The theory of constraints, agile and open organization meet to create the 21st century resilient company according to an ISO standard

The Theory of constraints, Agile and Open Organization (TAO) brings the approaches, the tools and the methodologies to build the resilient company for this century.

Change must be understood as the norm, not as the exception. — Eli Goldratt

Some days ago, I was discussing with the director for project finance of a large bank. She told me that the most important characteristic for a company applying for a project loan is now resilience.
One of my domains of consultancies is business continuity and resilience, and during the conversation, I discovered that this director was not aware that resilience and business continuity are now covered by ISO standards.

Why is the existence of an ISO standard of interest?

When an ISO standard is issued on a subject, it demonstrates that a focus is building on that very subject in the market. When the well-known ISO 9001 was issued, it was the demonstration that quality of production was becoming an important focus for the industry. It is now a usual and common reference not only for manufacturing, but also for services and even healthcare or banking.
The release of several ISO standards covering business continuity and resilience demonstrates the strong interest of the market for these important attributes of companies.

ISO 22316 — ISO definition of organizational resilience

ISO organization has issued in 2016 a standard defining a guide to organizational resilience. This standard is linked to the two standards detailing the business continuity concepts and applications (ISO 22301 and ISO 22313).

The ISO 22316:2016 is named “security and resilience — guidelines for organizational resilience.” It defines “organizational resilience” as “the ability of an organization to absorb and adapt in a changing environment to enable it to deliver its objectives and to survive and prosper.”

The standard is structured around nine attributes of resilient organizations (article 5 of the standard).
The introduction of the standard adds: “More resilient organizations can anticipate and respond to threats and opportunities, arising from sudden or gradual changes in their internal and external context.”

TOC pillars and toolbox

The theory of constraints (TOC) is a systemic framework to improve operations (of whatever nature) and bring them to an elevated level of performance by setting up a continuous improvement virtuous circle. It includes tools and methodologies to design and manage these improvements. It has successfully demonstrated its efficiency in various industries like manufacturing, service, healthcare, retail and project management.

The Four Pillars of TOC

• Inherent simplicity: Even when situations seem complex, there are only a few parameters that drive the main impacts and hence, we are never helpless to improve a situation. We always have the possibility to improve. Each conflicting situation can be solved.
• Inherent harmony: There is always a win-win solution to any situation. Whatever the situation is, we can build a win-win solution that will satisfy all stakeholders without being a compromise (which will not satisfy any stakeholder).
• Inherent goodness of people: People are good. They want and try to perform at the highest possible level and if given the choice, they will choose the best solution for their organization. They think logically, so when a desirable solution is logically explained to people, they will accept it and adhere to it.
• Inherent potential: There is always space for improvement. Whatever the situation, it is possible to improve it and bring it to a higher level of performance.

The toolbox of theory of constraints

TOC is bringing several tools to support the building of resilience and of sustainability of companies by creating a virtuous circle of continuous improvement.

• The five focusing steps of continuous improvement bring a process of improving performance and optimizing the use of existing resources. It gives the necessary focus to the management to keep the organization performing at the highest level.
• The “four steps for change” is a process of deciding and managing change in a disciplined way.
• The “seven layers of resistance” details the different types of arguments used by people to resist changes. It allows getting prepared to answer those reservations and obtain the buy-in of people.

The thinking process is a set of several logical diagrams based on cause-effect relationships.

• The Current Reality Tree analyzes the current situation from the undesirable effects seen in everyday operations to determine the root causes involved.
• The Evaporating Cloud verbalizes the conflicting situations and support the search for an acceptable global solution
• The Future Reality Tree tests a solution to determine how it brings desirable effect and evaluate which side negative effect it may have.
• The Prerequisite Tree and the Transition Tree determine how to implement the selected solution.
• The Strategy and Tactics Tree describes how the vision of the company flows into the strategies applied and the operational objectives.

The power of these tools comes from their strong logic and the underlying systemic approach.

Open Organization and Agile

An open organization is structured around the sharing of ideas, knowledge, resources and skills across the organization. It supersedes any generational, department or cultural boundaries and promote a flat hierarchy, agile and self-led organizational systems for a common purpose transparently stated. This organization has been promoted by Jim Whitehurst (CEO of Red Hat) in his book “the Open Organization.” This style of organization was inspired by open-source software development.

First used as a methodology for software development, Agile then turned into a leadership and organizational style. An agile organization promotes collaboration, learning from each other, getting quick feed back from the environment and the market and adapting its strategy immediately based on this feedback, focus on quality and continuous learning, and self-organization.

How do the attributes of organizational resilience relate to TAO (TOC, Agile and Open organization)?

