Theory of Constraints (TOC) is the management philosophy developed by Dr. Eliyahu M. Goldratt. TOC aims to achieve a process of continous improvement in order to achieve more of the Goal of a system. If the system is for instance a for-profit organization the Goal is to make more money now and in the future.

The basis of TOC is to focus on the constraint of the organization, the factor that limits the organization in achieving higher performance. No matter how complex your organization is, there will only be one constraint (or a very small number of constraints). Focus on the constraint and sub-ordinate everything else to the constraint.

TOC is often classified as a "common sense" approach and sometimes even as rather simplistic. Well, maybe so, it has however been proven again and again that the more complex a system is, the "common sense" solution yields the most significant results. The results that are achieved by applying TOC consistently and correctly are always significant and more often than not staggering.

TOC was first described by Dr. Goldratt in his business novel "The Goal" in 1984. In The Goal TOC is applied to Operations. Over the years TOC has evolved to other business areas and now consists of:

• Operations
• Supply chain / Logistics
• Finance and Accounting
• Project Management
• Sales and Marketing
• Strategy development

The five focusing steps leading to a process of on-going improvement:

1. Identify the system's constraints
2. Decide how to exploit the system's constraint.
3. Subordinate everything else to the above decision.
4. Elevate the system's constraint.
5. If, in the previous steps, a constraint has been broken, go back to step 1

An approach to problem-solving:

• What to Change,
• What to Change to
• How to Cause the Change

The above systematic and structured approach is supported by the Thinking Processes; techniques for the analysis and solution design. The core thinking processes are:

• Current Reality Tree (CRT) - evaluates the network of cause-effect relations between the undesirable effects (UDE's) and helps to pinpoint the root cause(s) of most of the undesirable effects.
• Evaporating Cloud (conflict resolution diagram or CRD) - solves conflicts that usually perpetuate the causes for an undesirable situation.
• Future Reality Tree (FRT) - Once some actions are chosen to solve the root cause(s) uncovered in the CRT and to resolve the conflict in the CRD, the FRT shows the future states of the system and helps to identify possible negative outcomes of the changes and to solve them before implementing the changes.
• Transition Tree (TT) - describes in detail the action that will lead to the fulfilment of a plan to implement changes.
• Strategy & Tactics (S&T) - the overall project plan and metrics that will lead to a successful implementation.

The extensive Body of Knowledge around TOC is widely available in the public domain. These are a number of good entry points:

Wikipedia entry
In-depth information by Kelvyn Youngman
Goldratt's marketing group
TOC International Certification Organization
Viable Vision: Improve the performance of your company to have in less than four years, net profit equal to its current total sales