A Guide to Implementing the Theory of Constraints (TOC)





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Current Reality Tree


3 Cloud Method

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Clouds And Silver Linings

A cloud is an elegant graphical means of displaying and solving an apparent conflict or dilemma between two actions.  It is also sometimes known as a conflict resolution diagram; however, its correct name is a cloud.  Central to the use of clouds as a problem solving device is the assumption that there are no conflicts in nature – only erroneous assumptions.  "There must be an erroneous assumption that we make about reality that causes a conflict to exist (1)."

Let’s look at this from another perspective and another culture – Japan; “Problems exist because people believe they exist.  If there were no people there would be no problems.  People are also the ones who decide that a problem has been solved.  Problem solving is the most typical human behavior (2).”

The apparent conflicts that do arise and which we do want to solve are likely to be of two types (3);

(1)  Opposite conditions – conditions that are mutually exclusive.

(2)  Different alternatives – conditions that preclude one another.

Day and night are mutually exclusive, more money or shorter hours are different alternatives.

In fact we have been using clouds fairly liberally throughout these webpages so far to describe numerous different situations.  This should help to underline their intuitive nature.

We might use a cloud for everyday “free-standing” conflicts or dilemmas, or as a tool to resolve the core problem or core conflict made apparent as a result of the construction of a current reality tree.  You can learn to do clouds on the back of a piece of paper or in you head.  Such a skill can be a formidable advantage to the user.

The key point, however, is that you must want to solve your problem or dilemma.  Without the will to solve the problem, the way to do it won’t be apparent at all.

Countermeasures And Injections

The cloud is the tool of choice in seeking to obtain understanding and agreement on the nature of the core problem or core conflict, especially the unstated assumptions that give rise to the problem.  This is often described as the “direction of the problem.”  Breaking the cloud by developing an injection builds understanding and agreement on the “direction of the solution” to the problem at hand.

An injection is any new idea that we introduce into our current reality to produce a new and desirable outcome.  On the previous page we saw how Taiichi Ohno used the 5 whys method to drill down to the core problem “Otherwise, countermeasures cannot be taken and problems will not be truly solved (4).”  The countermeasures were his “injection.”  However, countermeasures are limited conceptually to mitigating a currently undesirable effect by removal or replacement with something else.  Injections go one step further – they may in fact create a totally new and desirable step as well as mitigating the currently undesirable effect.  If the word “injection” doesn’t do it for you, think “countermeasure” for the moment until you are more familiar with the concept of clouds.  Think of clouds armed with countermeasures as formidable weaponry.

The Cloud And The OODA Loop

The cloud is formidable, but it is also enigmatic.  It is used both to formulate the nature of the problem and also to formulate the direction of the solution.

Previously, on the page on agreement to change, we developed a composite 5 layer verbalization of the layers of resistance.  This is what we wrote;

(1)  We don’t agree about the extent or nature of the problem.

(2)  We don’t agree about the direction or completeness of the solution.

(3)  We can see additional negative outcomes.

(4)  We can see real obstacles.

(5)  We doubt the collaboration of others.

We discussed the subdivision of layers 1 & 2 in more detail in the page called “more layers” accessed off the agreement to change page.  In essence we can subdivide layers 1 & 2 into two based upon Senge’s differentiation of detail and dynamic complexity;

(1a) We don’t agree about the extent of the problem – detail complexity.

(1b) We don’t agree about the nature of the problem – dynamic complexity.

(2a) We don’t agree about the direction of the solution – dynamic complexity.

(2b) We don’t agree about the completeness of the solution – detail complexity.

The current reality tree addresses the detail complexity of the extent of the problem.  The future reality tree addresses the detail complexity of the completeness of the solution.  The cloud, however, addresses both the nature of the problem and the direction of the solution.  As such it is a transitional tool or a pivot in the whole process.  If we accept that there are two distinct phases to the cloud it is much easier to understand.

We can draw a simple model of this situation.

The sequence; what to change – what to change to, is drawn as a closed loop – a process of on-going improvement.  Essentially it is a decision loop addressing the problem and the solution without going into the detail of executing the solution.  We can see that the cloud is the pivotal part of this construction.

There are interesting parallels between this decision loop and the OODA “Loop.”  Colonel John Boyd developed the concept of the OODA Loop (observe, orient, decide, act) as a way to describe his ability to win a dog-fight – any dog-fight – in 40 seconds (5).  The OODA Loop (and maneuver warfare) has found its way into the more general business literature as well.  Although in the process it has sometimes lost its proper attribution.  For example, “The U.S. Air Force has studied … (6)” or mention of the use of “commander’s intent” in the U.S. Army and Marines (7).  Boyd is in the background, but not acknowledged, and we are the poorer for it, we fail then to see the continuity of the theme.

Boyd’s argument is that he could out-maneuver his opponents by working within his opponent’s decision cycle.  As we shall see this works at two levels.  The first level is that the sooner that we can define the cloud and break it with an injection/countermeasure, the more likely we are to be able to work inside of our opponent’s business cycle, and the more likely we are to succeed on our own terms rather than that of our opponents.  We could consider this incremental improvement.  The second, deeper level, is that if we understand the dynamics of the environment in a different and more realistic way than our opponent, then once again, we can work inside our opponent’s decision cycle but this time at a more elementary and deadly level.  This is fundamental improvement.

The OODA Loop has much to offer although it is often misinterpreted.  If you already understand clouds and wish to understand the OODA Loop better, then click here.  Otherwise don’t worry we will return to the OODA page further on when we discuss strategy – in particular; paradigms.

Don’t Think Outside Of The Box – Break The Box

How many of us have sat around a table while some consultant told us to “think outside the box.”  Ha, whatever that meant!  Yeah, like this is a special time for thinking outside of the box before we all go back to work inside of one as usual.

