Using the Theory of Constraints as a Key Element in Your Growth Strategy
As we work with clients to develop Growth and Diversification Plans (Strategic Plans), we consistently find constraints that limit a company’s ability to grow. Given this, it’s imperative that the Theory of Constraints (TOC) is integrated with your company’s strategy.
If you don’t know what TOC is, here it is in a nutshell. It’s a five-step process to identify and eliminate bottlenecks while achieving corporate goals. Here are the five steps:
- Identify the constraint (the process that limits the company’s throughput)
- Exploit the constraint
- Subordinate everything to the system’s constraint
- Elevate the system’s constraint
- Identify the next constraint
When applying TOC, we often find internal constraints such as equipment, working capital, skilled labor, etc. limit throughput. However, once these constraints are broken, the “market” becomes the next constraint. What does that mean? It means the company needs more sales.
When sales become the constraint, it is important that the organization becomes entirely sales-oriented. Functions and processes that require modification often include:
- Pricing
- Quoting
- The mix between new business development and account management activities
- Promotions
- Go-to-market strategies
If sales are your constraint, remember to apply TOC methodologies to keep everyone focused on elevating the business’s constraint. And if you’re creating a Growth and Diversification Plan, be sure to include TOC into your plan.
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