Far from inhibiting business success, constraints enable and accelerate it.
Constraints are the limits and restrictions you place on your organistion and its activities. They are the choices you make about what is in and what is out of scope, including:
- Where you choose to play. What are the categories, markets, channels and customer groups in which you will participate?
- How you choose to win. For example, are you focused on leading your chosen markets on product innovation, customer service or price? And where you have made these choices, what performance standards have you set?
- The resources you will commit and the returns you demand. What are your cash flow requirements, sales and profit growth targets and required returns on capital?
Where these constraints are clear organisations can focus on the work of delivery. Where they are ambiguous, uncertainty grows, people are less sure about what is required of them and performance stalls.
I have identified four specific benefits from establishing business constraints. How many of these would benefit your business?
- Faster decision-making. Last year I worked with a client where one constraint that had been set by the company’s owners was that any initiative had to repay its initial investment within two years. This constraint allowed us to quickly identify the highest-potential ideas and avoid spending time assessing too many ideas.
- Greater empowerment. Driving down accountability for decisions throughout your organisation increases the speed of decision-making and also frees up your own time for higher value work. However, your team members can only make effective decisions, and be accountable for their results, when they operate within agreed boundaries. Clarifying outcomes, agreeing authority levels and establishing behavioural boundaries all serve to help rather than hinder empowerment and drive individuals’ ownership of results.
- Greater creativity. Last week I was working with a management team to generate new growth ideas. The team were struggling to identify compelling new sources of growth and were daunted about the sheer scale of opportunity facing them. It was only when we prioritised three specific areas of opportunity (entering adjacent categories, transforming customer service and targeting a specific customer segment), and put other areas of opportunity to one side, that the ideas started to flow.
- Higher returns. Many studies and reports (including Good To Great by Jim Collins, and Profit From The Core by Chris Zook) demonstrate that a focused approach to growth generates superior performance to companies that try to operate on too many fronts. As Steve Jobs once said, “We’re always thinking about new markets we [Apple] could enter, but it’s only by saying no that you can concentrate on the things that are really important”
© Stuart Cross 2010. All rights reserved.