Cynicism aside, what if we got rid of the box completely?  Then we wouldn’t have to think about it at all.  What if the cloud was the tool that let us do that in a structured way?  If you would like to see a graphical representation of this click here.  In any case, come back here after you reach the end of this page.  It is a valuable mental image for understanding clouds.

How Do We Build A Cloud?

We construct a cloud out of 5 entities (3, 8, & 9).  The first is a common objective which we want to satisfy.  In order to satisfy the common objective it is necessary that we fulfill two needs.  In order to satisfy the needs it is necessary that we fulfill the two wants.  However, the two wants are in conflict with each other as indicated by the arrows

Thinking in terms of needs and wants is often easy in the English language.  However some people like to use the terms “requirement” and “pre-requisite.”  It makes no difference, but let’s redraw the diagram for completeness.

This shows us the shape of a cloud but it doesn’t teach us how to make one or how to break one.  The whole point of making a cloud is to break it – to break the conflict with a no-compromise win/win solution.

So let’s do this by using a real example that is familiar to most people.  Have you ever had the conflict “ask for a wage-salary rise/don’t ask for a wage-salary rise?  I’m sure there most people have.  Let’s draw it.

Now, we need to ask ourselves, what are the needs that we are trying to address?  Let’s assume for instance that the need for wanting to ask for a salary rise is “my happiness.”  And the need for not wanting to ask for a salary rise is “my boss’s happiness.”  Let’s draw these in.

That just leaves us with the objective to complete.  In these types of cases something general will usually do.  The theme seems to be happiness, so let’s make the objective “maintain happiness.”  Let’s draw that as well.

So now we have constructed a cloud from scratch, starting at the conflict, and building forward to the needs and the common objective.  We should also learn how to read this diagram.

We read it from objective to need to want as follows, you will need to learn the form of reading them, and soon it will become second nature.  In order to maintain happiness it is necessary to keep the boss’s happiness.  And in order to keep the boss’s happiness it is necessary to not ask for a salary rise.

Looking at the other side.

In order to maintain happiness it is necessary to keep my happiness.  And in order to keep my happiness it is necessary to ask for a salary rise.

Finally, we come to the conflict, the crux of the matter.

However, not asking for a salary rise and asking for a salary rise are in direct conflict with one another.

What are we going to do about the conflict?

Well, Goldratt argues that there are no conflicts in nature and therefore in business there can be no conflicts – only erroneous assumptions.  Therefore, we need to search out the assumptions upon which our conflict is based.

Where are the assumptions in the cloud?  Under each of the arrows.

Let’s draw them in.

And now, let’s add some real assumptions to the needs/wants arrow.

Reading the cloud with assumptions included is not much different.  For instance, In order to keep my happiness it is necessary to ask for a salary rise because my living expenses are rising.  You can check if your assumptions are verbalized correctly by reading them through one by one.

Ah, now we have something to work with.  Once the verbalization is correct, we must ask how many of these assumptions are valid, how many are invalid, and can we overcome any of the remaining valid assumptions with a new idea or reality.  We will call this new idea or reality an injection.

I think we must assume that it is true that the company has no money; we saw last quarter’s results.  I think that we must assume the boss will resent my asking, the boss will be in a difficult position of turning my request down even if he wants to action it.  So the assumptions on the top side are valid and must remain.

Let’s look along the bottom.  “My living expenses are rising.”  Are they really?  Maybe, if I was more honest with myself, I should have said that my discretionary expenses are rising.  Let’s keep going.

“My pay parity is decreasing.”  Ah this looks like a real problem.  There is someone else in the company who is younger or less experienced who is on the same or greater salary.  If that is the case then it is quite likely that I feel my expenses are rising – because I want to justify my increase in pay parity.

A possible injection then becomes “Increase my non-pay parity.”

Let’s draw these in.

Let’s clean the diagram up, so that we can see that the conflict has been broken.

So the cloud lets us identify a way to satisfy both needs and the common objective without a conflict, and with a win/win injection.

You may not agree with this simple example, it may be a little too self-virtuous.  But it does show the essentials.  Identify the needs and the common objective and the underlying assumptions.  Remove any invalid assumptions and then try to overcome any remaining ones.  In doing so you move from agreement about the core problem to agreement about the direction of the solution.

Here are some common clouds that you will most probably have experienced in business.

Next we must see how to build out from this direction of the solution to nullify all of the undesirable effects that we listed in the construction of our current reality tree.  This is the function of the future reality tree.


(1) Goldratt, E. M., (1999) How to change an organization.  Video JCI-11, Goldratt Institute.

(2) Kawase, T., (2001) Human-centered problem-solving: the management of improvements.  Asian Productivity Organization, pg 193.

(3) Dettmer, H. W., (1998) Breaking the constraints to world class performance.  ASQ Quality Press, pg 104.

(4) Ohno, T., (1978) The Toyota production system: beyond large-scale production.  English Translation 1988, Productivity Press, pp 126-127.

(5) Hammond, G. T. (2001) The mind of war: John Boyd and American security.  Smithsonian Institution Press, 234 pp.

(6) Stalk, G., and Hout T. M., (1990) Competing against time: how time-based competition is reshaping global markets.  The Free Press, pp 180-183.

(7) Wheatley, M. J., (1999) Leadership and the new science: discovering order in a chaotic world (2nd. edition).  Berrett-Koehler Publishers, pp 107-108.

(8) Dettmer, H. W., (1997) Goldratt’s Theory of Constraints: a systems approach to continuous improvement.  ASQC Quality Press, pp 120-176.

(9) Scheinkopf, L., (1999) Thinking for a change: putting the TOC thinking processes to use. St Lucie Press/APICS series on constraint management, pp 171-191.

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