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CASE HISTORY
Breaking Operations Constraints Makes
Business Fun Again
In April of 1995 the dream of two entrepreneurs to build a company was making them miserable. After six years in business, the fun of building a company was gone; the company was successful, but stuck.
Willie Neumann and Steve Weiker, the founders of HYPER ACTIVE, an application software company, were exhausted. "We'd gone from recent rapid growth into a stall in terms of revenues. Debt was growing as a result of cash-flow problems," Neumann recalls, "and, making payroll for our company of nine people was a constant concern."
The two partners and their employees were working harder than ever... but the problems only seemed to grow. "We were definitely "hyperactive" and it was killing us," Neumann adds.
By the end of May 1996, they had five months worth of payroll in the bank, and three months worth of payroll in 30-day receivables. "We have no debt. Everyone is more relaxed and rested," Weiker says. "We are looking for larger office space, hiring new employees, and buying new equipment. It's fun again."
Projects in the pipeline indicate HYPER ACTIVE will quadruple its business from the 1994 level and everyone actually has time for life outside of work.
What happened to turn this company around?
Several things happened, of course, but one of the most important is that Neumann and Weiker learned how to break constraints.
The breaking of constraints was popularized by Eli Goldratt in his best-selling books THE GOAL and IT'S NOT LUCK. (Goldratt was not the first to offer such an approach. Others including W. Edwards Deming, Peter Drucker, and Peter Scholtes have also talked about the importance of focusing on key constraints.)
Breaking constraints is NOT about time management or prioritization. (That's not enough.) It's about changing the game. It's about recognizing the most important "bottlenecks" and taking action on them.
"It's also about systems thinking and thinking in a different way about solving problems," Neumann says.
The process is both straight-forward and powerful. Here's how it worked at HYPER ACTIVE. (See “Breaking Constraints.”)
STEP ONE: Identify the constraint. You want to identify the biggest constraint because it provides you with the highest leverage once you break it.
You can start by asking, "What's holding us back? Where's the bottleneck in the process?"
To identify the highest leverage constraint, it helps to make a list of all the undesirable elements that you notice in your day-to-day business. Usually, they are all connected. (For a list of the items we put on the white board for HYPERACTIVE in April 1995, see “Identifying the Constraints at HYPERACTIVE”. )
Once we had the list of undesirable elements of the business, we looked for causes and effects, and relationships between the various undesirable elements. As we looked along the work-flow pipeline and linked causes with effects, we found most of the undesirable elements were connected to the issue of time.
Indeed, the main constraint was that Weiker and Neumann had virtually no time to spend running the business! That was THE big constraint.
They were putting out fires with clients, working on projects that were behind, dealing with decisions that should have been delegated, worrying about cash-flow, and becoming more and more exhausted and discouraged. They were doing all of those things to keep the business running one day at a time, but they weren't in control of the business, nor could they look ahead with hope.
STEP TWO: Focus your resources and attention on breaking the main constraint. Many times the main constraint can be broken fairly quickly once you recognize what it is. We've encountered situations in which the main constraint was lack of sales. Using the three-step process, we identified all that was required to increase sales significantly, for example, was to invest more in sales training.
In HYPER ACTIVE's situation, there was no simple solution. No single activity could break the constraint. (For more detail on constraints, see “Breaking Many Constraints at Once”.) Paradoxically, to break the time constraint, Neumann and Weiker were going to need time - time to focus on business process and organizational issues. As we looked at the list of undesirable effects, we saw that most problems were process-related.
So, to find more time for Neumann and Weiker to focus on the business, we needed to streamline and simplify processes that would save and create time, NOT money. This is important: the constraint was not money; the constraint was time.
So, here's what HYPER ACTIVE did:
"We attacked the constraint on several fronts," Weiker recalls. "First, we really made a point of putting our heads together to fight fires. This was a more efficient process of putting the fires out and of keeping them out rather than trying to fight them as individuals. (For more detail on the process, see “Process Shifts”.) Common sense told us that one person fighting a fire is more efficient than having three or four people fighting the fire. But with three or four people, the solutions were better, smarter, faster, and lasted longer."
Weiker and Neumann also made the decision to hire another person. "Even though money was tight, we knew we really needed somebody to get the life-blood processes under control," Weiker recalls. They hired Christine Boerner to help. She not only took control of the office functions, but joined us for the weekly planning and strategy meetings.
"Once we found a little extra time via renegotiated project delivery dates and through the group fire-fighting process, Steve, Chris, and I started taking time off project work to focus on improving our processes," Neumann adds. "We took a step-by-step approach. First, we examined our proposals and contracts and we found they were the root cause of many of the fires we had to fight. We realized were spending too much time developing the proposals, but they weren't really helpful to us or our clients in terms of the actual work we were doing. They didn't spell out enough detail, which is why fires flared up. In just a few hours one afternoon, we figured out how we could streamline the proposal creation process and increase the quality of the proposals at the same time! We also looked at project milestones in relation to receivables and saw how we could more appropriately balance the two. We discovered our cash-flow was out of sync because our proposals weren't aligned with the realities of the business."
Process improvements also resulted in cash-flow and profit improvements. (See “The Multiplier Effect”.)
The key point is that with each process improvement Weiker and Neumann were breaking the main constraint: time. The improvements meant fewer problems and a smoother running operation, which meant Weiker, Neumann, and Boerner had more time to focus on the next process improvement.
STEP THREE: Anticipate the next big constraint. Deming said that management involves prediction. In fact, he said one of the responsibilities of management IS prediction. Goldratt also points out that if you remove a big constraint, you'll find there are still other constraints in the system, and if you don't predict the outcomes of breaking a constraint, you risk creating an even bigger problem somewhere else in the system.
If, for example, you train your sales force to make more sales, you need to make sure you can still deliver enough quality products or services quickly enough to keep your new and old customers happy! If you can't, you've merely shifted the constraint to another area of the organization and you won't be any further ahead.
HYPER ACTIVE didn't have this problem. The next constraint was predictable. It involved marketing. (See “Anticipating Constraints”.)
"We asked, if we break this constraint, what will happen next? We'd made the entire company more efficient, and everything was running smoothly, so we were able to turn our attention to the next constraint to growth and profits: keeping everyone on projects!" Neumann recalls. "And that meant marketing and sales."
As it turned out, all Neumann had to do was make a few calls to let clients and prospects know that HYPER ACTIVE could now handle more work and the work flowed in.
"Fortunately, we anticipated the next constraint after the marketing constraint, which is staffing," Weiker says. "We actually hired two people in anticipation of the amount of work we were going to have coming in, even though there were no signed contracts. This made me nervous at first. It felt so good to have money in the bank, and I didn't want to risk worrying about making an even larger payroll."
But with the business processes running smoothly and money in the bank, Weiker agreed this would be a wise decision.
And it was. "If we focus on the constraint process, the big constraint is hiring and training people fast enough to support our growth," Neumann says. "We know that on our way to $10,000,000 in annual revenues that we'll encounter other constraints, but we also know we'll have the time, money, and know-how to address them!"
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“You helped us stabilize and grow our company. Thanks to your guidance we now have reliable processes in place for everything from writing proposals and contracts - to hiring, compensating, and developing employees.”
~ Steve Weiker & Willie Neumann, Founders
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Kelly Allan is Senior Associate of Kelly Allan Associates, Ltd. and was the consultant/catalyst to help HYPER ACTIVE turn-around. A goal for Allan was to determine if strategies and tactics that work with large companies can be applied to smaller, growing organizations as well. The conclusion is "yes."
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Challenge: short on time and money to solve problems and generate ideas
Outcome: solving several problems at once generates momentum