Due to a h igh ly uncer t a inenv ironment and rapid lychanging markets , execu-tives are facing ever-increas-ing pressure to st rateg ize

and improve organizational performance.They are constantly experimenting withdifferent strategies (e.g., cost reduction,produc t iv i t y improvement , f l ex ib leautomation, and marketing innovations).From 1992 through mid-1996, 163 CEOsof For tune 500 companies must havebeen working on the wrong strategies,because they were fired. 1 Kendall statedthat many CEOs fail not because of thewrong strategies per se but because of thebad execut ion of the i r s t r ateg ie s . 2

Mintzberg argued that real strategies are

more likely to be made informally, oftenin real time. John Browne, CEO of BritishPetroleum, adv ised that no advantageand no success is ever permanent. 3 Thew inners are those who keep mov ing .Michael Del l , CEO of Del l Computer,once suggested that the only constant inour business is that every thing is chang-ing. We have to be ahead of the game. 4

Organizat ions have not been able toinvent appropriate strategic initiatives fastenough to stay abreast of nimble rivals.Many strategists have recently challengedthe universal appeal of traditional strate-gic concepts, arguing that the disciplineof strategy is at the point where it needsto explore new ways of making sense ofwhat strategy is and how it works. Pro-

BALANCEDSCORECARDAND

THEORYOF

CONSTRAINTS:ASYNERGISTIC

FRAMEWORKMAHESH GUPTA

MAHESH GUPTA i s a professor in the Depa r tment of Ma na gement , Universi t y of Loui sv i l l e . He obta ined hi s MComfrom the Universi t y of Jammu (Indi a ) , MSc f rom the Universi t y of Ma ni toba (Ca na da ) , a nd Ph.D. f rom the Uni -versi t y of Loui sv i l l e . Dr. Gupta ’s a rea s of exper t i se a nd interest include eva lua t ing a nd improv ing orga ni za t i ona lper forma nce by using ma na gement phi losophi es ( e . g. , Ju st - in-Time, Act iv i t y-Ba sed Mana gement , Theor y of Con-st ra int s , Qua l i t y Ma na gement , Ma rket Or i enta t i on) . Dr. Gupta ha s worked ex tensively w i th loca l compa ni es a ndpubl i shed hi s work in numerous journa l s , including Cos t Management , Inte r nat iona l Jou rna l o f Oper at ions andProduc t ion Management , Internat iona l Journa l of Produc t ion Research , European Journa l of Operat iona l Research ,a nd Produc t ion and Inventor y Management Journa l .

In their quest to improve organizational per formance, many businesses are adopting newer

methodologies, such as the balanced scorecard and the theory of constraints.

MAY/JUNE 2012 COST MANAGEMENT 1

......................................................................................

t ives. The BSC provides a mechanism tolink a firm’s business (long-term) strat-egy with its short-term actions/decisionsin var ious funct ional areas. Thus, theBSC proposes to build consensus aroundthe firm’s vision and long-term businessstrategy by translat ing its strategy intoa coherent set of performance measuresand by aligning the business operat ionsof a f i rm w ith i t s overa l l s t rateg y. Itenables managers to monitor the strat-egy execution and, if necessary, to adjustappropr iate measures to produce thedesired effect. 16

Business strategy. A firm formulates itsbusiness strategy in relation to the com-petit ive forces in its industr y. 17 Differ-ent i at ion and cos t l eadersh ip aresuggested as two basic business strate-gies that enable a firm to outperform itsindustr y competitors. Some importantcomponents of cost leadership strategymight include construct ing ef f ic ient-scale faci l it ies, emphasizing operat ingeff iciency, and v igorously control l ingand reducing costs and overhead. TheBSC communicates the chosen strategythroughout the organizat ion, sets pri-orit ies for specific strategic init iat ives,al locates resources optimally, and pro-motes learning v ia monitor ing shor t-term results. 18

Past research on business strategy sug-gests that a well-managed firm has a mis-s ion s t atement , a genera l bus ines sstrategy, and consistent functional strate-gies to cover major business act iv it ies.An assessment of BSC from a functionalstrategies perspect ive reveals that eachof the four perspect ives highly corre-sponds to a specific functional area. Thefinancial perspective corresponds to thef inance func t ion , the cus tomer per -spect ive to the marketing function, thelearning and growth perspect ive to thehuman resource function, and the inter-nal business process perspect ive to theoperat ions function.

The financial perspective answers thequest ion: How does the company look tosha reholders? This perspect ive repre-sents the long-term object ives, presum-ably consistent with the chosen businessst rategy. The most common financia lmeasures may include net profit, return-

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COST MANAGEMENT MAY/JUNE2012 SYNERGISTIC FRAMEWORK2

fessor Pascale from Oxford Universitycontends that a new strategic planningapproach must ensure successful exe-cut ion of strategic init iat ives. He fur-ther cautioned that the next big initiativemight init ial ly seem strange and inac-cessible.5 Two such relatively new strate-gic initiatives are the balanced scorecard(BSC) 6 and the theor y of const ra ints(TOC).7 Although a number of papers havementioned these management philoso-phies in the same breath, 8 no one hasasked whether these phi losophies canbe used simultaneously and what theircommon element s are . Th i s paperaddresses these quest ions.

The balanced scorecard has receivedsignificant attention because of its highlypubl ic ized, successful appl icat ions incompanies such as Rockwater, AppleComputer, and Advanced Micro Devices.9

However, it has also invited a fair shareof critics. For example, empirical supportfor these claims is limited and not con-clusive. 10 The need to have a scorecardthat is balanced is questioned.11 The BSCis a stat ic model without the dimensionof t ime that could establish sequentialset-up of BSC measures. 12 The cause-effect relationships among performancemeasures grouped in four perspect ivesare not connected through time.13 The term“intangible assets” used to define inno-vation and learning perspective is “incom-plete, inconsistent and potential ly veryconfusing.” 14

In this paper, we suggest that the TOCcan alleviate some of the problems appar-ent in these cr it icisms of the BSC. Byidentifying common elements and explor-ing their inter-relat ionships, we showhow TOC and BSC initiatives complementeach other and can work together toimprove organizat ional performance.

Overview of the balanced scorecardperspectivesThe BSC is an integrated multidimensionalcontrol system that consists of perfor-mance measures from four perspectives:financial, customer, innovation and learn-ing, and internal business process.15 BSCbelieves that there is a cause-and-effectrelat ionship among these four perspec-

includes things like mentors and tutorswithin the organizat ion as well as easeof communication among workers, whichal lows them to readi ly get help whenneeded. 19 Depending upon the chosenstrategy, a firm needs to improve employ-ees’ skills appropriately and incorporaterelated measures from this perspect ive(e .g . , produc t or process innovat ionrelated measures might be included forthe differentiat ion strategy).

