Theory of Constraints: Organizational Structures - One size doesn’t fit all - Part 1
August 31, 2013
If this is our product development goal…
“Develop the most insightful, intuitive, useful, cost effective solutions on the market at the time the market needs it!”
Then how do we go about reaching our goal? Can we be organized more efficiently to attain our goal?
How about this, does this sound familiar?
Current organizational pain points:
Organization is misaligned (incentives/objectives/authority are not at the right levels)
Organization is not staffed appropriately. Too much in one functional area and not enough in others. (Top heavy; ratios between Product Management/Engineering/QA/UX/BA, and Project Management are out of whack). There is no flex or room for quick response and adaptability within the portfolio.
Resources either seem to lack the necessary skills to develop products or they are playing out of position – resources just not in the right places to be effective.
We plan the execution of our portfolio too “tightly”. No buffer or room for error exists. It’s either we hit on everything or we fail - any change to plan is somewhat catastrophic.
Organizational and product strategy does not relate to realistic tactical execution. Misalignment in goals between the market segments strategy, the product strategy (product roadmap), and the project strategy. Do we have our strategy aligned with our resources? Are we focused on the prize? Has the prize been defined?
To help resolve these pain points we have to start asking the following questions:
What are our limitations? What is constraining us from achieving our goal?
What can we do to facilitate and promote more through-put? This isn’t just through-put in product engineering and development but through-put all the way through sales with ultimate commercialization and selling of product.
If our general philosophy for product development is a one-to-many relationship; meaning one technology/skill set can be used to create many final products, then how do we prevent robbing from one top priority project to do the other?
In order to answer these questions, we have to consider our entire investment strategy (inventory) and understand how this strategy relates to the demand of what sales needs to meet their numbers and what the market demands. It’s not just about what we are developing and selling today; but understanding what we need to build and sell tomorrow.
To take it one step further, we have to ask ourselves: does our strategy match the demand it places on our customer facing resources (sales, marketing, implementations, product support, operations, etc.)? If we build everything we say we are going to build, and compare that to the sales pipeline (what sales says they can sell), would we have enough resources to sell it, market it, implement it, and support it?
What is our operating cost around all of product development and commercialization activities? How much does it really cost to turn investment into sales and satisfaction to our customers?
Solving these types of challenges is going to take cross-functional executive alignment. To achieve this alignment, we need a plan focused on the following:
Gain agreement on the problem(s)
Gain agreement on the direction of the solution
Gain agreement that the solution solves the problem
Agree to overcome any potential negative ramifications
Agree to overcome any obstacles to implementation. Said another way, working through layers of resistance to change
The theory of constraints is based on the following: The rate of goal achievement by the system is limited by at least one constraint.
Identify the systems constraints – what’s preventing us from achieving our goal?
How can we get the most out of our constraints?
Align the whole organization to support the answer to 2.
Elevate the system / organizations constraints (make other changes needed to break the constraint.
Current products – throughput – is this maximized? What will better equip sales to sell current product? The fundamental statement that sales will sell anything is NOT good enough and doesn’t work when it comes to cross-over market products. If sales can’t sell one product, they will move on to the next – so something that could be very profitable…. Winds up being a failure.
Inventory – current projects. Do we have too much inventory? Not enough? Too much mediocre but not enough impactful? How do we reduce/change our inventory/investments to better match our throughput? What resources can create the most value and throughput with our inventory? Deliver high quality value-add products to the market.
Operational expense – what is the cost for us to turn inventory into sales? Soup to nuts. Ideation, project construction, implementation, overhead, policy. How many sales people does it take to sell a product? How many engineers does it take to create a product? How many implementation resources does it take to implement a product? How many operational resources does it take to support that product?
Don’t we have to go through this product line by product line and make sure all of these align (Throughput, inventory/investment, operational expense)?
So again – what do we do? - The Answer in Part 2 of this post.....