Academic journal article Research-Technology Management

What's Constraining Your Innovation? Here's How the Theory of Constraints Can Be Applied for Rapid and Continued Improvements in Bottom-Line Impact from Innovation

Academic journal article Research-Technology Management

What's Constraining Your Innovation? Here's How the Theory of Constraints Can Be Applied for Rapid and Continued Improvements in Bottom-Line Impact from Innovation

Article excerpt

A stunning 72 percent of executives now rank innovation in their top three priorities, according to one recent study (1). Unfortunately, effective innovation management remains an art and a mystery for a large number of companies, with nearly half of the executives in that study reporting dissatisfaction with the return on innovation spending. The results were even worse for the 56 percent of industrial companies that were dissatisfied.

Perhaps surprisingly, most companies don't need to invest any more than they already are in order to increase innovation-driven growth. Like many things, innovation isn't about how much you spend as much as it is about how you spend it. What might surprise even further is that the Theory of Constraints, a concept originally developed as part of the manufacturing discipline, can be the key to improvements in growth and return on innovation using the resources that you already have in place (2). Traditional continuous improvement efforts are often based on the premise that the whole can be made stronger by making each part of the organization or each step in the process stronger. We have been led to believe that optimizing each local element of a process will increase the global output. But TOC recognizes that processes are interdependent chains of activities (Figure 1), and the strength of a chain is not determined by the sum of its parts hut by its weakest link. To see any improvement, the effort must be focused on strengthening the weakest link. For more on the results that have been achieved with TOC see "TOC: From Theory to Proven Results," page 54.

In the mid 1980s, Eli Goldratt and his book, The Goal, started a quiet revolution with the TOC, which laid out an approach for improvement in manufacturing environments. My practice has extended these concepts to new product and service innovation as a tool for attacking the issues that limit growth and constrain a company's innovation. Let's start by taking a closer look at the five focusing steps of TOC and the accompanying strategies and tools that you can use to attack your constraints and create organic growth and innovation in your markets. Figure 2 provides a graphical overview along with considerations at each step.

1. Identify the Constraint

To get started, you first have to agree on the goal and identify the constraint holding back performance. What are you going to improve? Your current operations are focused on the goal of making money today. Therefore, the goal of improving innovation must be to generate more money in the future--more money than your operations would generate without new products and services. The goal is not invention. Invention is simply the tool to achieve your goal.

Second, you have to know which metrics you will use to measure improvement. While there are many metrics to measure innovation improvement, throughput and cycle time are key. Throughput is the cash flow from the sales of new products and services over and above truly variable expenditures such as raw materials, components, and outside purchased services (3). Increasing throughput means more money or a higher return from your investment. Cycle time is the length of time it takes for a project to go from proposal to generating throughput. Decreasing cycle time means that your innovation begins paying off sooner.

When you ask the people in your organization to help identify the constraints blocking higher innovation performance, you'll probably find no shortage of issues. But the key is to find the bottleneck constraint--the one that is limiting the output of the system. Before you get started, it is also helpful to review the following sections on process mapping and understanding constraints.

Process mapping

Having a map of your innovation process is critical because it allows you to understand where the process is breaking down.

* Are you getting too few new ideas from the market place? …

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