The integ rat ion of these four per-spect ives into a graphical ly appealingpicture has made the BSC method a verysuccessful methodology.Working throughthe BSC process enables management todefine those key perspectives that will drivethe business to success. The BSC helpsorganizations align multiple strategies fromvarious functions to the organizat ionalstrategy by linking their deliverables tothose key perspec t ives that dr ive thebusiness.

Since strategy is a complicated issue,management in organizat ions use theBSC methodology to map the key driversof the business and set cause-and-effectrelationships between those drivers. Oncethe cause-and-effect relationship is estab-lished, managers can identify the cor-rect means to measure those businessdrivers. The BSC translates the organi-zat ion’s s t rategy into understandablegoals and object ives and helps commu-nicate them to everybody in the orga-n i zat ion in a way that they canunderstand. In short, BSC provides man-agement with a comprehensive pictureof business operat ions and their mostcurrent performance.

Overview of the theory of constraintsdimensionsDr. Goldratt informally introduced histheory of constraints in business novelThe Goa l 20 and later formally discussedi t s under ly ing theor y and thoughtprocesses . 21 In essence , the TOC hasevolved from its humble beginning as ascheduling methodology to an organi-zat iona l mindse t over the pas t threedecades. TOC literature has identified threedimensions of TOC, labeled as the 3 M’s:Methodology, Measurements, and Mind-

SYNERGISTIC FRAMEWORK MAY/JUNE2012 COST MANAGEMENT 3

on-investment, and cash f lows. If thechosen business strategy is differentia-tion, the firm might emphasize sales vol-ume (an aspect of net profit). Thus, theBSC does not disregard the tradit ionalneed for financial data, but the currentsole emphasis on financials leads to an“unbalanced” situat ion with regard tothe other perspect ives. BSC attempts tonullify that unbalanced situat ion.

The customer perspective answers thequestion: How do customers see the firm?This perspective represents the customersat isfact ion and retention-related mea-sures, tai lored to be consistent with thechosen business strategy. If the chosenbusiness strategy is differentiat ion, thefirm might emphasize measures such asquality and flexibility, as required by thecustomers. Recent management initiatives(e.g . , total qualit y management) haveshown increas ing rea l i zat ion of theimportance of customer focus and cus-tomer sat isfact ion; if customers are notsat isfied, they wil l eventually find othersuppliers that will meet their needs. Poorper formance f rom this perspect ive isthus a leading indicator of future declinein profitability, even though the currentfinancial picture may look good.

The interna l bus iness process per-spective answers the question: The com-pa ny must excel a t which businessprocesses? Measures based on this per-spect ive al low managers to know howwell their business is running and whetherthe products/services conform to customerrequirements from the customer’s per-spective. Thus, when the firm excels withrespect to these measures, customers aresat isf ied, which in turn leads to prof-itability. Again, depending upon the cho-sen business strategy, a firm’s measureswil l highlight crit ical skil ls and uniqueprocess capabilit ies.

The learning and growth perspect iveanswers the question: How will the a sso-cia tes (employees or people) continue toimprove and create va lue? This perspec-tive includes measures related to employeetraining/learning to innovate and incor-porate cultural att itudes related to bothindiv idual and corporate self-improve-ment. Kaplan and Norton emphasize thatlearning is more than training; it also

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set; the 3 M’s also capture the evolut ionof TOC over t ime. 22

At the heart of TOC methodology isa five focusing steps (FFS) improvementprocess. The first step is to identify theconstraint(s), arguing that a system isonly as strong as its weakest link. Sec-ond , dec ide how to exploi t the con-straint(s) (i.e., optimize the constraintre source and ensure the cons t r a intresource is used creatively and efficiently).Third, subordinate every thing else to thecons t r a int ( s ) ( i . e . , non-cons t r a intprocesses should not produce more thanneeded by the constraints, should haveidle capacity, and may be retrained tooff-load constraint’s work). The fourthstep is to elevate the system’s constraint(s)(i.e., to make addit ional investment inorder to acquire more of the constraintresource or outsource the work). Finally,in step five, go back to step one, but donot al low inert ia to cause a new systemconstraint. The first three steps involvetactical decisions (e.g., optimal productmix, production scheduling, and pric-ing) to ensure optimizat ion of the con-straint and alignment of non-constraintprocesses. Steps four and five have thepotential to make management of con-straint(s) a strategic decision (e.g., acquir-ing more capac i t y of the cons t r a intresource).23 Later, we use this FFS processto evaluate the effect iveness of the pro-posed framework.

((IInnsseerr tt EExxhhiibbii tt 11 hheerree))TOC argues that the convent iona l

financial accounting measures (e.g., netprofit, return-on-investment) are goodfor external purposes (e.g., sharehold-ers’ v i ewpoint ) but of fe r no he lp toemployees working at various organiza-tional levels to assess the impact of their

decisions. Consequently, the TOC pro-poses three global measures: Through-put, Inventory, and Operat ing Expenses(TIOE). 24 Throughput (T) is “the rate atwhich a system generates money throughsales” (i.e., sales revenue—material costs).Inventory (I), also referred to as Invest-ment, is “the money that a system hasinvested in purchasing things it intendsto sell,” including work-in-progress, fin-ished goods, and other assets the com-pany might have. Operat ing Expenses(OE) is “the money a system spends toturn inventory into throughput,” whichincludes all expenses (e.g., salaries, util-ity expenses, rent, etc.) except truly mate-rial costs. Exhibit 1 shows an intuitive viewof these measures in terms of f lows ofmoney ( i .e. , throughput is the moneycoming into the organization and inven-tory is the money currently inside thesystem, while operat ing expense is themoney going out of the system). Theexhibit a lso shows a cause-and-effec trelationship with conventional financialmeasures. For example, net profit equalsthroughput minus operating expenses. Gol-drat t a rgues that TIOE measures areglobal in nature, applicable across func-t ional areas of any business, and finan-cial in nature; they measure the impactof decisions/act ions on the overal l sys-tem’s performance in an unambiguousmanner. Later, we show how these mea-sures and their variants can be comple-mented in the ba lanced scorecard toenhance the decision-making process ofa company.

