Theories in Operations Management

This presentation discusses the Theory of Constraints, Game Theory, and Contingency Theory and their applications in Operations Management. It explains the main characteristics, origin, and evolution of each theory. The presentation also provides guidelines for applying each theory in business situations. The subject is Operations Management, and the course code is not mentioned. The presentation is relevant to students in any college or university.

Theories in Operations Management
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Introduction
 Operations management is a managerial function in which the
manager or leader applies the most cost-effective and most efficient
tools and processes to ensure the minimum cost of production with
maximum productivity to produce goods or services of the highest
quality.
 Various theories provide business leaders with a light into the
complex world of business environment which include: Game theory,
Theory of Constraints and Contingency theories (Schroeder, 2008).

Theory of Constraints
Overview and Main Characteristics
 The big idea behind the Theory of Constraints (TOC) is the belief that
in every process, there are obstacles that prevent its smooth flow,
and that the easiest way to ensure that the process moves ahead and
accomplishes its goals is to deal with that obstacle such that it is no
longer the main factor standing on the way (Kim, Mabin, & Davies,
2008).

Theory of Constraints
 In TOC, the main concept is focusing on a single constraint or
bottleneck and dealing with it to the extent that it no longer blocks
the process from making progress and achieving a set goal.
 The theorist proposes that a goal is achieved through a process and
that the process involves solving obstacles. For instance, in business,
the goal is to make a profit (Li, Kunihiro, & Takahiro, 2010).

Theory of Constraints

Origin of TOC
 Dr Eliyahu Goldratt is the originator of the theory in 1984, and he
popularised TOC in a best-selling book with the title, “The goal”.
 The theory had humble beginnings in Israel in 1970 when Goldratt
assisted his friend who had a chicken coop business. In the process,
the researcher developed OPT, a scheduling program that proved so
useful in Israel that they exported it to the United States.

Evolution of the TOC
Evolution of TOC
 The theory started as a scheduling instrument developed for a friend
in Israel and later found use in the US and across the world.
 However, in the course of its adoption, the managers encountered a
few operational problems which Goldratt addressed by publishing a
book his book.
 From his book, he finally elucidated on his theory of TOC and its
tenets. In a narrative and Socratic format, the book introduced and
explained all the processes and techniques.

Game Theory
Overview and Characteristics
 Game theory is a framework that utilises mathematical models in
trying to explain the social interactions of two players when one of
the competing parties gains depending on the decisions and actions
of the opponent (Borm, 2008).
 The main proponents of the theory were mathematicians John Nash
and John von Neumann, and an economist Oskar Morgenstern in 1944
(Ginits, 2000).

Game Theory
Origin of Game theory
 The formal game theory as we know it started took root in 1944
courtesy of economist Oskar Morgenstern and two mathematicians
John Nash and John von Neumann.
 However, the concepts applicable to game theory were in existence
for a long time starting at Plato and Socrates’ time

Game Theory
Evolution of the Game of Theory
 John Von Neumann published the first refined work on Game theory in
a paper On the Theory of Games of Strategy in 1928, which made
extensive use and application of Brouwer's fixed-point theorem.
 In 1944, Von Neumann and Oskar Morgenstern co-authored a book
Theory of Games and Economic Behavior which formally introduced
the refined concept of the Game Theory.
 In 1950, Merrill M. Flood and Melvin Dresher developed the concept
of the prisoner’s dilemma as part of the Rand Corporation, which had
an interest in the application of the game theory in global nuclear
energy.

Contingency
Theory
Overview and Characteristics
 Contingency theory finds its application most in leadership and is
characterized by the belief that the effectiveness of a leader in a
management situation depends on three factors: the application of
management or leadership practice (task motivation), the existing
situation (circumstances) and the people involved.
 According to proponents of the contingency theory, no “One-size-fit-
all” management practice can solve all problems. Rather, the
effective practice depends on the situation and as such effective
managers and leaders should change their practices with a change in
the situation (Hausman, 2010).

Contingency Theory
Origin
 Fred Fiedler, a Psychologist, takes credit as the main proponent of the
theory, and he expounded on the specifics of his theoretical model in
a paper entitled "A Contingency Model of Leadership Effectiveness" in
1964 (Donaldson, 2013).
 He also developed a tool to measure the leadership style called LPC
(Least Preferred Coworker) (Fiedler,1967).

