By pulling together ideas from a few different management paradigms, I’ve developed a methodology to drive growth for my ecommerce company by setting up a structure of focus on an organizational and individual level.
In “Theory of Constraints, for ecommerce companies,” the initial post in this series, I covered the five focusing steps of TOC. Ecommerce companies typically need to accomplish many different goals, and individuals are often called to perform many different tasks.
Then, in “Applying Theory of Constraints to our packaging process,” I described how we greatly increased production without increasing expense.
This installment will address the importance of focus while applying Theory of Constraints to our business.
Management is always concerned with things such as sales growth, profitability, and the availability of cash. As a result, employees often feel that the company needs more resources and that they are spread too thin.
I hear this loud and clear from other ecommerce retailers, as there are many moving parts in an organization and it seems that each manager is pulling in a different direction. Moreover, the focus of management teams seems to shift from month to month.
We operated overstockArt.com in much the same way until a couple of years ago. In order to grow, we felt that we had to push from all angles and each of our employees worked at full capacity, doing many tasks. But TOC taught us that having all resources at full capacity is not healthy for the company and its employees. When everyone is continually at full capacity, the organization misses its ultimate goal of making money now and in the future. Or, in the words of TOC, “Increase throughput while decreasing inventory and operational expense.”
The above is a crucial point. Contrary to common belief and common practice, if everyone is as busy as possible we as a company are not likely focusing on the ultimate goal, but instead on many ancillary goals that may or may not move us towards the ultimate goal.
To avoid this distractive approach, we must focus the entire company on a few specific “rocks” that are supporting the constraint and that move us towards our ultimate goal of making money now and in the future.
To accomplish this, I have developed a process that is a combination of the “One Page Strategic Plan” developed by Verne Harnish, a management trainer and consultant, and the “Theory of Constraints” developed by Eliyahu Goldratt.
Here are the steps we take in our planning sequence.
1. Decide on goals for the year. Every year in our planning session we start by identifying the constraint and the bottlenecks of our business. Once the identification is done, we come up with five goals for the year that will support the elevation of the constraint and bottlenecks. Annual goals are arranged in order of importance. This means that regardless of a person’s specific area of expertise, all of our management team is first focused on accomplishing goal one of five — and then down the line.
2. Decide on rocks for the quarter. The next focusing effort is to set up our five quarterly rocks, which are built to support the annual goals. Also every quarterly rock is assigned to one person, who is responsible for achieving it. This person will need help from others but he or she is accountable.
3. Set up individual goals for management. Each person in our top management team comes up with three rocks for the quarter to focus on. This same process is filtered down in the organization to many of our employees as well. Also, all employees understand what are the five rocks for the quarter. This creates an environment where our entire management team and company are focused on only a few rocks and each person has a focused environment to work in.
In practice, not everything gets accomplished and there are many distractions and daily activities that have to be handled. But as a whole, the company is focused on a very small set of goals. For example, in the third quarter of 2014 we accomplished our number one rock in full.
The next four were not fully accomplished. However, the results for the company were as follows.
- We met our sales and gross margin goals, which were aggressive.
- We’ve seen major improvement in product availability and selection of SKUs on our website.
- We developed new technological tools to better segment and evaluate our inventory so that we can improve our inventory turns and our ROI.
This system has done more than just the accomplishment of our goals and rocks. More than the financial growth of the organization, this creates a more comfortable environment for all employees. Finally the growth of the company is more sustainable as the management team and the employees learn that focusing on any one area allows the company to either fix a problem or pursue an opportunity.
At the heart of the plan are the TOC’s five focusing steps.
- Identify the system constraint.
- Decide how to exploit the constraint.
- Subordinate everything to the constraint.
- If necessary or possible, elevate the constraint.
- If in the previous steps the constraint has been broken, go back to step one, but don’t allow inertia to cause a system constraint.
I would love to hear comments of how focus has helped your organization. What methods do you use in your organization? If anyone would like to share how lack of focus is creating chaos throughout the company, I would enjoy hearing that as well.