Final ly, the mindset of the organiza-t ions refers to the underly ing thoughtprocess managers use to operate theirbusiness. TOC challenges the prevailinglocal ized-eff iciencies-dr iven mindset,

4 COST MANAGEMENT MAY/JUNE2012 SYNERGISTIC FRAMEWORK

Exhibit 1 TOC Operational Performance Measures

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5SYNERGISTIC FRAMEWORK MAY/JUNE2012 COST MANAGEMENT

termed as cost-world thinking (CWT),by emphas iz ing the cons t ra int -opt i -mizat ion-dr iven mindse t te rmed a sthroughput-world thinking (TWT). TWTmanagers focus on the overarching goalof a for-profit company : to make moneynow as well as in the future in terms ofcreat ing organic growth. Relat ing TOCmindset w ith measures , Goldratt andCox argued that decisions result ing insimultaneous increase in throughput andreduct ion in inventor y and operat ingexpenses are the most desirable ones inthe TWT mindset, 25 and such decisionsare possible by following the FFS method-ology described above. 26 In short, thismindset unambiguously assigns highestprior ity to increasing throughput andlowest pr ior it y to reducing operat ingexpenses. Goldratt highlighted the factthat the TOC mindset fur ther assumesat least two addit ional goals: 27 (i) pro-viding a secure and sat isfy ing environ-ment for employees now as well as in thefuture and (ii) ensuring sat isfact ion tothe market or customers now as well asin the future. These three goals are inter-related since any can be considered thegoal as long as the other two goals areregarded as the necessary condit ions ofdoing business. However, TOC l itera-ture draws a distinction between the goaland the necessary condit ions, suggest-ing that the goal is indeterminable orinfinite (i.e., something we continuallywant more of ), whereas the necessar y

condit ions must be at some thresholdlevel. 28 For this reason, the TOC explic-it ly assumes that the goal of for-profitorganizat ions is to make money.

In the following sections, we show thata TOC-based framework helps what Bei-hhocker and Kaplan labeled as building“prepared minds”—that is, “to make surethat decision makers have a solid under-standing of the business, i ts s t rategy,and the assumptions behind that strat-egy.” 29

A synergistic framework: Performanceoptimization triangle (POT)In discussing the benefits of a l igningBSC measurements with TOC practices,Hil l explains that although the BSC cre-ated a strategic alignment through inter-connected measures in the TBG Company,the BSC did not create a strategic focusin terms of the means of driving continuousimprovement by focusing the organiza-t ion on the few crit ical areas that mostneeded improvement. 30 To quote Hil l ,“In theory, Balanced Scorecard says thatmeasurements should change as it makessense for them to change. The problemis that it does not build a process thatrequires that change to occur. It doesn’tdemand that you are always focusing onwhat the dr iver of the business is . Wediscovered that TOC inst itut ionalizesthis focus.” 31

((IInnsseerr tt EExxhhiibbii tt 22 hheerree ))

Exhibit 2 Performance Optimization Triangle

This ar t icle builds on this notion andfur ther expands this l ine of thinking.Specifically, we suggest that the BSC canhelp organizations focus their energy onbusiness priorit ies, while the TOC canhelp ident i f y and manage the sys temconstraints. Exhibit 2 shows BSC ele-ments in consonance with the 3 M’s ofTOC as a strategic tr iangle. This pro-posed framework draws parallels amongthe BSC perspectives and TOC elements;the financial perspective of BSC is aboutmaking money, whereas the customerperspective is about market satisfaction.The core of the tr iangle consists of theinternal business perspect ive, while theother three perspect ives form the threeaxes of the tr iangle. The rat ionale forkeeping internal business perspective atthe center is that it consists of the valuechain of a business where strategic deci-sions (e.g., new product development, out-sourcing, product mix, investment) aremade, which, in turn, influences the otherthree perspect ives of BSC.

Furthermore, the framework proposesthat the firm’s value chain is managed usingthe five focusing steps of TOC. Doing soaccomplishes the fol lowing:• Encourages employees to explore

innovative ways to exploit con-straints and subordinate otherresources to such innovative deci-sions (i.e., strengthening learningand growth perspect ive);

• Provides new as well as exist ingproducts/serv ices in a t imely man-ner to the customers’ sat isfact ion(i.e., strengthening customer per-spect ive); and

• Ensures continuous wealth creat ion(i.e., strengthening financial per-spect ive).The framework supplements the BSC

perspect ives with TOC measures (i.e.,TIOE) and enables managers and otheremployees to evaluate the impact of theirdecisions from BSC perspectives. In someways, these measures play an importantrole when evaluat ing various businessdecis ions f rom BSC perspect ives. Forexample, an increase in throughput dueto a bus iness dec is ion (e .g . , produc-ing/se l l ing an opt ima l produc t mix)implies the business unit has sold moreproducts/services; thus, throughput canbe v iewed as a measure from the cus-tomer perspect ive. Similarly, a reduc-t ion in inventor y and/or operat ingexpenses because of a business decision(e.g., purchasing/releasing the optimalquantity of raw materials in the system)implies ingenuity of the employees toimprove the ef f ic iency of the system,which will therefore have a positive effecton the learning and growth perspective.

((IInnsseerr tt EExxhhiibbii tt 33 hheerree ))Exhibit 3 demonstrates that TIOE mea-

sures can be used further to derive morerelat ive measures f rom a specific BSCperspect ive (e.g., productiv ity is calcu-lated as a rat io between throughput andoperat ing expenses). Similarly, inven-tory turnover is a ratio between the num-ber of units shipped per quar ter andwork-in-progress. Both of these mea-sures can serve as internal-business-per-spect ive measures. Exhibit 3 also showsa set of other measures relevant f romthe BSC perspect ives. 32

In summary, the proposed synergis-t ic framework envisions that TOC per-

Exhibit 3 Derived Performance Measures from BSC perspective

COST MANAGEMENT MAY/JUNE2012 SYNERGISTIC FRAMEWORK6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

formance measures be used to evaluatebusiness decisions, unleashing employ-ees’ creativity to exceed customers’ expec-tat ions (current and latent) and therebyensuring financial success of the busi-ness unit, complet ing the loop back toemployees feeling secured and satisfied.We now show how this framework can beimplemented using a well-known exam-ple from TOC literature. 33

((IInnsseerr tt EExxhhiibbii tt 44 hheerree))