TOC, Agile and Open organization creates a coherent framework for the resilient business. Somehow an open agile organization aware of its constraints could be named “TAO Organization.” Somehow this brings the tools to lead calmly and confidently (somehow in a Zen mode) the company through the tumultuous context of the markets.

The nine attributes defined by the ISO standard can be related to this combination of TOC, Agile and Open organization. Let’s see them one by one.

1- Shared vision and clarity of purpose

The ISO standard defines this attribute by: “Organizational resilience is enhanced by a clearly articulated and understood purpose, vision and values to provide clarity to decision-making at all levels of the organization.”

According to TOC, the goal of every company is to “make money now and even more in the future.” This statement already includes the dimension of durability and sustainability (or resilience) of the company. Agile and open organization also need a clearly stated and shared objectives to be adopted.
TOC also provides some tools that directly relate to this attribute and support the adoption to the “TAO organization.”
The strategy and tactics tree gives the full comprehension of the destination of the company and the roadmap of how it intends to reach its destination. It gives the strategic plan that shall allow every stakeholder to understand the “purpose, vision and values” and provide clarity to how and why decision is made.
The strategy and tactics tree is an efficient tool for communication of the roadmap of the company and to create the necessary shared vision.

2- Understanding and influencing context

The ISO standard defines this attribute as “A comprehensive understanding of the organization’s internal and external environments will help the organization make more effective strategic decisions about the priorities for resilience.”

Understanding the context is the base of an agile organization. Their focus on quick feed back allows agile organizations to adapt to the market. TOC provides the necessary tools that allow the understanding and determination of how to influence the context.
The Current Reality Tree (or CRT) analyzes the current situation and context of a system.
Its construction often starts with the negative effects (named Undesirable effects) that one sees in the context of the company. Starting from this, the CRT allows to build a full analysis to uncover the root causes of the undesirable effects.
From this tree, it is possible to uncover conflicting situations creating dilemma to the management. Those conflicts are described in a diagram named an Evaporating Cloud.
Then, it is possible to deduce what element of the context is limiting the growth or the profit of the company. The next step shall be to determine a course of action to influence this context to build a more positive environment for the company. At that stage, the Future Reality Tree allows evaluating how complete the selected solution is and whether some negative side effects should be evaluated before its application.

3- Effective and empowered leadership

The ISO standard describes this attribute as: “Organizational resilience is enhanced by leadership that develops and encourages others to lead under a range of conditions and circumstances, including during periods of uncertainty and disruptions.”

The flat hierarchical organization of open organization and the adaptative organization of Agile put forward the natural leaders of the teams and it empowers them to lead the organization toward its goal. TOC does provide the necessary tools that shall help such leaders in their endeavor.
The Strategy and Tactics Tree gives to the leadership all the transparency and clarity to support their decisions and put them in the context of the company long-term plan.
Adopting the principles of TOC is also adopting the pillars of TOC (somehow they are axioms associated with TOC) and among those pillars there are two that are particularly material for leadership:

• Don’t accept conflict as a given — Every conflict can be removed
• People are good — Win-win is always possible.

Applying these principles will reinforce the exercise of leadership and open up more possibilities.

4- A culture supportive of organizational resilience

The ISO standard describes this attribute as: “A culture that is supportive of organizational resilience demonstrates a commitment to, and existence of, shared beliefs and values, positive attitudes and behavior.”

The agile organization promotes quick feed back and reaction loops and the Open organization promotes an adaptative continuous transformative process. Both strongly participate in the resilience of the company.
From the expression of the goal of companies to the four pillars, TOC is supporting the resilience of the company.
The expression of the goal of companies as “to make money now and in the future” shows how durability and sustainability of the companies are at the core of TOC.
The pillars of TOC are supporting the resilience of the organization.

• Inherent simplicity: We can always be transparent. The strategy and value of the company can always be explained simply to be clearly understood by all stakeholders.
• Inherent harmony: There is always a win-win solution to any situation. Win-win solutions bring stability and progress in the organization.
• Inherent goodness of people: People are good. People think logically. When a desirable solution is logically explained, people shall buy in and adhere to it.
• Inherent potential: There is always space for improvement. The virtuous circle of continuous improvement is one of the core methodologies of TOC and the base for building organizational resilience.

5- Shared information and knowledge

The ISO standard describes this attribute as: “Organizational resilience is enhanced when knowledge is widely shared where appropriate and applied. Learning from experience and learning from each other is encouraged.”

The sharing of information and knowledge are both at the core definitions of agile and open organizations. Without the sharing of information and knowledge, none of them are possible. TOC is adhering to the same approach as it promotes a culture of continuous improvement and harmony, and such a culture cannot exist without being built on shared information and objectives.
TOC provides the Strategy and Tactics Tree that offers the perspective on the need to share information. It gives guidelines on what should be shared with whom to reach the objectives of the company. Sharing information and knowledge is also the base of a win-win solution to develop a global optimum. All agile, open organization and TOC reject silos and departmental and cultural boundaries.

