Theory of Constraints
“You are now in our Mastermind….”
Why is the Bottleneck at Closing?
It’s just a symbol.
It’s also a great question because it gives me a chance to explain the theory behind the model.
THEORY OF CONSTRAINTS
The Theory of Constraints (TOC) is a very helpful theory from somebody that was studying production.
(Also connects to the second question, on giving an example from operations and factory.)
The TOC model emerged from studying factories and where the inefficiencies were in production and process.
ELIYAHU GOLDRATT “THE GOAL”
The man who studied this theory, Eliyahu Goldratt, wrote a series of books about his analysis and solutions, and theory, the Theory of Constraints. Some are about factories and production, some of them are about project management and knowledge workers.
One in particular that you may enjoy is “The Goal”. Not only is it written as a novel, which is very nice to read, and it also explains the bottleneck theory, the Theory of Constraints (TOC). Which says every output creation process, every value chain, has, in every moment, one bottleneck. That one bottleneck is the single weakest part of the chain.
While many managers and management consultants always go into raising the productivity of all the five fields, Eliyahu went into the opposite direction.
He said “Hey, let’s wait a moment. Maybe we’re doing too much at once. We lose lots of energy and we are distracted. What if we make an analysis of the current value chain and then find the one bottleneck?”
Again, it’s just a symbol. (In this example, I did it at the “C”) The bottleneck could be anywhere, in attract, in nurture, in closing, in delivery, and in retaining at different points.
When you are doing it alone or with your team, just make the X where the current bottleneck is.
(I just had put it in the middle because I felt it’s aesthetically better.)
From this, you will have to find your value chain and to analyze what is the Critical Path.
Critical Path means it’s the 20% of your activities that deliver 80% of the results and of the impact for the client.
You go into that 20% critical path and there you may find the bottleneck, in production for example. A typical bottleneck is that if sales sells five more items to the customers, but you cannot produce five more in this week, then the bottleneck would be delivery.
So, if five more items come in, and you cannot deliver it, you cannot produce any more, you have reached the limit of my production capacity: Delivery Bottleneck.
Then in filling it out, you would make a cross above “D” and analyze with your team.
Then ask: How can we solve this problem? It is usually a problem of processes and of writing down the processes, in both sales and production.
Check the SOP (the Standard Operating Procedures) and the manuals and rewrite them accordingly.
You have to systemize better. You have to simplify the chain to systemize it so that it becomes scalable.
Right now, it’s not scalable. You have a limit of what you can deliver. That’s the bottleneck.
Then, in this theory, which additionally answers your questions about operations and factory, you would first solve that which is slowing down the systems (The Bottleneck) and then you would do everything else.
You would first solve the delivery problem, and then analyze which skills do they people need or which instruments do people need or whatever else you want to improve.
Only do it after the first bottleneck is solved.
I hope this answers your questions! Thank you very much, whenever you have questions just ask and we will be happy to deliver it: strategysprints.com/asksimon.
It was a pleasure. Have a great day!
P.S. Entrepreneurial freedom is awesome. It’s also a lot of hard work to get there. And when you are there, it is easy to lose your grip. Our community of 16.000 entrepreneurs is getting stronger and stronger every week, because we amplify each other. We share what works, and drop the rest. We test, refine, improve. Check strategysprints.com to level up your business and have fun doing it.