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What’s Stopping Your Business From Making More Money?

As an entrepreneur, you probably suffer from what Michael Gerber calls “busy, busy, busy”.

There’s always much more you which you could do…, should do.

But what really matters?

What is the main thing that is stopping your business from making more money?It’s an interesting question and it explains why I’m attracted to using the theory of constraints in my strategy coaching.

There are two techniques in particular from the Theory of Constraints Thinking Processes that we should talk about.

The first is the Prerequisite Tree.

This focuses your attention on the necessary conditions to meet your goal.

It’s particularly important for start-up businesses or those that have never performed well.

The idea is to focus on the individual things necessary for your success which together become sufficient.

It’s a bit like a jigsaw puzzle – you don’t get to see the full effect until every piece is in place.

But the jigsaw has been mixed in with other sets of pieces.

There are many things competing for your attention, but they don’t fit.

They don’t complete the picture.

The 1,001 other things you could do in your business take your time, attention and money but because they are nice to haves rather than must haves, they move you forward.

The Prerequisite Tree identifies the most important things to focus on and turns them into intermediate objectives.

We can find the items by asking “What’s stopping you from achieving your goal? Why haven’t you already done it?

The second important aspect of the Theory of Constraints Thinking Processes I want to focus on in this blog is the Current Reality Tree.

This works from the symptoms of your problems – perhaps not making enough money – and working back helps us to identify the core problem which will have maximum impact.

This is identifying the constraint.

And when you can see it, you can follow the Theory of Constraints principles and do something about it.

The constraint may be inside the business.

It may genuinely be a physical constraint – you could sell much more if only you could make it.

Or it could be a policy constraint. Unfortunately it is easy to get trapped by conventional thinking and do things because “that’s the way we’ve always done them” without appreciating the consequences.

Or the constraint could be out there in the market.

You could make more money if only you could sell more.

The Theory of Constraints has an answer for that too by developing what’s called an unrefusable offer or even a Mafia offer (think Marlon Brando saying “I’m going to make you an offer you called refuse” in The Godfather”).

This is the purpose of differentiating your business and explains my interest in the Theory of Constraints and the work of Eli Goldratt.

I recommend you take a look at this excellent book

The Logical Thinking Processes by William Dettmer

in 1 – Your KPI, 2 – Your Inner Game

Strategic Planning Models

Academics and consultants have developed a lot of strategic planning tools and strategic planning models to help business owners and managers to develop better strategies that win in the marketplace.

As my differentiation blog develops, I will be introducing more and more of these strategy models but the purpose of these page is to provide an overview of the strategy tools and to give you easy access to more detailed information. (This article was originally posted on my Differentiate Your Business blog which has closed after it was hacked.)

Why Strategic Planning Models & Tools Are So Useful

  1. Strategy models provide a common focus point for discussion. The best strategies come of from the insight of applying the strategy tools and the discussions that happen within the management team and not as a direct result of using the planning model.
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  2. Strategy models provide a common reference point. You can see a set of conditions or even a particular symptom and you can relate it back to the rest of the strategy model to understand more about what is happening at the moment, what is happening and perhaps what will happen.

I want to be clear, the strategic planning tools are not the end in themselves, they are a way to help you to reach your main objective, developing a strategy that creates a competitive advantage so you achieve your goals and beat your competitors.

As you work through the strategy models, you are looking for insight on how you can improve and leverage the Six Step Profit Formula.

Perhaps the attractiveness of your market is moving in a way that will demand a response from you (good or bad)?

Or is what it takes to win in the market changing as customers needs, wants and priorities change?

Or is perhaps there a better way to create the customer value appearing on the horizon? If you can get to it first, before your competitors, than you have the opportunity of a significant competitive advantage.

Popular Strategic Planning Models Tools

Strategy models and tools come in a variety of different sizes and situations:

  1. Models to help you to understand your strategic environment
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  2. Models to help you to establish competitive advantage
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  3. Models to help you to assess your strategic direction
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  4. Models to help you to implement strategy
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  5. Models to help you to assess your overall strategy.

Strategic Planning Models To Help You To Understand Your Strategic Environment

The most famous strategic planning models and tools to look at the winder industry and economic environment are:

Michael Porter’s Five Forces

This is perhaps the most famous strategy model as it takes an industrial economics based approach to understanding what makes an industry attractive or unattractive.

Michael Porter Five Forces – this summary links through to more detailed explanations of the five forces.

PEST Analysis

For wider environmental scanning and for understanding how the five forces may change in the future, the versions of PEST analysis are very helpful. To confuse things there are slightly different acronyms – PESTER (the one I tend to use), PESTEL, STEP

PEST Analysis

SKEPTIC Analysis

One strategy consultancy combined the five forces and PEST analysis strategy models to create a SKEPTIC which I thought was clever.

SKEPTIC Environmental Planning

The Life Cycle Model

A strategy model to show you general trends of evolutions from beginning to end.

Probably its most famous version is the product life cycle which goes through the introduction, growth, maturity and decline stages which can be useful for thinking about demand trends.

It can be widened from products to industry life cycles where a new product creates a new industry with a repeat of the main stages and with an extra stage squeezed in between growth and maturity – shakeout.

I’ve also widened out the life cycle model to look at underlying customer / consumer needs. There may be a personal computer industry at the moment but it is currently the best way to solve the customer need of creating, sharing and managing information.

Strategic Planning Models To Help You To Establish Competitive Advantage

Generic Strategies

Rivalling the Five Forces as the most famous strategy model is another from Michael Porter, the generic business strategies of competitive advantage:

  • Lowest cost
  • Differentiation
  • Focus

Both were introduced in the classic book Competitive Strategy and I talk about them in this article on generic strategies and the danger of being caught “stuck in the middle”.

