It is also known as a rate determining step in chemistry (and more
commonly known as a bottleneck). Why is this relevant for business? The main
problem with these bottlenecks is that the capacity of the entire process is
reduced commensurately. Finding ways to make improvements in the capacity of a
bottleneck will improve the throughput which can result in significant gains in
the bottom line.
Every
business has numerous processes, be they physical production ones (with which
the concept of limiting factors is synonymous), or service based ones where the
bottlenecks may be less obvious.
Speaking
from the perspective of our business, software development, our ‘production
line' focuses primarily on building new features in our software as well as
adding new web pages on our sites. There are no shortage of feature requests or
planned enhancements for our Liveplan.com Software as a Service (SaaS) offering. This of
course is one of the benefits of SaaS; users can easily request new features or
changes to existing ones via prominent ‘feedback' buttons within the
applications. Similarly, the roadmap detailing planned developments is
significant, as companies like ours constantly look to innovate, and to create
more value by making the software more useful for customers. SaaS business
models rely heavily on customer retention, which is why they are so receptive
to addressing product deficiencies and adding features customers want. The end
result is lots of idea to implement.
For
most software companies like Palo Alto Software a major limiting factor
is in development. Translating ideas into code can be a significant process and
managing team members with different skills is a challenging task. Of course
this is by no means a criticism; processes with heavy human involvement can be
very inefficient. One way to resolve the issue is to simply hire more
developers. However, while it may improve efficiency it can result in the
introduction of extra idle time which simply adds more cost. Hence all software
development companies need to weigh up the benefits when considering the costs
associated with additional staffing as a means to unblock bottlenecks. Most
cannot afford to staff up so the development teams remain the limiting factor.
In
recent years there have been huge advances in this area. Nowadays most
development teams, including our own, operate very efficiently, embracing agile
and scrum based methodologies. These approaches are very flexible while also
facilitating rapid deployment of code. Where once, code was released annually,
most teams in smaller companies deploy new code monthly (at the very least).
Larger companies like Facebook push new code twice
daily. Despite these improvements, senior management will always strive to look
for ways to reduce the lag between concept and revenue.
However,
even if you do get to identify some bottlenecks, they are not always easy to
‘fix'. The real constraint can often be a resource one (as described above) or
in the case of the following example a minor element in a process. A
surgeon I spoke to recounted his difficulties with the porters at the hospital
he worked in. One of the biggest challenges he faced in terms of ‘productivity'
i.e. doing operations, was waiting for the porter to arrive with the patient!
Any attempts to speed up the process were met with deaf ears and a fear that a
bureaucratic nightmare would ensue if he attempted to bring the issue up with
the Porter's union. As a result his output as measured in terms of the
operations he performed was being impacted negatively by a bit player.
Others
have more creative solutions to limiting factors. Some Japanese fishermen utilize
smart phones to make use of the dead time associated with the trip back to port
by taking photos of their catch, uploading them to an Internet site, and
coordinating orders via their Twitter accounts. Elsewhere, modern
fishing fleets are increasingly configured to facilitate on board processing,
so fish can be packaged on the way back to port, ready for immediate delivery
on arrival back. Companies like Pret and Eat look to increase throughput at one
of their main bottlenecks, the tills, by embracing contactless bank card technologies. Restaurants like Pizza Express offer a PayPal iPhone
app which is also designed to turn tables more quickly by facilitating quicker
payments.
In
summary, while concepts like ‘limiting factors' and ‘bottlenecks' are
synonymous with old school production lines, they have relevance for all
companies with processes of any sort. Reviewing your own processes, identifying
some limiting factors, and assessing whether there are some gains can be made
is a great place to start.
Alan Gleeson is the General Manager of Palo Alto Software Ltd, creators of LivePlan and Business Plan Pro. Follow him on Twitter @alangleeson