Have you ever thought you understood something and then later got some deeper insight that made you realize you didn’t recognize the power or implications of the thing at all? It happens to me frequently, and suddenly hidden opportunities that were right in front of my nose suddenly ‘appear.’ Of course they were there all along, but I just couldn’t see them because my mind wasn’t looking at it the right way.
Almost always what has led to these breakthroughs for me has been application. There is something about the process of putting something into practice that forces us to build a deeper understanding of it. I suspect that’s why my sons have to do so many calculus problems for homework, so they are forced to deepen their understanding of the concepts, though they claim its pure cruelty.
It’s also why I decided to write Aligned & Engaged Hidden Keys for Turning Teamwork into Profit, to help leaders close the gap between understanding a good concept and getting great results from it. The book takes 29 of the best strategies I have seen work in businesses over the past 25 years and presents them as step-by-step ‘practices’ that can be applied on a daily basis. They enable leaders to truly capitalize on things they probably already know, but haven’t fully translated into results.
Find your Constraint
A recent conversation I had with an old friend who runs a small manufacturing business highlighted just how much potential there is for improvement through the repeated practice of a good idea. It’s one straight from the book, Practice 4- Find your Constraint, and it opened my friend’s eyes to a world of opportunity he was missing, even though he is quite familiar with the Constraint Management principles. I am sure it will help you and your business too.
My friend was giving me an update on his business, telling me all of the challenges he was facing and how hard he was working to try to fix them. This guy is no slouch as a leader. He managed to keep his small manufacturing business afloat through the great recession when companies just like his were going under on a daily basis. His main customer base was in an industry that was particularly hard hit during this period, and he faced a number of personal challenges during the same period, so the fact that he is still in business is a testament to his business savvy.
His list of current challenges was long and among those I was able to scribble down as he talked were:
- “We are struggling to deliver reliably
- I can’t find enough good people
- Our business is concentrated with too few customers
- I need to upgrade my equipment
- It’s hard getting my people to work together
- We are just barely getting by each month”
Why constraints matter to your business
One of the things I learned from my mentors is that in any business there are very few things that truly determine performance—the constraints. While there are many ‘problems’ we all face only one of them is the ‘weakest link’ for our business. So when he took a break from updating me on his challenges, I decided to ask him what he thought the constraint of the business was right now.
After thinking for a minute he told me the constraint was “sales, right now.” I didn’t have to ask him the question I often use to help leaders think about their constraint (“what is the one thing that if you had more of it would increase your profits the most?”). But just to confirm it I asked him if he could produce 10% more sales (the increase he needed to be profitable) with the people and equipment he already had. He replied he could probably do 20% more without much trouble.
Exposing Hidden Opportunities
I already knew that my friend had a very small (read: ‘microscopic’) share of the market for the things he can make, so obviously there was lots of room for him to expand sales way beyond the 20% he said he could handle right away. He told me he was looking at some new products and new market segments but that with all the fires he was battling he wasn’t able to spend much time on it.
It’s not hard to get consumed with all of the daily ‘problems’ in running a business, and it’s also not very effective. So I asked him how that was working for him. “Not very well” he admitted. We are struggling to break even and it’s been this way for quite a while. So, I asked what the impact would be if he could eliminate any one of the daily problems he was working on as compared to increasing sales. He told me it would be trivial compared to increasing sales.
He clearly had an intellectual understanding of his constraint and an awareness that it was important. But it wasn’t the deep understanding that drives action and improves performance.
He did say he was out trying to open up some new customers and new products and he was considering buying some new equipment that would enable him to serve some other customers, but that that was a long process that wouldn’t produce much in the short term. It was quite clear that he hadn’t dug in deep to his constraint to really expose the potential that had to be available right now. While I didn’t know exactly what those opportunities might be, I have seen the practice of finding and focusing on your constraint work in so many places that I knew in my bones it would be there if we just started digging a bit more.
Dig deeper
So I asked him “what percentage of your bids are you winning?”
Without hesitating he told me, “20%.” Bingo!
Sales was the constraint of his business and he was losing 4 out of every 5 opportunities he was already getting. (Later he would email me that the actual figure was less than 9%, so he was losing more than 9 of every 10 bids he made.) He didn’t need to go after new business, new customers or new segments of the market.
Knowing is not the same as results
He knew what was limiting the performance of his business, he just wasn’t focused on it like he could be. In fact he told me that he spent little time with the bidding team because they were among his most experienced and capable employees. And that’s often how it is, the constraint of most businesses is almost always in an area with a lot of expertise, or that we do well or which is very expensive. After all if the resource were easy or cheap to acquire, we would probably have plenty of them.
But it wasn’t an issue of skill it was an issue of needing to win more bids. And if my friend wasn’t focusing on how to do that he would probably never solve the problem.
I spent some time checking with him that he could win enough more bids to get to a revenue target that would assure his profits, and we confirmed that it was very achievable. While I prefer not to use price to increase sales, we nevertheless confirmed that even if he had to get more aggressive with pricing that it would still increase the company’s profits. Since he already had capacity to make 20% more product, the only real increase in cost would be the cost of the materials he would have to purchase to do the additional volume, and those only amounted to about 30% of his selling price normally. If necessary there was room to use price to win more, and doing so would return the company to profitability.
When we finished our call I had no doubt that he understood something he already thought he knew in a whole new way. In a way that would enable him to make it pay for his company and himself.
Find the constraint in your business
Do you know what is the constraint of your business? If you don’t finding out is one of the fastest ways to expose immediate opportunities to improve performance. If you already know where it is, like my friend, it’s probably worth digging in a little deeper to see what can be down to increase it. It doesn’t matter if your constraint is sales, or a resource internal to your company, it’s critical to dive in deep and search for ways to open it up.
It doesn’t require any money to do it, just the decision and a bit of your time to do it. When you do I can If you want to read the full practice for finding your constraint from Aligned & Engaged, I’ve provided it as an excerpt—along with another practice that will help you break that constraint—on the website for the book, www.teamworkforprofit.com .
We’d love to hear your stories about finding and breaking constraints and the results you achieved right here. So leave a comment on your experiences.