A case study: The PQ companyThe PQ Company offers two products(P and Q) to the market and employsfour resources (A, B, C, and D).34 Exhibit4 (a panel of the Excel model explainedlater) prov ides more spec i f ics of theproducts and processes (e.g . , processflow, operation times, raw material costs,weekly demands, and sel l ing prices) ofthe PQ Company. For example , i t i sassumed that each quarter there is a max-imum demand for 1,300 (100 units/week)uni t s o f Produc t P and 650 (50units/week) units of Product Q. ProductP is assembled at Resource D by assem-bling one part (PP) that is purchased atthe cost of $5 and two par ts that aremanufactured in-house. Each of the man-ufactured parts for Product P is processedfrom purchased raw materials, RM1 andRM2 (each at a cost of $20 per unit), andeach undergoes dis t inc t processes inResources A, B, and C before they areassembled at Resource D (e.g., Resource

A processes one unit of RM1 for 15 min-utes, and then Resource C processes thepart for 10 minutes). In addit ion to thecost of the raw materials and purchasedparts, it takes $6,000 each week to oper-ate this system. The operat ing expenseof $6,000 includes all the period expenses(e.g . , the sa lar ies/wages of employeesand ut i l ity expenses).

In the original PQ Company case study,Goldratt assumes that it is a perfect com-pany with deterministic basic input vari-ables (e.g., product demand level, sellingprice, operation times, etc.).35 However, ina real company there is significant vari-ability associated with the input variables.Consequently, we now discuss an Excel-based model of this company that considersvariat ion explicitly and then simulatesthe impact of various decisions on thecompany’s performance for a quarter.

An Excel-based model of the PQ Com-pany is developed and div ided into sev-eral panels. Only two panels (Exhibits 4and 5) are of pr ime interest f rom thedecis ion-making v iewpoint presentedin this paper. Exhibit 4 shows the prod-uct-process flow chart of the companyand some summary results of one exper-iment represent ing a t ypical scenar io(termed as “Base Run”), with given aver-age and standard dev iat ion values forthe basic input variables. For example,it shows quarterly demands (1,300P and650Q), shipments (955P and 477Q), andraw material releases for Products P andQ (1,300RM1, 1,300RM2 and 650RM2and 650RM3, respec t ively) as wel l as

Exhibit 4 The Product-Process Flow Chart of the PQ Company (A Base Run)

SYNERGISTIC FRAMEWORK MAY/JUNE2012 COST MANAGEMENT 7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

work-in-progress (WIP) inventor y ofeach operat ion type (if any) in front ofeach resource (e.g., 345 units in front ofResource B and Resource D for ProductP). The circled data is the basic deter-minist ic input variables (from the orig-inal case study). Following the suggestedapproach in Gupta and Boyd, the modeltreats these as mean values and allows themanager to inject variability by provid-ing standard deviat ion values generatedrandomly. 36

((IInnsseerr tt EExxhhiibbii tt 55 hheerree))Exhibit 5 shows another panel of the

Excel model , which elaborates on theresults of a Base Run from the four BSCperspect ives for one quarter, as well asaverage quarterly results simulated over1,000 runs using the formula shown inExhibit 3. The Excel model employs theF9 key (the recalculate function in Excel)to create new results each time any changein the input variables is made. Pressingthe F9 key one time runs the model againwith new random numbers as input vari-ables and changes the results becausethere is variability built into the model.We note that the quarterly results changesignificantly (representing randomness)each time the F9 key is pressed. However,the quarterly results averaged over 1,000runs do not change as much, represent-ing steady state performance for the givenset of input variables. The results aver-aged over 1,000 runs, therefore, are usedto evaluate the effect iveness of the spe-cific decisions discussed in the next sec-tion. The Excel model of the PQ Companywas ver i f ied by compar ing the modelresults shown in Exhibit 6, column “Ver-ify” (obtained by assuming zero var i-abi l it y as shown in Exhibit 7, column“Verify”) with analytical results availablein the published literature. 37

In order to accentuate the pecul iarnature of the proposed framework, we ana-lyze a set of decisions:1. Product-mix decision (representing

marketing function);2. Make-buy decision (purchasing

function);3. Process improvement decision

(operat ions funct ion); and4. Investment decision (finance func-

t ion).We discuss the results of these func-

t iona l dec is ions as a par t of the f ivefocusing steps of TOC to manage oper-at ions and demonstrate how the pro-posed decis ion-making f ramework isconsistent with BSC perspect ives.

Scenario base run—Identify the systemconstraint(s)Under the proposed framework, the deci-sion-making process starts with the iden-t i f i cat ion of sys tem cons t ra int ( s ) . Aconstraint can be any factor, aspect, orresource that restr icts the performanceof a company from the customer, com-petitive, or profit viewpoint.38 TOC statesthat al l companies possess at least oneconstraint, and the number of constraintsvar ies f rom one (most ly) to a few (atbest) depending upon the factors affect-ing the business’s grow th. These con-straints can be physical, such as machinecenter or scarcit y of raw mater ia l , ornon-physical, such as a policy or procedureor market demand in nature. 39

In the PQ Company, Exhibit 6, col-umn “Identify” shows the quarterly resultsfrom the four BSC perspectives for a typ-ical scenario (termed base run) repre-sent ing a t ypica l company seeking toimprove its performance. We note thatthe company is losing money ($6,864.3),customer ser v ice rates are around 70

Exhibit 5 Results of a Typical Scenario (A Base Run)

COST MANAGEMENT MAY/JUNE2012 SYNERGISTIC FRAMEWORK8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

percent for both products (74 percent;73 percent), and inventory turnover is 2.78.Under the proposed framework for deci-sion-making, the manager must first andforemost identify the most binding con-straint l imit ing the company’s ability toaccomplish the goal. Exhibit 4, a panelof the Excel model discussed ear l ier,shows that the company is producingand shipping 957P-477Q products andis not able to fulfi l l the expected quar-terly market demand of 1,300P-650Q.Resource B is the system’s binding con-straint with the highest ut i l izat ion rate(99.5 percent). In a real company, con-straints are deceptively easy to identifyby the fact that piles of inventory awaitprocess ing by a const rained machineand that most of the t ime expeditorsrush to this process to get late ordersprocessed on a priority basis. Exhibit 4also shows the WIP inventory in front ofResources B and D. The reasons for WIP(e.g., 343 units in front of Resource D

for Product P) can also be traced backto Resource B ( e . g . , wa i t ing for theprocessed RM2 from Resource B to arrivefor assembly).

