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Constraint Management and the Market

If your business suffers from . . .

  • Difficulty attracting customers
  • Pressure on pricing and the need to compete on price
  • Frequent consideration of downsizing due to excess capacity relative to demand
  • Simply, not enough business

. . . then chances are good that your constraint is in your market and related to how you develop your offering to that market. Sometimes the constraint that keeps and organization from achieving its goals is internal -- in production, distribution, project management, human behavior etc., but sometimes it is external -- in this case, in our market. If it's in the market, the symptoms are based around the fact that we can supply more than the market is buying from us. We need more business.

The opening in this situation is that our customers have their own constraints, their own problems, and their own headaches. To the extent that our offering and relationship with them is similar to our competitors, and that that offering and relationship can be tied to the customers' problems, we can create new offerings to augment or wrap-around our core product/service. If that new aspect of our offering addresses their constraints, it can provide them with high value. For example, some customers prize reliability and on-time delivery far more than price. Figuring out what will solve the customer's/market's problems will then drives a look back into our organization to see what it needs to address internally to provide these new solutions for our customers.

The External Constraint

Many organizations want to significantly improve their bottom line performance, but can only do so by effectively addressing the external factors constraining their performance; external constraints such as insufficient market demand, poor supplier performance, or the unwillingness of the financial institutions to provide the necessary capital. In order to effectively address an external constraint, the organization must construct and present an offer that:

  • Alleviates the impact of the external constraint on the organization's performance

and

  • Provides the external constraint with significant, quantifiable bottom line benefits.

Such a win-win is what we call an "unrefusable offer." To construct and present such an offer requires that we create a shift in the way that our offer is valued by the external constraint: from one that is based almost solely on "price" -- where the other important elements of our offer are left virtually unquantified (the ones that can make or break the deal); to one that is based on "price related to bottom line benefits." Hence, one of the major elements to be addressed in providing an external constraint with an "unrefusable offer" is quantifying the value of the offer in terms of its impact on the external constraint's bottom line.

Bottom line here doesn't necessarily mean Net Profit -- it might mean ROI, Inventory Turns, Cash Flow, or keeping within Budget. What's important in doing this is looking at the bottom line through the eyes of the external constraint and determining what it considers to be important. Quantifying the offer in this way enables the external constraint to value the organization's offer on the basis of the "bottom line benefits it gets for the price" rather than simply the "price."

(For a "novelized" set of case studies on how several firms dealt with this TOC approach to the market, see IT'S NOT LUCK, Eli Goldratt's sequel to THE GOAL, published by North River Press.)

In order to be irreplaceable one must always be different. - Coco Chanel

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