Explore

TOC and Antifragile Organisations

Studying Throughput Economics (TE) led me to think more about the management decision making on the financial side of the things that led to organisational success / failure.

TOC at very high level attacked 2 aspects of the conventional wisdom.

1. Local Optima leads to Global Optima

2. Cost Accounting, specially unit costs of the product can be used as a basis to evaluate the performance of firm in a specific time period

TE / Throughput Accounting (TA) led me to the study of Throughput (T), Truly Variable Costs (TVC), Operational Expenses (OE) and Investment(I) as per the TOC principles.

When I contacted, Henry Camp and Eli Schragenheim, both authors of the book “Throughput Economics”, trying to clarify on the validity of considering per square feet (a unit cost) as basis for decision making in the real estate development that we are currently into, I got the following responses:

Eli clarified that if the per square feet cost has a majority of expenses which are truly variable in nature, then there is no harm in basing my management decisions on the same.

Henry clarified the same but in addition mentioned that having majority of costs as Truly Variable in nature makes the organisations fragile in the face of significant impacts to their sales volume, unless they can and are uninjured by quickly reducing OE in a downturn.

This mention of fragility by Henry made me pivot to understand more in that direction as I recently read the book “Antifragile”, written by Nicholas Nassim Taleb wherein he talks about things that gain from Disorder / Volatility.

Also, I have remembered that Dr. Alan Barnard through his presentation below connected the ideas of Antifragile with TOC principles in a brilliant way. So, I went through that presentation again.

Source:

2015 TOCICO article:

⁠

What does not kill us, makes us stronger. - Theory of Constraints International Certification Organization⁠

⁠

2016 Presentation:

⁠

The below snippets made me think about we should behoove a company’s cost structure to become Robust or Antifragile.