6- Availability of resources

The ISO standard describes this attribute as: “The organization should develop and allocate resources, such as people, premises, technology, finance and information, to address vulnerabilities, providing the ability to adapt to changing circumstances.”

The flexibility of agile and open organization that promote the sharing of knowledge and skills allows the organization to adapt its resource to the context according to the quick feedback it collects.
TOC supports this flexibility and brings a process of optimization of this adaptation of resources with the five focusing steps for continuous improvement. This tool creates a systemic transparency about how to exploit the resources of the company for an optimum performance. When changing circumstances create a sub optimum performance, the continuous application of the five focusing steps allows to adapt the allocation of resources and how they are exploited to get back optimum performances.

7- Development and coordination of management disciplines

The ISO standard describes this attribute as: “The design, development and coordination of management disciplines and their alignment with the organization’s strategic objectives are fundamental to enhancing organizational resilience.”

The focus on quality and continuous learning of Agile and the continual transformative process of Open organization give the flexibility but also the necessary dedication of the management of the company. The culture of openness and sharing of information promote the effortless coordination of the management practices.
TOC provides the logical thinking process, the five focusing steps of continuous improvement and of the four steps of change to the management to support the necessary discipline. The systemic methodology of TOC striving to bring global optimum, not local optimum ensures the coordination of all management initiatives across the organization.
TOC promotes a strong focus on flow instead of capacity. This reinforces the focalization of the management on cross-departmental flow of service, openness and removal of boundaries. It diverts the management from focusing on individual department efficiency of the use of available capacity.

8- Supporting continual improvement

The ISO standard describes this attribute as: “Organizational resilience is improved when organizations continually monitor their performance against predetermined criteria to learn and improve from experience and take advantage of opportunities. Organizations create and encourage a culture of continuous improvement across all employees.”

The belief that there is always space for improvement is built in the heart of TOC. One of its core methodologies is the “five focusing steps for continuous improvement” which means implementing a virtuous circle of continuous and global improvement across the organization. The continual transformative process of open organization is supporting a continuous improvement process. Besides this, agile is promoting quick feed back to adapt the organization to its context and foster quality. Both approaches are strong support to the continuous improvement process provided by TOC.

9- Ability to anticipate and managing change

The ISO standard describes this attribute as: “Organizational resilience is enhanced when an organization has the ability to anticipate, plan, and respond to change.”

The agile focus of permanent and quick feed back from the market and context provide a capacity to detect the potential changes occurring in the market and the linked undesirable effects early.
The logic thinking process of TOC is providing the necessary tools to build from this feedback a deep understanding of the necessary changes. Then, the management can anticipate the consequences brought by this modification of the environment and determine how to respond to this change.

• The Strategy and Tactics tree is the compass of the management of the company to keep the desired heading.
• By using a current reality tree, it is possible to evaluate the changes happening in the environment of the company and evaluate how they result in any adverse effect or conflicting situations.
• After determining what solution to apply, the solution can be tested logically by building a Future Reality Tree to forecast the beneficial consequences of the solution and the possible negative side effect of it.
• The four steps for change and the layers of resistance, jointly with the prerequisite tree and transition tree, allow bringing discipline and rigor in the management of the changes.

Agile, Open organization and TOC are embracing change as the norm, not as an exception.

Conclusion

The theory of constraints is often seen only as a methodology to manage bottlenecks. Somehow an after-the-fact toolbox that you can use once a problem already hits you.

Agile is often seen as a methodology of project management limited to software development.

Open Organization is often confused with Open Source and seen as a way of getting free software (which is mostly wrong).

These perceptions of those important methodologies are fragmental and limited when not fully wrong.

The Theory of constraints, Agile and Open organization can naturally be merged into a full systemic managerial approach of the organizational resilience — The TAO approach. This new approach creates a performing company able to grow in the turmoils of the world crisis economy, and multiply its chances of survival. They are the “operating system” of the 21st century resilient company.

TAO (the combination of theory of constraints, agile and open organization) constitutes the perfect fit to the requirements of the ISO 22316: organizational resilience. They are valuable tools and methodologies to build resilience in a structured and sustainable way.

Adopting such an approach shall allow you to increase your level of global performance without compromise, while building the resilience that shall ensure the future of your company.

This article has been published also on Linkedin

Didier Varlot
Senior consultant in Business Continuity and Theory of Constraints, Owner and CEO of SNTC.
Didier, based in Romania, has practiced the Theory of Constraints for the last 25 years in several industries from railway industry to healthcare services, from chemical industries to green energy supply.
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