By pulling together ideas from a couple of different management paradigms, I have developed a methodology to drive expansion for my ecommerce business by establishing a structure of concentrate on an organizational and individual level. In “Theory of Constraints, for […]
In “Theory of Constraints, for ecommerce businesses,” the first post in this series, I covered the five focusing steps of TOC. Ecommerce companies typically must accomplish many different objectives, and people are often called to carry out many diverse tasks.
Then, in “Applying Theory of Constraints to our packaging process,” I described how we significantly improved production without raising expense.
This installment will deal with the importance of focus when applying Theory of Constraints to your own organization.
Direction is always concerned with matters such as earnings growth, profitability, and the availability of money. Because of this, employees often feel that the business needs more resources and they are spread too thin.
I hear this loud and clear from many other ecommerce retailers, since there are many moving parts in an organization and it would appear that every manager is pulling in another direction. Additionally, the attention of management teams appears to change from month to month.
We worked overstockArt.com in much the same manner until a year or two back. To be able to grow, we believed that we needed to push from all angles and all our employees worked at full capacity, doing many jobs. However, TOC taught us that using all resources at full capacity isn’t healthy for the business and its employees. When everybody is always at full capacity, the organization misses its final objective of creating money now and later on . Or, in the words of TOC,”Increase throughput while decreasing inventory and operational expenditure.”
The above is an essential point. Contrary to common belief and common practice, if everyone is as active as possible we as a company aren’t likely focusing on the ultimate goal, but rather on many ancillary goals that may or may not move us towards the ultimate aim.
To prevent this distractive approach, we have to focus the whole business on several specific”stones” that are encouraging the restriction and move us towards our ultimate objective of creating money today and in the future.
To achieve this, I’ve developed a procedure that’s a combination of the”One Page Strategic Plan” developed by Verne Harnish, a management trainer and consultant, and the”Theory of Constraints” developed by Eliyahu Goldratt.
Here are the steps we take in our preparation sequence.
1. Decide on goals for the year. Each year in our planning session we begin by identifying the restriction as well as the bottlenecks of our organization. When the identification is completed, we come up with five goals for the year which will encourage the elevation of the restriction and bottlenecks. Annual goals are organized in order of significance. This means that no matter a individual’s particular area of expertise, our management staff is focused on accomplishing target one of five — then down the line.
2. Decide on stones for the quarter. The next focusing attempt would be to establish our five quarterly stones, which are constructed to support the yearly objectives. Also every quarterly stone is assigned to a single person, who’s accountable for achieving it. This individual will need support from others but he or she is accountable.
3. Establish individual goals for management. Each individual in our top management team includes three stones for the quarter to concentrate on. The same procedure is filtered down in the company to a number of our employees also. Also, all workers understand what are the five stones for the quarter. This creates an environment where our whole management team and business are concentrated on just a few rocks and every individual has a focused environment to work in.
In practice, not everything gets accomplished and there are lots of distractions and daily activities which must be handled. However, as a whole, the organization is focused on a tiny set of goals. By way of instance, in the third quarter of 2014 we realized our number one stone in full.
The next four weren’t fully accomplished. However, the outcomes for the company were as follows.
- We fulfilled our sales and gross margin objectives, which were competitive.
- We have seen significant improvement in product availability and collection of SKUs on our site.
- We developed new technological tools to better segment and assess our stock so that we can improve our inventory turns and our ROI.
This system has done more than just the achievement of our objectives and rocks. More than the financial development of the business, this creates a more comfortable atmosphere for all workers. Finally the development of the business is more sustainable as the management staff and the workers understand that focusing on any 1 area permits the company to either correct a problem or pursue an opportunity.
At the core of the plan are the TOC’s five focusing steps.
- Identify the system restriction.
- Decide how to exploit the constraint.
- Subordinate everything into the constraint.
- If necessary or possible, raise the restriction.
- If in the previous steps the constraint has been broken, go back to step one, but do not allow inertia to cause a system restriction.
I would really like to hear opinions of how attention has helped your business. What methods can you use in your business? If anybody would like to share how lack of attention is creating chaos throughout the business, I’d like hearing that as well.
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