Contingency Theory
Evolution of Contingency Plan
 The theory started with various researches on Basketball, surveying
and bomber teams.
 He realised that there were significant differences between the
effective leadership styles of all the teams meaning that leadership
effectiveness depended on the people involved and the situation as
much as it depended on the leader.

Program Theory of
Constraints
Contingency
Theory
Game Theory
Theory Identify and
Manage
constraints
Task motivation
and
circumstances
Rational decision
in strategic
interaction
Application
Guidelines
First, identify
constraints
Second, Exploit
the constraints
Third,
Subordinate
process
Fourth, Elevate
constraint
Fifth, Repeat
cycle
Identify the
leadership style
Identify the
members
Identify the
circumstances
Competition
moves
Selfish decisions
Rational
competitors

Applications of the Theories in
Operations management
Game Theory
 The game theory supposes a business situation with various
competing rational players with finite moves.
 Every move by the competitors affects the moves that a business
owner can make to remain relevant in the industry and continue
operating a profitable business.
 The Game Theory provides the business with tools to enable them to
chose the best course of action in a competitive environment.

Applications
Constraints Theory
 Constraints theory focuses on the management to search for the
weakest link in their management operations and improve on it to the
extent that it is no longer a constraint on the businesses’ ability to
reach the goal of making a profit.
 Constraints theory encourages managers to focus on identifying the
constraints in their business processes and improve them to allow the
processes to flow smoothly and achieve their goals.

Application
Contingency Theory
 Contingency theory’s application in business is that it focuses on
hanging situations to allow business leaders to adopt and adapt to
new situations and members of the team (GHOFAR, 2016).
 In business, the contingency theory helps support leadership in
businesses by letting leaders flexible and able to adapt to changing
management situations to ensure effective application of the specific
theory to the unique situations.

References
 Borm, P. (2008). Game theory, applications and practice. Dordrecht: Springer.
 Chase, R.B., Aquilano, N.J. & Jacobs, F.R. (2006). Operations management for competitive advantage. McGraw-
Hill: New York, NY.
 Cox, J. F., & Schleier, J. G. (2010). Theory of constraints handbook. New York : McGraw-Hill, [2010]
 Dimand, M. A., & Dimand, R. W. (2000). A history of game theory: Vol. 1. London: Routledge.
 Dixit, A., Skeath, S., & Reiley, D. (2009). Games of Strategy, Third Edition. New York: W. W. Norton and Company.
 Donaldson, L. (2013). The contingency theory of organizations. Thousand Oaks, Calif: Sage Publications.
 GHOFAR, A. B. D. U. L. (2016). Corporate governance and contingency theory. Place of publication not identified:
SPRINGER INTERNATIONAL PU.
 Ginits, H. (2000). Game Theory Evolving. Princeton: Princeton University Press.
 Hausman, J. A. (2010). Contingent valuation: A critical assessment. Bingley: Emerald Group Publishing Limited.
 Kim, S., Mabin, V.J. & Davies, J. (2008), “The theory of constraints thinking processes: retrospect and prospect”,
International Journal of Operations & Production Management, Vol. 28 No. 2, pp. 155-84.

References
 Kim, S., Mabin, V.J. & Davies, J. (2008), “The theory of constraints thinking processes:
retrospect and prospect”, International Journal of Operations & Production
Management, Vol. 28 No. 2, pp. 155-84.
 Li, R., Kunihiro, H., & Takahiro, S. (August 01, 2010). Erratum: Development of a
theory of constraints based scheduling system for ship piping production (Journal of
Shanghai Jiaotong University (Science)). Journal of Shanghai Jiaotong University
(science), 15, 4.)
 Nagarkatte, U., & Oley, N. (2018). Theory of constraints: Creative problem solving.
London : CRC Press, imprint of Taylor & Francis Group.
 Poundstone, W. (1992). Prisoner's Dilemma. New York: Doubleday.
 Schroeder, R. (2008). Operations Management, McGraw-Hill/Irwin, New York, NY.
 von Neumann, J., & Morgenstern, O. (1944). The Theory of Games and Economic
Behavior. Princeton: Princeton University Press.
 Fiedler, F. E. (1967). A theory of leadership effectiveness. New York: McGraw-Hill.