Scenario exploit—How to exploit thesystem constraint(s)Exploi t ing the cons t r a int s such a sResource B in the PQ Company meansmanagement identifies ways for gett ingmaximum product iv ity f rom the con-straint and making al l funct ional areasand work centers aware of its effects onthe per formance of the system. 40 Theprime focus at this step is to take advan-tage of the exist ing capacity at the con-straint. We envision that employees acrossthe company are encouraged to makedecisions (e.g., product-mix decision,process improvement decisions) in sucha way that throughput of a s y s temincreases without any increase (or, bet-ter, with a decrease) in operating expen-

Exhibit 6 Comparative Results Across Various Scenarios

Exhibit 7 :Policy Variable Settings Across Various Scenarios

SYNERGISTIC FRAMEWORK MAY/JUNE2012 COST MANAGEMENT 9

COST MANAGEMENT MAY/JUNE2012 SYNERGISTIC FRAMEWORK10

diture or inventor y. If conceived andpursued, such innovative init iat ives canbe v iewed from the learning and growthperspect ive. We g ive two examples ofsuch decisions commonly discussed inTOC literature.

Product-mix decision. Under the pro-posed decision-making framework, prod-uct-mix decisions are made only af tereveryone is aware of the locat ion of theconstraint and its impact on the goal ofmaking more money. Since any loss of timeon a constraint is a loss in the system’sthroughput, the manager must alter theproduct mix in such a way that ever yminute available in constraint is utilizedto meet the company’s goal. Also, priorityshould be given to the products whosethroughput (i.e., selling price minus rawmaterial costs) per constraint resourceminute is the highest. The throughput perconstraint minute for Product P (($90-$45)/15) is $3/unit, which is greater thanthat of Produc t Q ( ($100-$40) /30=$2/unit). Hence, the company shouldproduce al l 100 units of P first and thenuse any remaining capacity of ResourceB to produce about 30 units of ProductQ on a weekly basis. Doing so earns themaximum feasible profit of $3,900 perquarter (or $300 per week).

Finding the opt imal product mix ispossible under the proposed framework,since everyone is assumed to understandthe importance of optimizing the con-straint. In real world situat ions, i f wemust do whatever it takes to sat isfy themarket (e.g., fulfill unmet demand for 20units of Q at any cost), everyone mustat least be aware of the opportunity lostby not making the optimal mix. For exam-ple, the market ing manager may decidenot to promise more of Product Q.

Exhibit 6, column “Exploit1” showsthe quarterly results from the four BSCperspect ives for such a scenar io, exe-cuted using the Excel model of the PQCompany. Exhibit 7, column “Exploit1”shows the policy var iables sett ings inthe Excel model. We note that the com-pany is now losing only $1,667 (com-pared to $6,864.3 in the base run, shownin Exhibit 6 , column “Ident i f y”) , andcustomer service rates reach a maximumfor Product P and for Product Q, reflect-

ing a 47 percent unmet demand. Inven-tory turnover is 4.62 and productivity hasincreased to 0.98, compared to 0.91 inthe base run.

Pricing decision. Under the proposedframework, the pr ic ing decis ion, andthereby product-mix decision, is madeby keeping the constraint in focus. Inother words , the u se of the produc tthroughput concept (selling price minusonly t ruly var iable costs , such as rawmaterial costs) instead of the productcost concept (the a l locat ion of directlabor and overhead costs to the prod-uct) is employed.41 Such decisions can becounter intuit ive f rom the t radit ionalperspect ive.

For example, assuming a direct laborcost of $10/hour and an overhead rate of150 percent of direct labor costs, we seethat per-unit product costs for P and Qare, on average, $70 and $60.8 (assum-ing no variability in the operation times).Therefore, profit per unit is $20 ($90-$70)and $39.2 ($100-$60.8). Even under theassumptions of act iv ity-based cost ing(ABC), per-unit product costs wil l sug-gest that Product Q should be preferredover Product P. On the contrary, onceResource B is identified as a constraint,the product-mix decision should be madebased on the analysis of the through-put-per-constraint minute. That is, Prod-uct P should be preferred over ProductQ because throughput per const raintresource minute is $3 for Product P and$2 for Product Q (as shown in the pre-vious sect ion).

Similarly, pricing decisions can alsobe counter intuit ive because the con-ventional approaches wil l suggest al lo-cation of direct labor and overheads intothe computat ions of product cost, andthereby product price, whereas the TOC-based proposed framework suggests thatonly truly var iable costs (such as rawmaterial costs) and the usage of the con-st raint resource should inf luence theproduct pricing decision.

Process improvement decision.Under the proposed framework, the man-ager targets the constrained Resource Bfor process improvement in order toincrease the throughput of the plant. Ingeneral, effective supervision of the con-

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straint should be made using quality-c i rc le teams . Such a team meet s f re -quently to analyze constraint ResourceB. The team assesses al l act iv it ies andoperat ions of constraint to increase theoutput of the plant in various ways. Forexample , e ach of these ac t ions c animprove the work flow—making the con-straint work incessantly, never al lowingdefective parts to be processed on the con-strained machine, and not allowing prod-ucts to be processed on the constraint forinventor y purposes . Such focusedimprovement init iat ives s igni f icant lyincrease the capacity of the constraintresource and result in an increase inthroughput and net profit of the company.Exhibit 7, column “Exploit2” shows thepol icy var iables set t ings in the Excelmodel. In “Exploit1” scenario, we haveassumed that operat ions t ime variabil-i t y i s two minutes on the cons t ra intprocess compared to four minutes onother processes and that resource capac-ity variability is 75 minutes on the con-straint process compared to 150 minuteson other resources (see Exhibit 7, col-umn “Identify”).

For this scenario, Exhibit 6 “Exploit2”shows that even though more and bet-ter improvement opportunities are avail-able for other operat ions and on otherresources , focusing on the constraintgives us the best results. Exhibit 6, col-umn “Exploi t2” shows the quar te r lyresults from the four BSC perspect ivesfor such a scenario, executed using theExcel model of the PQ Company. We notethat the product mix produced is 1300P-390Q, result ing in a net profit of $3,640,customer serv ice rates reaching maxi-mum (100 percent) for Product P, and 60percent unmet demand for Product Q. Wenote that l ead t ime for Produc t Q i sreduced to 8.67 from 16.47 in the pre-vious scenario (reflecting an increase inthroughput and reduction in WIP). Inven-tory turnover is 7 due to the fact thatthe quantity shipped has increased, work-in-progress is reduced, and productiv-ity has increased to 1.0457.

