An Introduction to the TOC Thinking Processes

It’s Not Luck (1994) is a business novel and a sequel to The Goal. The plot continues to follow the advancement of the main character, Alex Rogo, through the corporate ranks of large manufacturer, UniCo.

Author Dr. Eliyahu M. Goldratt continues to teach the reader his thinking processes through the eyes of Alex Rogo as he learns from his mentor, Jonah. In this book, the primary subjects are the resolution of conflict through the evaporating clouds method and the identification of root causes through the effect-cause-effect method.

In this book the main character, Alex, conducts the reader through the essence of some TOC tools and applications, like the Thinking Processes and the TOC solutions for Marketing, Distribution and how to compose the Strategy of a company.


by Dongxiao Qiu
for the Ross Clouston Scholarship, 2001

Do you want to find out the core problem of a complex situation in business or life? Do you want to come up with innovative solutions to the core problem? Do you want to communicate your thinking effectively with others? The TOC Thinking Processes are designed to just do these. The purpose of this note is to introduce to business students the basics about the TOC Thinking Processes, which were originated by Dr. Eliyahu Goldratt as an indivisible part of the Theory of Constraints (TOC). The TOC Thinking Processes were illustrated in Dr. Goldratt’s business novel It’s Not Luck to address policy and paradigm constraints rather than physical constraints described in his another business novel The Goal. For those who are not familiar with TOC, please see appendix A for a brief introduction. This note can better serve its purpose when used as a companion to the novel It’s Not Luck.

How to think when you want to improve a system?

There are always situations where data are overwhelming or confusing. To avoid paralysis by analysis, we should ask questions that sift through the complexity. The three basic questions we should ask are as follows.

– What to change?
– To what to change?
– How to cause the change?

The TOC Thinking Processes are designed to answer the three questions in a systematic way by exploring and communicating information and assumptions about the current reality, future reality and how to get there, respectively.

So, what are the TOC Thinking Processes?

There are really only two TOC Thinking Processes: Sufficient Cause and Necessary Condition.

Sufficient cause is the thought pattern of effect-cause-effect. When we assume that something, simply because it exists, causes something else to exist, we are using sufficient thinking. For example, we often hear that if we lower our prices, then more customers will buy our products. Figure I illustrate this sufficient cause thinking. The lower box is the cause and the upper box is the effect. The arrow shows the cause-effect relation and is where the assumption resides. To visualize the cause-effect relationship and the assumptions, we can point out our reservations to any of the components so as to facilitate our thinking or communicate with other people.

Figure 1 Sufficient Cause Thinking

Necessary thinking is the thought pattern we use when we are thinking in terms of requirements. When we are thinking that something must exist before we are able to achieve something else, we are using necessary condition thinking. Necessary conditions are rules, policies or laws that provide limitations or boundaries within which we believe we are allowed to pursue goals. For example, we often hear that we must reduce costs to increase profits. Figure 2 illustrate this necessary condition thinking. When the assumptions are visible, we can test both their validity and necessity.

Figure 2 Necessary Condition Thinking

To use the two thinking processes with the visualization techniques that will be discussed further in the following sections, we can start to answer the three basic questions by five TOC Thinking Processes tools that are currently available. Figure 3 is the summary of these tools.

Figure 3 TOC Thinking Process Tools

Give me a touch of these tools!

To help master the TOC Thinking Processes, here we would introduce the nomenclatures of the TOC Thinking Processes and two frequently used tools, the dilemma tree and the transition tree, as the basis for readers’ further exploration.

1. Nomenclatures of TOC Thinking Processes

Figure 4 illustrates sufficient cause thinking process and figure 5 illustrates necessary condition thinking process. The definitions of the components of both thinking processes are shown in the figures.

1) Entity (boxes of A, B, C, and D): a single element of the system and expressed as a complete sentence
2) Arrow: an indicator of a relationship between two entities
3) Cause: an entity at the base of an arrow
4) Effect: an entity at the tip of an arrow
5) And-connector: an ellipse that groups entities to represent the logical “and”
6) Assumption: the reason for the existence of the cause-effect relationship and “underneath” arrows
7) Entry Point: any entity that does not have an arrow pointing to it. Entry points that are stated in round-cornered boxes are assumed to exist in the current reality; square-cornered entry points are entities that do not yet exist, which are called injections.

