How to identify company bottlenecks that prevent it from growing

company growth

The fact that it is necessary to struggle with bottlenecks is an indisputable fact. Every manager tries to do everything possible to eliminate the problems of the company and bring it to financial haste. But he tries to do it often, as he himself understands. Although the world has long been successful systems and techniques that help effectively cope with the problem, to lead your company to growth. Even the founder of Amazon, Jeff Bezos, whose fortune is estimated at $66 billion, does not rely on his own experience and strength in this matter, but solves the problem of “bottlenecks” systematically.

Growth problems are universal

Expansion of business – the same mandatory thesis for the company, as well as revenue generation. A prolonged stay in the former borders will sooner or later inevitably affect operational activities in the form of rising costs and falling incomes. And in the case of a startup, lack of growth is generally a direct road to failure. The fact that the problem is universal is evidence that there are universal laws of its occurrence.

Efforts fall into the “bottleneck”

If a company directs resources for development and receives a negative result, then the performance of business processes does not correspond to incoming impulses.

The performance clogging points are called “bottlenecks”. The term arose by analogy with a narrow bottleneck, which cannot skip content more or faster than its bandwidth allows. If you view business processes as a collection of actions, then bottlenecks cannot accept as much as required, and cannot release as much as necessary.

The bottleneck arises where, due to inefficiencies – the technology, process or work of a particular person – the amount of “at the entrance” exceeds the ability of this part of the business process to transform it into own results. A potential customer could wait for a day, two or three, until he was told the cost. Thus, bottleneck performance is always inadequate to the demand for results, which inevitably worsen the overall picture of operational efficiency.

Points of growth or zones of problems?

The company can develop in many ways …

  • Increase the productivity of the core business following the development of its market segment;
  • Development of related businesses;
  • Geographical expansion;
  • Seizure of competitors’ market positions;
  • Expansive methods, for example, mergers and acquisitions.

Any of the above items always requires additional investment. How exactly? By developing unique customer solutions and carefully monitoring the cost structure. In addition, the growth process immediately reveals problems that need to be addressed on a priority basis.

company growth
Image Source: Google Image

“Bottlenecks” in the theory of Goldratt constraints

The process of the appearance of bottlenecks is described in detail in the famous theory of constraints (Theory of Constraints – TCO). Its creator is the Israeli physicist Elijah Goldratt. His theory, he reveals in the art bestseller “Purpose: the process of continuous improvement.” By the way, Jeff Bezos, the founder of Amazon, is a big fan of his theory. At one of his meetings, he advised the book to read to all of its top managers.

The theory is based on the idea that the productivity of a company is potentially infinite. However, it meets internal and external systemic constraints, including temporary, technological, market factors and even factors related to culture and management stereotypes. The bottleneck is, in fact, the point of meeting the limitations with inefficiencies. Theory calls for dealing with bottlenecks in management tools that are actually akin to the methods of quality management. Managers should engage in continuous identification and expansion of bottlenecks.

How to identify the bottleneck in your company

To identify bottlenecks in your company, you need to secure not an analytical, but a system approach to the organization. In the theory of constraints, there are several key principles, among which:

Principle of the system approach

It means that the company is considered as a network system, consisting of a set of links in the chain. Each of them consumes the production of the previous link and produces its own. That is, the result of the work of the sales department is consumed by production, the product of the production link is a warehouse and so on.

The principle of weak link

It is postulated that there are necessarily weak links in the chain, they are also bottlenecks. Improvements of processes around the weak link will not work until the bandwidth of the bottleneck has been expanded. When asked how to identify the bottleneck, specialists often respond that it visualizes itself. These are plots whose problematical is especially obvious in the form of work-outs, breakdowns of terms, large amounts of unfinished work, etc. This principle works well in small companies or in the analysis of individual business processes.

The founder of the repair service PriceRemont Yuri Goldberg : “Usually, if the company is small, you can immediately see the bottlenecks at the entrance. In manual mode, I understand the situation behind the situation, why there are many calls or requests for repairs on the site, and there are few final orders”.

You may also like to read: How To Improve Business Processes with CRM or Customer Relationship Management?

How to solve the problem of “bottlenecks”

  • Collect and analyze information about their business processes. The principle here is the same as the basis for drawing up and analyzing the operational flow chart. Each business process has input and output, consumes a variety of resources (raw materials, procurement, time, information) and transforms them into results.
  • Look at your company as a networked system. Understand which link in the chain of the business process is the first in the pace of work, and which is the last, as the results of the work of some links are reflected in the work of others.
company growth
Image Source: Google Image

How to expand the bottleneck

Although the extensive method of expansion is not completely rejected (for example, the attraction of additional labor or production resources), but in the theory of limitations, the board will be as follows:

The throughput of the bottleneck needs to be constantly increased, synchronizing the rhythm of the entire chain. The weak link’s capabilities, which do not work out, and the strong link that directs the excessive amount of resources to the bottleneck, must be equally averaged. Then the rate gradually, but steadily increases and is equalized in the whole chain. So it will be possible to get rid of the hands, the “connected” opportunities and the unfinished work.

How to neutralize bottlenecks in company growth

Guided by the above, bottlenecks of growth can be observed in any direction in which the components of the organizational system do not cope with the constraints. To detect and neutralize the weak links that can have a key negative impact on business development, analyze:

  1. What resources are required for the development of your business. Critical for growth, for example, is the company’s financial resources and access to their sources, human and business resources, etc.
  2. What links consume these resources, what is their current productivity, can they sustain the growth of the load.
  3. Assess the impact of weak links on key business development issues, for example:
  • The ability to raise funds for growth,
  • Availability of access to sources of borrowed funds,
  • The company’s ability to adequately plan the budget and control the expenditure of funds,
  • Sufficiency and quality of human resources,
  • Readiness of the management team for active actions,
  • Efficiency of work with suppliers and customers,
  • Ability to meet the needs of newly attracted customers,
  • Access to efficient sources of raw materials,
  • The demand for products / services by the market,
  • Ability to collect and process marketing information, etc.

Answers to these questions will help to decompose the global problem of blocking development to less complex tasks. The idea of continuous operational improvement through point work with bottlenecks allows to save administrative efforts, focusing them strictly on problem areas.

Conclusion

Most often, the elimination of these (and many other) problems is called growth – the revenue, and profit, are increasing. This, without a doubt, is important, but our practice shows that the qualitative result is no less important. We try to change the manager’s thinking, to teach him to freely navigate in the structure of his own business, which subsequently gives him long-term dividends.

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