Want to Outshine Your Competition? Stop Overreaching

"Do not bite off more than you can chew” This widely known phrase is something we’ve all likely heard. But how often do we consider its true meaning and its impact on our lives?

It’s commonplace to be inundated with tasks and responsibilities. We strive to cover everything, believing that proving our ability to juggle multiple fronts simultaneously demonstrates our superiority. Warren Buffett once stated, "The difference between successful people and really successful people is that really successful people say no to almost everything." Echoing this sentiment, Steve Jobs remarked, "Quality is more important than quantity. One home run is much better than two doubles."

Perhaps it’s our upbringing, where we are expected to excel in everything, or a cultural aspect, but it’s intriguing to see how this approach can lead to scattered performance rather than excellence in specific areas. By attempting to handle too much, we often fail to stand out in any particular domain.

Applying this to organizational settings, we encounter the same issue: a deluge of tasks and responsibilities, an array of strategies and tactics to implement. Leaders struggle to focus on a few critical areas, believing that success depends on dispersing their energy across various fronts. However, following Buffett and Jobs' advice, it becomes clear that the key lies in effective prioritization. But how do we determine what should be prioritized? How do we ensure we are being effective in our choices?

Eliyahu Goldratt, author of The Goal, provides illuminating guidance on prioritization. Goldratt introduces the Theory of Constraints, a methodology designed to identify and manage bottlenecks in organizations. According to Goldratt, the primary goal of any organization is to make money, and to achieve this goal, it is crucial to focus on three key metrics:

1. Throughput: The rate at which the system generates money through sales. In other words, it’s the money coming in.

2. Inventory: Represents all the money the system has invested in purchasing items intended for sale. Essentially, it’s the money tied up in the system.

3. Operating Expense: The money spent by the system to convert inventory into throughput. It’s the money going out.

Bottlenecks are any constraints in the system, resources whose capacity is less than or equal to the demand placed on them. It’s worth noting that identifying bottlenecks is crucial because they define and govern the organization.

Activities that do not directly impact the performance of the bottleneck or align with the organization's overall goal (increasing throughput) should be reconsidered or eliminated. This prevents the organization from wasting resources on areas that do not contribute to the main objective.

It’s also valuable to mention Jim Collins' caution in his book, How the Mighty Fall. Collins notes that during the second stage of the decline pattern of great companies, there is an undisciplined pursuit of more. Fueled by growth, entrepreneurs seek increasingly more: more products, more markets, diversification of their core revenue sources, and expanding their flywheel of growth.

There are clear examples of this pursuit of more, where a lack of constraint led to dramatic falls.

In the United States, Circuit City was once a leading electronics retailer. However, in its attempt to compete with companies like Best Buy and Walmart, Circuit City adopted an aggressive expansion strategy, including the opening of many new stores and diversifying into new products and services. This rapid, uncontrolled expansion, combined with a lack of focus on customer experience and product quality, led to a decline in service and customer satisfaction. Ultimately, Circuit City could not maintain its market position and declared bankruptcy in 2008.

In Mexico, Gigante, a chain of self-service stores and retail, tried to expand its presence and capture a larger market share by diversifying its operations. The company not only opened new stores but also ventured into different retail formats and sectors beyond retail, such as financial services and e-commerce. Excessive diversification and rapid expansion led to a dispersion of resources and a lack of focus on its core business. Gigante could not manage all these fronts effectively, resulting in inconsistent service quality and confusion in its market strategy. The company faced significant problems related to excessive inventory and inadequate product turnover, directly impacting its profit margins and its ability to respond to market demands and competition. It declared bankruptcy in 2008.

The lesson here is clear: saying no to additional tasks and focusing on what drives the core growth of the company is what leads to success. Goldratt emphasizes that organizations should focus on continuously improving their successful processes that generate money. By concentrating on bottlenecks, the organization ensures that resources are not spent on activities that do not significantly affect the company's capacity and avoids investing time, money, and effort in areas that do not enhance the company's revenue production.

Goldratt outlines five steps for identifying bottlenecks and maintaining focus on what is truly essential for the company's growth:

1. Identify the resource limiting performance: This could be a machine, process, policy, or individual.

2. Exploit the bottleneck to its maximum capacity: This may involve redesigning processes or reallocating tasks.

3. Adjust the rest of the system to support the bottleneck: This includes changing schedules, workflows, or prioritizing tasks.

4. If the bottleneck is still constrained, increase its capacity.

5. Once the bottleneck is resolved, move on to the next bottleneck and continue the cycle.

By identifying bottlenecks and reorganizing the company to support them and streamline that link, throughput is maximized. The organization must decide and act in a way that aligns all efforts with the goal of relieving the main constraint and producing more.

When this happens, it becomes easier to focus on what truly matters and generates results. However, it’s common to see organizations dedicating time, money, and effort to activities that have little to no significant impact on their operations. This is a common trap that should be avoided. Like a sculptor chiseling away at a block of marble, the key is not in the quantity of actions taken, but in the precision of focusing efforts where they matter most. Only by understanding and addressing the core constraints can we carve out a path to unparalleled achievement and enduring success.