Figure 4 Nomenclatures for Sufficient Cause Thinking Process
1) Entity (boxes of A, B, C, and D): a single element of the system and not necessarily expressed as a complete sentence
2) Arrow: an indicator of a relationship between two entities
3) Necessary condition: an entity at the base of an arrow
4) Objective: an entity at the tip of an arrow
5) Assumption: the reason for the existence of the necessary condition relationship and “underneath” arrows

Figure 5 Nomenclatures for Necessary Condition Thinking Process

2. Dilemma Tree

Every problem that exists can be described as a conflict, in the form of a dilemma tree. The dilemma tree, also called the evaporating cloud, has only five entities and is the easiest and by far the most often used of the thinking processes. It is a necessary condition thinking process. Figure 6 shows the relationships of the five entities.

Figure 6 Diagram of a Dilemma Tree
The major steps of the dilemma tree process are:
1. Articulate the problem and diagram the tree.
2. For each arrow, uncover assumptions and identify potential solutions, using the necessary thinking process.
3. Choose an injection to implement.

We will see what the third step means in the transition tree process in the next section. Here let’s focus on the first and second steps.

We would use an example to show how to use a dilemma tree to solve problems.

An example: A manufacturer of temperature-control equipment for the injection molding industry was plagued by parts
shortage in manufacturing. Manufacturing was blaming Purchasing for poor vendor management. Purchasing
was blaming Manufacturing and Sales for taking too long to provide the information they needed to
purchase products within their vendors’ quoted lead time; and, of course, Purchasing and Manufacturing
were under the pressure to keep inventories as low as possible. The company was poised for tremendous
growth, but unless it got the parts situation under control, it was going to have a tough time competitively
fulfilling additional demand.

Figure 7 illustrates the dilemma. The conflict is that Manufacturing wants to order later while Purchasing wants to order earlier. Both have their reasons as stated in the diagram. We can surface the assumptions, which are the reasons for the persistent conflict.

Figure 7 An Example of Dilemma Tree
What are the assumptions underneath the arrows?
Arrow 1: In order to have the right materials when we need them, we must wait until we have all of the correct information
because (assumption 1) we manufacture to order and because (assumption 2) it is too risky, financially, to
stock components.
Arrow 2: In order to have the right materials when we need them, we must give vendors enough lead timebecause the
vendors’ lead time is longer than zero.
Arrow 3: In order to wait until we have all the correct information, we must order later, because it takes a long time for
engineering and /or customers to determine all the details of the product’s final design.
Arrow 4: In order to give vendors enough time, we must order earlier, because the lead time our customers want is longer
than the lead times our vendors offer for purchased components.
Arrow 5: It is impossible to order later and order earlier, because all parts carry equal weight in cost and risk.

Three of the assumptions (two underneath arrow one and one underneath arrow five) jumped out as erroneous. Although this company’s products are customer goods, they are assembled to order and the vast majority of components are standard and fairly low cost. This means that holding a little bit more inventory in the stockroom (and a lot less inventory in work-in-process) would pose little risk for the company and would result in the ability to shorten lead time for customer orders. Therefore, the assumptions underneath arrow one are invalid. When it becomes clear that arrow one is invalid, let’s take a look at arrow five. Once the company has the inventory replenishment policies in place for standard components, purchasing would have the capacity to respond more effectively to the few specialty items. Direction could also be provided to sales and engineering on the crucial design elements that might require longer lead times, so that when possible, those elements could be addressed earlier. Assumption underneath arrow five is invalid too.

By looking at the issues in this way, a simple and practical solution shows up, which is simply to stock standard parts and focus on the special parts. The company is able to identify their paradigm constraints that hold firm the policies that both sides tried to enforce, which just kept the fuel of the conflict raging.

3. Transition Tree

The transition tree is a sufficient cause diagram used for creating action plans. The transition tree contains four types of entities, as illustrated in figure 8.

