Constraints are the limits and restrictions you place on your business and its activities. They are the choices you make about what is in and what is out of scope, including:
- Where you play. What are the categories, markets, channels and customer groups in which you will participate?
- How you win. Are you focused on leading your chosen markets on product innovation, customer service or price? And where you have made these choices, what performance standards have you set?
- The resources you commit and the returns you demand. What are your cashflow requirements, sales and profit growth targets and required returns on capital?
I've identified four benefits you'll gain by establishing business constraints.
- Faster decision-making. Last year I worked with a client where the company's owners decided that any initiative had to repay its initial investment within two years. This constraint allowed us to quickly identify the highest-potential ideas and avoid spending time assessing too many ideas.
- Greater empowerment. Drive accountability throughout your business and you'll not only increase decision-making speed, but free up your time for higher value work. But people can only make effective decisions, and be accountable for their results, when they work within agreed boundaries. Clarify outcomes, agree authority levels and establish behavioural boundaries and you'll help rather than hinder empowerment and drive individuals ownership of outcomes.
- Greater creativity. Last week I was working with a management team to generate new growth ideas. The team were struggling to identify compelling new sources of growth and were daunted by the sheer scale of opportunity facing them. It was only when we prioritised three specific areas (entering adjacent categories, transforming customer service and targeting a specific customer segment), and put other areas of opportunity to one side, that the ideas started to flow.
- Higher returns. Many studies and reports (including "Good To Great" by Jim Collins, and "Profit From The Core" by Chris Zook) demonstrate that a focused approach to growth generates superior performance to companies that try to operate on too many fronts.
As Steve Jobs once said, "We're always thinking about new markets we [Apple] could enter, but it's only by saying no that you can concentrate on the things that are really important".