Where to Focus your Scarce Resources - 1

In the “Your Businesses Potential” article you were asked to evaluate your business against 5 criteria (Global vs. Local Optimisation; Aligned Key Performance indicators; Your Limiting Factor(s) (Constraints); Reliability and Effectiveness. Local optimisation (every department and function optimises its area of responsibility) is wasteful of scarce resources because most of the optimisation efforts bring nothing to the bottom line – since your limiting factor determines what your bottom line can be. Focus your scarce resources on your limiting factor to always realise the greatest positive bottom line impact!

So, where is your limiting factor or business constraint located? What part of your business is blocking your ability to increase profits and profitability?

Your Goal and Necessary Conditions

To determine where to focus scarce resources necessitates an understanding of your goal and necessary conditions. For our purposes we will assume your goal is something like: “We want to make money now and more in the future”. The necessary conditions we assume are: 1. We want to satisfy clients now and in the future; and 2. We want provide our employees with a satisfying and secure employment. Whether or not you agree with the goal and the necessary conditions matters not. Key is the goal.

Your limiting factor is that part of your business system that is blocking you from making more money (and that you believe will continue to block you in the future). Now is a good time to think about what might be blocking your bottom line performance. From the following list pick that part of your business you believe is blocking performance. Since your business is a system of interdependent entities (the functions and departments) only one of them can be the blocker!

• Sales & Marketing; the Market
• Production•Distribution
• Engineering, Research and Development, New Product Development
• Sourcing/Purchasing; Suppliers
• Human Resources; Employees
• Finance
• Legal
• Management; Senior Management
• Policies, Performance Indicators, Behaviours, Company Culture

What does your intuition tell you? Try to verbalise why you believe your pick is the blocker or limiting factor. Explain to yourself through cause and effect analysis why your choice must be correct. This blocker is the place for your scarce resources to focus and improve performance – is it not?

Your intuition might be faulty. Would that be dangerous for your business? It would not, since your efforts to improve the non-limiting factor would overload the real constraint even more than it already is. If this does happen, then switch your focus to your real constraining factor.

Might this kind of focus result in much greater bottom line improvement vs. spreading improvement resources across all departments?

What follows may help you to qualify your intuition will deciding on the location of your limiting factor.