Figure 8 Illustration of a transition tree
A: The injections are actions.
B: Entities that exist in the present reality tree are always entries to the tree.
C: Entities that will exist in the future are the results of the combination of implementing the actions and the presence of the current and future conditions that are captured wit hit by and-connectors.
D: The objectives of the action plan are achieved as a result of the conditions created by implementing the actions.

Take the analogy of a manufacturing process. Every manufacturing starts with at least one material from an outside source. Every step of the way, that material goes through transitions- a resource (person and/or machine) does something specific to that material, changing it to a state that is closer to its finished form. From that state, the next resource performs a specific step in the process that will change it a bit more, moving it still closer to its finished form. And so on until the company has a finished, salable product. You will use the transition tree to design the process that will create the necessary transitions from the conditions present in the current reality to the different conditions you desire at some point in the future. With the transition tree, you will define the specific steps (actions) that will transform your current reality (raw materials) into a specific future reality (objectives). You will also verbalize what the transitions themselves will be – the intermediate states that will be created along the way.

Like in the analogy, the transition tree is the tool to use when you need to create an action plan and you already have some ideas in mind relative to what you’re actually going to do.

The general steps of the transition tree process are:

1. Establish the scope of the transition tree.
2. Using sufficient cause thinking, link the initial action to the objectives.
3. Seek and block undesirable consequences.
4. Implement the plan.

Figure 9 is a simple example to illustrate the transition tree process. Supposed you are sitting at your kitchen table, looking at a wall in your family room. The picture hanging on that wall is crooked, and you have just decided to straighten it. The wall is about 15 feet from where you sit. In reality, of course you are not about to spend time preparing a transition tree for a task as simple as that. However, when a transition tree is called for, the transition tree you prepare should show the same type of detail as in the example.

Figure 9 An Example of a Transition Tree
Summary of the TOC Thinking Processes
The basic thinking processes are presented here and we have also demonstrated how to use the dilemma tree and the transition tree. For our purpose to introduce the basics of the TOC Thinking Processes, we did not elaborate in functional details about how to construct the processes. For readers who have general interests in the Thinking Processes, we encourage you to read the business novel It’s Not Luck by Eliyahu Goldratt for more vivid examples. For zealous readers who want to master the Thinking Processes in a professional way, we encourage you to read the book Thinking for a Change – Putting the TOC Thinking Processes to Use by Lisa J. Scheinkopf, from which book much of the contents of this note are adapted.

Appendix A

What is TOC in a nutshell and what are policy and paradigm constraints?

Simply put, TOC treats any organization as a system in order to come up with unique solutions for better system performance. An organization, as a system, consumes inputs (material, money, human efforts so on) and transforms them into output (products, services so on) through processes that are linked to system resources. To improve the performance of an organization, we need to clarify the purpose of the organization (the goal), determine the measures that are aligned with the purpose, and manage those few things (constraints) that limit the organization’s higher performance relative to that purpose.

Constraints can be physical constraints which are those resources that are physically limiting the system from increasing its performance. Some examples are machines, people’s skills, and external market situations. Physical constraints were discussed in the novel The Goal.

Constraints can also be policy and paradigm constraints. Policy constraints are those rules and measures that inhibit the system’s ability to continue to improve. Policies (both written and unwritten) are developed and followed through people’s belief systems. Paradigm constraints are those beliefs or assumptions that cause us to develop or follow policy constraints. Policy and paradigm constraints are discussed in the novelIt’s Not Luck.

A simple example for illustration. Your company provides printing services to other businesses and the industry is believed to reward orders to the lowest bidders for printing jobs. However, your machines are out-of-date compared to your competitors’ and cannot print large volume for lower price (a physical constraint). Then how can you compete? After using TOC Thinking Processes, you may discover that the marketing policy of competing on price (a policy constraint) is based on the assumption that customers want only lowest price (a paradigm constraint). When you check the assumption with your salespeople, you realize that the assumption does not always hold. There are customers who are more interested in fast delivery of products. You then change the marketing strategy to focus on those customers and your company’s performance improves significantly.


It’s Not Luck, by Eliyahu Goldratt
Thinking for a Change – Putting the TOC Thinking Processes to Use, by Lisa J. Scheinkopf