Scenario subordinate—Subordinateeverything else to the above decision

Once the constraint is ident i f ied andexploited in the first and second steps,the purpose of s tep three of the f ivefocusing steps is to evaluate the effectsof var ious local decisions influencingnon-constraint resources on the globalgoal of making more money. It impliesthat al l non-constraint resources are tobe subord inated to the cons t r a inedresource and ut i l ized instead of merelyactivated. Utilization of non-constrainedresources is accomplished by ensuring ther ight quant i t ie s of r aw mater ia l s areordered from suppliers and released tonon-constraint resources to arr ive justin t ime to the constraint resource. 42 Wediscuss two such decisions in this sec-t ion.

Synchronize the flow. Following theproposed framework, the PQ Companymakes a dis t inc t ion between the ut i-lization and the activation of a resource.Activation of a non-constraint resourceimplies that it is releasing parts to pro-duce that w il l just sit in front of con-straint. Thus, non-constraint ResourceA receives the work just in t ime and injus t the r i ght quant i t i e s ( i . e . , 100units/week of RM1 and 30 units/weekof RM3) so that the constraint resourceis opt imized. Therefore, the companyencourages g lobal eff iciencies insteadof localized ones.

Exhibit 7, column “Subord1” showsthe policy variables sett ings in the Excelmodel. Specifically, we control the releaseof raw material into the system and orderraw material just in t ime. Exhibit 6, col-umn “Subord1” shows the quar te r lyresults from the four BSC perspect ivesfor such a scenario, executed using theExcel model of the PQ Company. We notethat the product mix produced remainsunchanged at 1300P-390Q, but operat-ing expenses are reduced by $260 due toreduction in WIP inventory (the modelassumes WIP inventory holding cost of$1/uni t ) , re su l t ing in a ne t prof i t of$3,900. Similarly, ROI goes up to 8 per-cent. Since there is no WIP in the sys-tem, lead t ime i s zero and inventor yturnover is undefined. Overal l , the PQ

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Company cont inues on the path ofimprovement.

Focused training/cross-training. An alter-nate way of subordinating the non-con-s t r a int re source to the cons t r a inedresource is to make cross-training andoff-loading decisions. 43 Under the pro-posed framework, once the flow is syn-chronized, it becomes obvious that thelevel of ut i l izat ion of a non-constraintresource is controlled by the constraintsof the company. It is conceivable thatemployees at a non-constraint resourcewith new-found unused capacity iden-t ify new ways to off-load the work fromconstraint Resource B to non-constraintResource D (see Exhibit 4), which therebyimpacts company performance from thelearning and grow th perspect ive. Forexample, a scenar io can be conceivedwhere Resource D might take nine min-utes to perform Operation DQ instead offive minutes for Product Q (current state),as concerned employees learn and retrainthemselves to perform new operat ions.

Exhibit 6, column “Subord2” showsthe quarterly results from the four BSCperspect ives for such a scenar io, exe-cuted using the Excel model of the PQCompany. We note that the product mixproduced is 1300P-507Q (an increase of117 units of Product Q over a quarter).We note a handsome jump in measurescorresponding to al l four perspect ives.Lead t ime for Product Q has increasedfrom zero to 3.67 (due to the fact that thereis an unmet demand of 143 units of Prod-uct Q and the WIP inventory is in the sys-tem). Overall, the PQ Company is on thepath of continuous improvement.

Scenario elevate—Elevate the system’sconstraint(s)Elevat ing the const ra ints , the four thfocusing step, involves the decision toincrease the overal l capacity of the con-straint resource and, general ly speak-ing, results in purchasing more of theconstraint resource t ime. The decisionis made if purchasing resource t ime wil ldefinitely generate a posit ive through-put for the company. Thus, unlike theprevious two steps, decisions at this stepinvolve some increase in inves tment

and/or operat ing expenses to increasethe capacity of the constraint resource.

Conventionally, an investment deci-sion is justified using sophisticated finan-cial tools (e.g. , Net Present Value andInternal Rate of Return) and is consid-ered attract ive if an investment leads tocost sav ings and/or a potential increasein future throughput. It is conceivable that,because of the market pressure, unmetdemand for products is fulfilled by incur-ring some overt ime or acquir ing addi-tional capacity of the apparent constraint,which may or may not be the most bind-ing constraint. Some decisions perceivedas attract ive fol low.

Make vs. buy decision.In the proposed POT framework, whereeveryone is aware of the constraint, manydecisions become easy to evaluate with-out doing any computations or even run-n ing the Exce l mode l . For example ,suppose that the company manager hasfound a ver y good source where animproved or modified version of RM1 canbe purchased at the cost of $22 per unit.If this modified RM1 is used, the com-pany does not need to perform Opera-t ion A at Resource A for 15 minutes peruni t of process ing . Suppose that theaccounting department calculates laborcharges at $10 per hour, and therefore,use of the modified RM1 represents anet saving of $0.50 ($2.50-$2.00). Thisdecis ion seems at t rac t ive at the loca llevel in a t ypica l company. However,under the proposed framework, such adecision is not productive for the com-pany f rom a l l four BSC perspect ives .Because Resource A is not a constraint,it is obvious that buying a modified ver-sion of raw material RM1 wil l result inreduced throughput ($2 per unit of Prod-uct P), increased inventory (if raw mate-r ia l i s re leased in an at tempt to keepResource A busy) and increased operatingexpenses.

On the other hand, if a tool or tech-nology can be purchased that will reducevariability or the amount of processingt ime on Resource B, such an alternate,which elevates the constraint, is worthexploring; the model can be used to cal-culate the net impact . Simi lar ly, out-sourc ing some of the proces s ing at

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Resource B can be explored as an exam-ple of ways to elevate the constraint; themodel is capable of evaluat ing such analternat ive.

Thus, from a BSC viewpoint, we see thatal l such scenarios chal lenge employees( learning and grow th perspect ive) tocome up with alternatives that improveconstraint performance (internal busi-ness perspective) and deliver more prod-uc ts (customer perspec t ive) , therebyimprov ing the bottom l ine ( f inancia lperspect ive) in terms of net profit.

Investment decision. A significant (alsocalled strategic) elevation example wouldbe to invest igate an opportunity to pur-chase additional units of a resource at thecost of $50,000 and a $2,600 quarterlyoperating expense. Following the frame-work, it is clear that the investment shouldbe made at Resource B to impact the bot-tom l ine of the company by shippingmore products to the customers.

