If business is a game, and you could only make one move, what would it be? What is your one game changing leap forward? Are you standing still or moving? In business, is everything a matter of perception, dependent on the position of the observer? Even sitting at your desk ‘at rest’ you are actually spinning with the earth’s rotation of 1,040 miles per hour (mph), with the earth orbiting around the sun at 67,000 mph. Reason you don’t notice it is, you are moving with the earth. “Motion is always relative to a reference frame” was Albert Einstein’s observation.
Same in business, we often don’t notice the velocity of thought, fast changing practice-and the need to focus. Not noticing the big picture, we migrate toward comfort, and conserve energy with the law of least effort, following the statistical certainty of regressing toward the mean. Our default survival programming is ‘I am always right’ but this software mindset setting can cause us to crash.
Is there a quick way to accelerate your speed to value? Are you what you focus on? Does it make sense to focus on a wide exotic portfolio of indicators, or act on just one big constraint?
Every complex system has at least one limiting factor known as a bottleneck or constraint that restricts its ability to reach its highest goal. Theory of constraints is a management practice introduced by Eliyahu Goldratt in his 1984 book The Goal. With an original focus on manufacturing – and now with a wide application – this method helps organisations boost performance by focusing improvement efforts entirely on the weakest link, rather than spreading resources thin across non-critical areas.
Goldratt’s ‘Theory of Constraints’ runs on a continuous improvement cycle, based on 5 steps.
Identify: Find the part of the process that limits the entire system’s output. Exploit: Maximise the output of the constraint, using existing resources without major upgrades. Subordinate: Align all other non-bottleneck activities to match the pace of the constraint. Elevate: Invest more time, money, or staff to permanently increase the capacity of the constraint. Repeat: Prevent inertia from creating a new bottleneck, and move on to the next constraint.
One blockage
A business or development partner is usually not constrained by everything that is going wrong. It is controlled most by one thing that most limits the flow of value. A smart manager’s job is not to improve everything. It is to find the bottleneck and make the whole business work around it. Trick is to identify the one dominant constraint. ‘If we could fix only one thing in Acacia Finance over the next 30 days, what would have the greatest effect on revenue, cash flow and profitability?’
For instance, if you ask a budding entrepreneur why she is having a problem starting a business, most she will say lack of funds. But the real constraint may be proving the business idea solves a pressing problem, that the customer is ready to pay for. In Red Oak Design, the constraint could be, for instance, poor product-market fit, slow delivery, a key person’s poor decision-making. Ask: where does work, money or customers get stuck?
It helps to fully exploit the constraint. Suppose Red Oak Design discovers that its sales team can generate more orders than the factory can fulfil. While the instinct might be: ‘buy another machine’ the theory of constraints says — first get maximum output from the existing constraint. For example, eliminate machine downtime, schedule the machine around highest-value products, or stop unnecessary changeovers. It would not be surprising to discover that the business has 20 to 30 percent more capacity already available.
Subordinate everything else to the constraint. Once the constraint is identified, the rest of the organisation should support it. If the factory is the constraint, sales should not aggressively sell products the factory cannot produce. Elevate the constraint. Only after exploiting it should management spend money to increase capacity.
Repeat the process. Business systems are dynamic, everything is connected. ‘At any given time, the input that is most important to a system is the one most limiting’ advises systems thinker Donella Meadows. After fixing the first constraint, another road block soon emerges.
Shift from asking ‘How do we improve the business?’ to ‘What is preventing this [existing] business from achieving substantially more?’ That distinction is enormous. BlueCloud Solutions may have poor marketing, inefficient HR, outdated IT, no strategy and mediocre operations. But fixing all five simultaneously may produce very little improvement if the real constraint is, say, customer demand or cash flow. Best to take a small experiments approach: Identify the suspected constraint, run a quick one week experiment to test whether removing it actually improves performance, and then decide whether to scale the solution.