This Focused Performance Weblog is a "business management blog" containing links and commentary related primarily to organizational effectiveness with a "Theory of Constraints" perspective. TOC is noted for its applications in Project Management and Multi-Project Management (Critical Chain) and Operations Management (Drum-Buffer-Rope), as well as in Marketing, Strategic Planning and Change Management (TOC Thinking Processes). If you are on an archive page, current postings are found here.
I've got the book on order for myself right now, but gleaning the reviews and writings about it, a lot of what I'm seeing has a lot in common with the Theory of Constraints view of marketing "at the margins" as a way of growth and of recognizing the value of "low margin" products to a market constrained organization. According to Christensen, in a Business 2.0 interview, the book's core is about...
Why sticking to core competencies is a bad idea: "It's dangerously inward looking. Competitiveness is more about doing what customers value than doing what you think you're good at."
The TOC model of developing market offerings -- the products and services and terms that wrap around them -- is all about looking at the constraints and core problems faced by your targeted market segments, and finding a way to position your offerings to address them. This is critical because, while you are selling a product or service, what the customer is actually buying is a solution to their problems. And the most valuable problems are associated with constraints and/or deep core problems at found at the root of many symptoms. Value is in the eye of the buyer.
Why it's difficult for companies to sustain growth: "There are many explanations -- bad management, aversion to risk, the unpredictability of innovation -- but the way established companies filter new ideas encourages executives to get it wrong. They have to define new markets using available data, but by the time the data is clear, the game is already over."
One of the key erroneous filters of ideas, according to the TOC litany, is based in the "data" known as "product margin." Too much attention is paid to this distorted and distorting piece of data. In organizations that are externally constrained, like those post-bubble tech companies that have more capacity than their markets are absorbing, concern about small margins might kill products, when if they have the capacity to produce them with largely existing resources, most of the difference between directly variable raw costs and revenue can really go straight to the bottom line. Misguided attempts to allocate non-variable direct labor and overhead to particular products, through either traditional cost accounting or activity-based management, leads to filters that are misaligned with what should be the company's goal -- increasing company throughput and revenues. Profitable growth starts at the top line, not with the results of funny-money allocations.
How to ensure that your company is the disruptor, not the disruptee: "You know that expression, 'If you build a better mousetrap, they'll beat a path to your door'? Well, it's not true. Someone will build a cheaper, not-as-good mousetrap, which you'll dismiss at first but which eventually steals your customers. Historically, established companies have stayed atop their industries by creating separate organizations that can follow completely different business models. The book describes how you know when it's time to take that step."
"Separate organizations" is one way to do it. Another way is to use the TOC mantra of "segmenting markets, not resources." It's about designing tweaks of product characteristics "at the margins" of the basic offering and clearly mapping those tweaks to well-understood segments who will be happy to pay a premium because one of your tweaks addresses their constraint or helps to solve a core problem, or simply solves a problem for them. The various combinations of tweaks and new products adds up to a collection of business models that can be managed without organizational disruption and inefficiency of "separate organizations."
Another tenet of the TOC approach to marketing and product development is not only to look at your immediate customer, but also to their customers further down the supply chain. Along these lines, a Fast Company article links Cristensen's Innovator's Dilemma to the success of a TOC-savvy company...
At Harvard Business School, Professor Christensen is watching his old favorite industry's most recent transformation with considerable interest. "The fundamental elements of The Innovator's Dilemma are always at work within all companies," he says. "It's like the laws of gravity. But in the same way that airplanes can fly, companies can sometimes overcome some of these pressures. If Seagate is figuring out how to sell smaller, cheaper, and simpler drives to a big new class of customers, it has a high probability of success."
Smaller, cheaper, and simpler might mean lower margin. And it can also mean higher growth in an industry whose product line is subject to the acceleration of innovation. Once again, the book is The Innovator's Solution: Creating and Sustaining Successful Growth. Check it out. I'll report back once I'm done reading it if my take on the synopses is in line or off base.
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