Exhibit 6, column “Elevate1” showsthe quarterly results from the four BSCperspect ives for such a scenar io, exe-cuted using the Excel model of the PQCompany. We note that the product mixproduced is 1300P-650Q (ful ly meetingthe customer needs), result ing in cus-tomer serv ice levels of 100 percent forboth produc ts . We note a s igni f icantjump in measures corresponding to al lfour perspec t ive s . Throughput hasincreased by $8,580 ($97,500-$88,920).Net profit rose to $16,900 (about a $6,000increase, suggesting the pay-back periodis about six to seven weeks), and ROI is17 percent (compared to 19 percent inthe prev ious s cenar io, re f l e c t ing anincrease in investment). Lead time for bothProducts P and Q is reduced to zero (al ldemand is met), and productiv ity leveli s increased to 1 .21 . Overa l l , the PQCompany is on the path of continuousimprovement.

Scenario inertia—Do not allow inertia,identify new constraintThis last focusing step is an emphat icreminder to not let iner t ia s top whatshou ld be an ongoing improvementprocess. This step involves focusing onthe strategic object ives of the company

whi le ident if y ing the locat ion of newconstraints. More impor tantly, a l l thedecisions made at previous steps wil l bereevaluated for their continued relevanceand applicability at this step. General ly,once the most binding constraint is ele-vated, the constraint shifts either to someother work center (i.e., internal and phys-ical) or to demand for products ( i .e. ,external and non-physical). As marketdemand is an external constraint, thecompany may not have much controlover it, so efforts should be made to bringthe constraint back inside the companyin order to be able to re-apply the fivefocusing steps. This is typical ly done bymaking a st rateg ic elevat ion decis ionparallel with decisions to introduce newproducts and increase demand for exist-ing products.

For example, Exhibit 6, column “Ele-vate1” also shows the resource ut i l iza-tion levels once the constraint (ResourceB) is elevated. We see that Resources Aand C have ut i l izat ion rates of 99.7 per-cent and 96 .7 percent . This so lut ionimplementation also assumed (not men-t ioned above) that the subordinat iondone ear l ier ( i .e . , where work load ofResource B was off-loaded to ResourceD) was undone. Otherwise, the ResourceD utilization rate will also be in the high90s, suggesting that all resources (exceptB) are close to becoming constraints and,importantly, market demand for Prod-ucts P and Q is also a constraint. There-fore, the company may want to evaluatetheir elevat ion decis ion at a s t rateg iclevel . The company may want to holdmeetings with marketing and operationsfunct ions (cross-funct ional coordina-t ion) and explore possible ways to mar-ket new-found competit ive advantagesin terms of lower lead t imes and highercustomer ser v ice , thereby increas ingmarket demand for Products P and Q. Theymay also want to simultaneously decidewhether Resources A, C, and/or D shouldbe elevated. Otherwise, the company mayjust want to decide to elevate the con-straint tact ical ly (i.e., outsource partsof operat ions being performed by con-straint or implement some Six-Sigmaprogram to fur ther reduce processingt ime for such operat ions).

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COST MANAGEMENT MAY/JUNE2012 SYNERGISTIC FRAMEWORK14

Conclusion and future research

In this paper, we have shown how thePer formance Opt imizat ion Tr i ang leframework integrates the best of bothBSC and TOC and works w ithout anyconf l i c t s . The POT, a s an integ ratedframework, strengthens the internal sup-ply chain of the PQ Company. One ofthe major limitations of this paper is theuse of a hypothetical company to demon-strate the applicability of the proposedframework. Although several indepen-dent BSC- and TOC-related bus inesssuccess stor ies have been repor ted inprofessional journals, the discussion ofan integrated framework is missing. Atbest, we found one reference44 that men-t ioned how a company benefitted fromapply ing TOC and BSC principles.

This paper builds on that basic ideaand proposes a comprehensive frame-work that requires a paradigm shif t, ashif t in management mindset, a shif t inthe usage of performance measures, anda sh i f t in the proces s improvementapproach employed by the bus ines sowner/managers. We demonstrated thata se t of TOC measures can eas i ly beincorporated into each of the four BSCperspect ives. By employ ing the TOC-based five focusing steps to manage theinte rna l supply cha in , we show howimprovement in al l the four BSC per-spect ives occurs systemat ical ly. Thus,we demonstrate that BSC and TOC canbe used together. A real-world applica-tion of the proposed framework is a nat-ural and logical next step in this research.

Another important research questionyet to be explored satisfactorily is: Whatis the relat ionship of BSC with ABC, thepredecessor of BSC? To quote Kaplanand Cooper :

Focusing ABC systems on process drivers andcont inuous improvement of local act iv it iesand processes is cer tainly an element of ABM[activ ity-based management] and can lead togradual improvements of individual activit iesand processes . But it is not clear that suchincrementa l , lo ca l improvement i s whereemployee energies are best applied. Sett ingpriorit ies for improvement of local processesis best performed within the framework of theBalanced Scorecard (BSC). The BSC approachto performance improvement ident ifies andhighlights processes that are most cr it ical for

strategic success. It identifies those processesnot only for their potential for cost reduction,but also for their ability to meet targeted cus-tomer expectat ions.45

Research in this area is very sparse.Kaplan and Norton explain the concep-tual l inkage between BSC and ABC. 46

Turney provides the only example avail-able in l iterature of how ABC systemscan ser ve as a source of per formancemeasures for the BSC as well as an ana-ly t ica l tool prov iding diagnost ic andproblem-solv ing support to scorecardowners. 47 However, in a recent ar t icle,Turney’s description of ABC as an emerg-ing foundat ion for performance man-agement is quite si lent in explaining itsre l at ionsh ip w i th BSC. 48 Ness andCucuzza, in a special issue of HBR on mea-suring corporate performance with arti-cles on ABC and BSC, do not commenton the relat ionship between ABC andBSC. 49 We suggest that TOC is the miss-ing link and should be explored in thefuture research.

Although TOC and ABC philosophiesfundamenta l ly d i f fe red in the i rapproaches to process improvement andperformance measurement strategies inthe early phase of their evolut ion, latelythe founders of these philosophies seemto agree in principle that new ways shouldbe explored to mold these two philoso-phies into a uniform body of knowl-edge. 50 For example, whi le compar ingABC w ith TOC, Kaplan and Cooper 51

state that:

TOC and ABC are not in conflict. In fact, theycomplement each other beautifully, with TOCproviding short-term optimization to maximizeshort-term profits (when operat ing in a con-strained production environment) and ABC pro-v id ing the ins t rumentat ion for dynamicoptimizat ion of resource supply, productiondesign and mix, pricing, and supplier and cus-tomer relat ionships for long-term profitabil-ity.

