Profit
Choke Points
Improve business profitability
Q: I’m confused.
Sales are up. The number of customers is up. Profit isn’t.
Where do I look (don’t send me to a consultant!)?
A: A consultant may be a good answer. A set of unbiased eyeballs.
But you said no consultant, so we'll start by asking
you to look at this:
Highest
and best use
has been a guide for the use of individual time and effort
for some time.
Let’s take a look
at the principle:
We say that people
and equipment should be at work doing those tasks that return
the highest benefit to the company for time and energy input.
Best
Qualified
Some people are our best qualified on several tasks.
Even
within that fact, there is a hierarchy of value. Given one
person is best-qualified at three task areas, the business
return created on one of those is higher than the other two.
It is higher because it is more highly leveraged in the absolute-the
business "profits" most by the work that gets done.
It may be higher because no one else on staff can do this
essential work.
As an example, a software entrepreneur may be the best-qualified
and most effective person in her company at writing code.
She is also the clear leader in organizing and directing staff.
In addition, owing to her insight into market dynamics, and
her engaging way, she has great influence with funding sources
and with top customers.
If she works at code writing, she may not be putting her talents
to their highest and best use. For this example, let us presume
that she has more work than she can handle in a timely fashion.
The fact that the work is delayed, delays the production of.
. . profit.
The Choke-point
Every
business has its choke point - The place in the company’s
revenue-producing process that limits the flow (such as, the
leader above has just so much time available). Revenue flow
is limited by that resource. That would be especially so if
she were faced with opportunities with customers and investors
while attempting to organize and direct staff..
Work done to improve the efficiency of any other element of
the revenue process does not produce more revenue. Focus your
improvement effort first identifying the at-capacity resource
in the profit chain and then on making the choke-point resource
more effective.
One of the ways that can be done is by offloading parts of
the choke-point’s tasks. If the choke-point resource’s
function includes three identifiable steps, give one of the
steps to someone or something (machine) else that is not at
capacity (or whose load may be lightened by completely eliminating
a task or, by passing it to yet another resource that is not
at capacity), as an example, get someone else to direct staff.
That other resource does not have to do the task as efficiently
as the choke-point resource does it. Do everything possible
to have the choke-point resource work only on the part of
the task(s) he/she/it is uniquely qualified to accomplish,
and that is also limiting the revenue production process.
What's Next?
Once
that is done and the new arrangement has settled into a routine,
presume that you have changed the location of the choke-point.
Look at the enterprise revenue process with fresh eyes. Start
the process again.
The popularity of the Total Quality Management (TQM) movement
was severely undermined by zealous attention to improving
everything rather than sharply focusing attention on improving
only the next bottleneck in the revenue process. For all the
effort expended, the value for the business was in the improvements
at the choke-point. Since the Choke-point was not specifically
identified, over-all improvement was random and infrequent.
Gentle
Reader: What was useful for you? What other perspective
would you offer?
Will you share that with me?
I will post groups
of some excerpted or edited comments with attribution.
