Introduction to Control Point Management

Introduction

The response to our newsletters has been terrific and I appreciate all the kind words and feedback. It appears that many readers are getting valuable ideas about how to think about their business and I hope to keep the string of interesting topics going with this month's focus on Control Point Management (CPM).

CPM is grounded in the work of international guru leader Dr. Eli Goldratt, and his method which he calls "theory of constraints". There are many insights which can be uncovered by exploring CPM, but I would like to highlight just one: The more complex the system, the simpler the solution must be.

Ideas

For the purpose of clarity and consistency, let me define some terms which I will be using. First, by 'complex systems' I am referring to any organization - business or otherwise - or, in fact, any situation where multiple elements affect each other. In a business, for example, there is production, sales, marketing, management, human resources, customers, suppliers, etc. etc. No matter how big or how small the business is (even one person shops), business is a complex system. The next term is 'control point'. A control point is that aspect of the business that most limits the business' ability to make money. There are two generic flavors of control point - internal and external. Simply stated, if a control point is internal, then the business has more work than it can handle. Conversely, if the control point is external, then the limiting factor is the market, meaning that the business has more capacity than demand. Let's see what insights these concepts can have for a business...

Simple Solutions for Complex Problems

This is not a misprint. In working with business leaders all over the US and Europe, I am amazed at how diligent business owners are at looking for and creating complex solutions to problems.

Here's the problem: Complex solutions are more difficult to develop, more expensive, are far more likely to have flaws and take a great deal more time to implement. And yet, we tend to default to complexity. Why? Because we tend to look at problems in isolation, rather than as a whole. What does this mean?

Taking the "Global View"

This is one of those takeaways that can give any business owner insight about how their business works. By global, I am not referring to international, but rather to looking at how the major problems, issues and concerns relate to one another across the whole business. This is called looking at the business 'globally'. Problems very seldom occur in isolation. Almost always, there is a cause-effect relationship to them. A very simple example is a company that has the following problems:

*There is an increasing number of quality problems

*Sales are decreasing

*Customer complaints are increasing

*Employee turnover is going up

*Profit margins are shrinking

*There is an increasing number of late deliveries (or service time is getting slower)

Because problems don't hit us all at once, we tend to take each one and address it. So, for example, to address the quality problems an owner might retrain people, install measures and hold weekly meetings to review quality performance. To increase sales, the owner might offer discounts or hold a 'sale'. To offset customer complaints, the owner might offer some type of compensation for the problem. And so on.

But if we analyze these problems as a whole and look for the relationship to each other, we might get some insights about where to focus first.

In this analysis (note that a different company with the same problems may come to a different conclusion) the owner realized that the high turnover meant that there were few experienced employees left who knew how to take care of the customers in the way that they were accustomed. Because of this, it took longer to do the work and there were more errors. The result of slower service and poorer quality led unavoidably to more customer complaints. Therefore, customers began going to competitors, resulting in lower sales. And because the quality problems created additional cost and the loss of sales, the net result was a reduction in profits.

If the owner tried to solve each problem in isolation, they would have spent a great deal of time, effort, energy and money with very poor results. By understanding that the core problem was employee turnover, the owner could focus on things like training, retention, hiring, etc. And by doing so, have an impact on ALL the other problems that the business is facing. This is a "control point": One aspect that affects many others. Rather than trying to improve them all at once, focusing initially on the control point will help accelerate the problem solving and improvement process.

To be clear - addressing a problem and solving it are two very different things. Obviously, we repair a poor quality product, or do what we need to do to address a specific customer complaint and so on immediately. But when we settle on ensuring that the problem does not repeat itself, then we are solving the problem and it is here that taking the global view is most effective.

One of the great benefits of the CPM approach is that you do not need to affect everything in order to have an overall impact on the business. By understanding how each problem relates to all the others, a business owner can minimize time and effort and maximize benefits by looking for the core problem and addressing that first.

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Being in business is hard work.

Why not maximize your results?

Questions to Consider

As you read this short discussion, consider how your company stacks up:

• What are the key problems or issues that your business faces?
• Are these the most important, most pressing problems that the business is facing? Why do you think so?
• Have you analyzed how they affect each other?
• How do these impact the business' ability to perform?
• How do these limit your ability to make money?

Next month: Speed of Work Flow

Until then, go out and make some money!

-John P. Gaulin

President