We suggest that perhaps an integrativeactiv ity-based throughput managementframework can be developed by incor-porating the recent advances in the evo-lution of ABM and TOC philosophies, suchas capacity-adjusted ABC and the threedimens ions (mindse t , measures , andmethodology) of TOC. Such a f rame-work can be used to make strategic deci-

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sions (e.g., pr icing, product mix, out-sourc ing , new produc t deve lopment ,investment opportunit ies, etc.) and beshown to have a posit ive impact on al lthe four perspect ives of a BSC. �

NOTES1 Kendal l , G. I . , (1998), Secur ing the Future, New

York: St. Lucie Press.2 Mintzberg, H., (1994), The Rise and Fal l of Strate-gic Planning (New York: The Free Press, 1994).

3 Naranyandas, D., (1996), “Del l Computer Corpora-t ion,” Harvard Business School Case 9-596-058.

4 Ibid.5Pascale, R.T., (1999), “Surf ing the Edge of Chaos,”Sloan Management Review, pp. 83-94.

6 Kaplan, R. S. and D. P. Norton. (2001), “Transform-ing the Balanced Scorecard from Performance Mea-su remen t t o S t r a teg i c Management : Pa r t I I .”Accounting Horizons 15 (2): 147-160.; Kaplan, R. S.and D. P. Norton. (2000) , The Strategy FocusedOrganizat ion, Boston, MA: HBR Press.; Kaplan, R.S. and D. P. Norton. (2000), The Strategy FocusedOrganizat ion, Boston, MA: HBR Press.

7 Goldratt, E. M. (1990) What is this thing cal led The-or y of Constra ints and how should i t be imple-mented? New York: North Press, Inc. ; Dettmer,W.H., (1997), Goldratt’s Theory of Constraints: A Sys-tems Approach to Continuous Improvement, ASQQual ity Press, New York, N.Y.; Boyd, L. and Gupta,M. (2004), “Constraints Management: What is thetheory?”, International Journal of Operations and Pro-duction Management, Vol. 24(4), 350-371.

8 Albright, T. and Lam, M. (2006), “Managerial Account-ing and Continuous Improvement Init iat ives: A Ret-rospective and Framework,” Journal of ManagerialIssues, Vol. 18 (2), pp. 157-174.

9 Op. cit . note 6 Kaplan (2001).10 I ttner, C. D., D. F. Larcker and M. V. Rajan (1997),

“The Choice of Performance Measures in AnnualBonus Contracts.” The Accounting Review 72 (2):231-255.

11Schneiderman, A. M., (1999), “Why Balanced Score-cards fai l?” Journal of Strategic Performance Mea-surement, Vol. 6, 1-10.

12NØrreklit, H., (2000), “The Balance on the BalancedScorecard–a critical analysis of some of its assump-tions,” Management Accounting Research, Vol. 11(1),65-89.; NØrrekl it , H., (2003), “The Balanced Score-card: what is the score?—A rhetorical analysis ofthe Balanced Scorecard, Accounting, Organizationsand Society, Vol.28 (6), 591-619.

13Ril lo (2002) “Limitat ions of Balanced Scorecard,”retr ieved on December 2010 from

http://www.mattimar.ee/publikatsioonid/ettevottemajandus/2004/12_Ril lo.pdf

14Marr, B. and Adams, C. (2004), “The Balanced Score-card and Intangible Assets: Similar Ideas, UnalignedConcepts”, Measuring Business Excel lence, Vol. 8(3), pp.18-27.

15Porter, M. E. (1985), Competit ive Advantage: Cre-at ing and Sustaining Superior Performance, (NewYork: Free Press); Op. cit . note 6 Kaplan (2001).

16 Ibid Porter.17Goldratt, E. M. and Cox, J. (1984), The Goal, Cro-

ton-on-Hudson, NY: The North River Press.18Op. cit . note 6.19Op. cit . note 6 Kaplan (2000).20Op . cit , note 17.21Goldratt , E. M. (1990) , The Haystack Syndrome:Sift ing Information Out of the Data Ocean . GreatBarr ington, MA: The North River Press.

22Op. cit . note 7 Boyd.

23Op . cit . note 17; op. cit . note 21.24 Ibid .25 Ibid .26Op . cit . note 21.27Goldratt, E. M., (1994), It’s Not Luck, Great Barrington,

MA: The North River Press.28 Ibid.29Beinhocker, E.D. and Kaplan, S. (2002), “Tired of

strategic planning?” McKinsey Quarter ly, 2, 48-57.30Hil l , A. M., (2004), “The Bel l Group uses the Bal-

anced Scorecard with Theory of Constraints to keepstrategic focus,” retr ieved from www.knowledge-roundtable.com on December 2010.

31 Ibid.32Hil l , E. (2000), “The Synchronous Flow Game,” Pro-

ceedings of the APICS Constraints ManagementTechnical Conference, pp. 11-13.

33Gupta, M. and Boyd, L. (2010) , “An Excel -basedDice Game: an Integrative Learning Activity in Oper-at ions,” Internat ional Journal of Operat ions andProduction Management, 31(6), 9-21.

34Op. cit . note 21.35 Ibid.36Op. cit . note 33.37Op. cit . note 21.38Umble , M. M. and Sr ikanth , M.L . , (1995) , Syn-chronous Manufacturing. South-Western Publishing,Cincinnati .

39 Ibid.40Op . cit . note 17; Op. cit . note 21.41 Ibid.42 Ibid.43Op. cit . note 21.44Op. cit . note 30.45Kaplan, R. S., and Cooper, R. (1998), Cost and Effect.

(Boston, MA: HBS Press), 1998.46Op. cit . note 6 Kaplan (2000).47Turney, P.B.B., (2005), Linking ABC and ABM with

the Balanced Scorecard, retr ieved on Dec. 2009 athttp://bettermanagment.com/seminars/seminar.aspx?l=12033

48Turney, P.B.B., (2010), “Activity-based Costing: AnEmerg ing Foundat ion for Per formance Manage-ment,” Cost Management, 24(4), 33-43.

49Ness, J. A and Cucuzza, T.G. , “Tapping the Fu l lPotential of ABC,” HBR, July/August 1995, 130-138.

50Op. cit . note 17; op. cit . note 45.51Op. cit . note 45.52Acknowledgement: The author wishes to express

his grat itude to Professor Sidney Baxendale, pro-fessor of accounting, for his insightful commentsand many s igni f icant improvements in the text ,which improved the quality of the article immensely.

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