise daily, but eat junk food all day, you’re not going to get anywhere. In this case, focusing on good nutrition will give you the biggest improvement.

theory of constraints weight loss example

Knowing how to set goals is less important than knowing what to focus on.

There are plenty of ways you can set goals. There are SMART goals, OKRs, BHAGs, and other fancy acronyms. The point is: none of these will get you anywhere if you focus on the wrong thing.

Once you start applying this principle to your goal setting you can get more done in less time and with less effort. Instead of working hard on a lot of things and not seeing any change, you’ll be able to see more and more progress. It’s a simple but useful principle.

Let’s recap what we learned:

  1. Identify the bottleneck in the system by looking at what has a big pile of unfinished work in front of it.
  2. Make the bottleneck the focal point of your goals and be aware of goals that depend on it.
  3. Relieve or remove the bottleneck from the system
  4. If work starts piling up in a different part of the system, you have a new bottleneck and you can start over again.