The Value Chain

In his follow up book, Competitive Advantage, Michael Porter introduced the value chain for helping managers to analyse and build competitive advantage based on low cost or differentiation.

For more details see Value Chain Analysis and the Industry Value Chain

Value Disciplines

As an extension of Porter’s generic strategies, the value disciplines – operational excellence, customer intimacy and product innovation – are an interesting alternative strategic planning model.

Fore more details see the Value Disciplines

Customer Value Maps

Strategy as positioning becomes much clear if you map out the relationship between perceived customer value and price.

For more details see Customer Value Maps and the general concept of customer value.

Strategy Canvas or Customer Value Attribute Maps

Customer value and the entire concept of differentiation gets a lot more specific when you use what the authors of Blue Ocean Strategy call a strategy canvas and I call a customer value attribute map.  This strategy tool makes clear the critical dimensions that you’re competing on and the relative performance of your business compared to competitors.

For more details see Strategy Canvas

Key Success Factors

One of the important characteristics of good strategy is focus and working on your key success factors, key factors of difference and your critical success factors gives you that focus.

Fore more details see Key Success Factors

Strategic Planning Models To Help You To Assess Your Strategic Direction

Competitive Advantage Matrix

While competitive advantage is the goal of strategy, some industries are much more amenable to creating strong, sustainable advantages than others.

For more details see Competitive Advantage Matrix

Bowman’s Strategy Clock

You can get a very clear understanding of where you are using the customer value strategy models and the strategy clock helps you to consider the options of where you can move to in the future.

For more details see Strategy Clock

Ansoff Growth Matrix

This strategic planning model is a 2 x 2 matrix looking at existing and new customers and existing and new products to map out a way to grow the business.

For more details see Ansoff Growth Matrix

SWOT Analysis

SWOT analysis is a strategy tool which can be used independently or it can be used to gather and communicate the outputs from all the other different strategy models.

For more details see SWOT analysis

Portfolio Planning

Few businesses are “pure” with a focus on one product-market so while portfolio based strategic planning models are usually seen as corporate strategy tools, I think they can be useful for:

  • looking at the standard recommendations
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  • competitive intelligence and the pressure your competitors may be facing if part of a group. I’ve certainly worked for subsidiaries that were not regarded as core to the group’s future and had their investment rationed.

For more details see BCG Growth Share Matrix – not yet written

I’m planning to start with the most famous and then cover McKinsey/GE and the A D Little variations of the portfolio planning strategy models.

Strategic Planning Models To Help You To Implement Strategy

McKinsey 7 S Framework

Strategy consultants McKinsey developed the 7 S model to help focus attention on all the issues needed for strategic change.

For more details see McKinsey 7 S Framework

The Balanced Scorecard

Very popular performance management system which has become a key tool for implementing strategy throughout a business.

For more details see The Balanced Scorecard.

Strategic Planning Models To Help You To Assess Your Overall Strategy.

The SPACE Matrix

This is one of my favourite strategic planning models is useful at the start of the strategy planning session and at the end to sense check your strategic decisions. It is the Strategic Position & Action Evaluation matrix, better known as the SPACE matrix.

For more details see SPACE Analysis

What Strategic Planning Models Are Missing Or Which Do You Find Most Useful & Insightful?

My blog and main interest in strategy is in competitive strategy and not corporate strategy, so I won’t be covering many of the corporate strategy models unless I think they can be used to provided guidance at the business level.

What strategy tools have I missed?

Which strategy models do you find most useful and insightful?

in 3 – Your Strategic Positioning

In my review of the book

The Logical Thinking Process: An Executive Summary by H William Dettmer

posted on Amazon.co.uk, I gave it 4 Stars. This means that it is Good and Well Worth Reading.

Notice “An Executive Summary” in the title. This is very much an introduction to a topic brilliantly covered by the author’s much more extensive book, also called The Logical Thinking Process.

At the bottom of the page is a video by the author, explaining the differences between his process and that originally developed by Eli Goldratt.

Here is my book review.

Very useful overview of Goldratt’s thinking processes

The author has written an excellent book explaining how to use the Theory of Constraints Thinking Processes. However, if you learn a little, you can easily get scared off by the strange terminology in the original thinking like Evaporating Clouds and Current Reality Trees. [continue reading…]

in 2 – Your Inner Game, Best Business Books, Business Problems And Mistakes

The Evaporating Cloud Conflict Resolution Process

The Evaporating Cloud for conflict resolution is perhaps the most difficult of the TOC Thinking Processes.

This is because it forces you to challenge your basic beliefs about a situation, or more contentiously, to challenge the beliefs of someone else.

What better place to start than a 2 minute video featuring Eliyahu Goldratt, the genius behind the Theory of Constraints and the thinking processes.

Next we have an 8 minute video from a TOC study course on problem solving. I’ve skipped videos 1 and 2 of this sries to go straight into the evaporating cloud.

Next is the subsequent video in the same course which looks at testing the logic in the cloud.

Moving on to the following video, which looks at challenging the assumptions.

If you prefer to read, The Logical Thinking Process by William Dettmer is excellent.

[sos]

Don't forget to download and read my FREE Report - The SIX Steps PROFIT Formula: The Simple Rules That Every Small Business Owner Needs To Know available to download at Six Steps Report (Please click).
in Business Problems And Mistakes

The Current Reality Tree with the TOC Thinking Processes

The Current Reality Tree is used to investigate the causes of an existing problem within the business system. It is part of the TOC Thinking Processes developed by Eliyahu Goldratt.

Here are two videos from Chris Hohmann.

Video 1 – Presenting a Current Reality Tree, for you to scrutinize

Video 2 – Scrutinizing and improving a Logical Current Reality Tree

It’s easy to have mixed feelings about the TOC Thinking Processes, to be both daunted but also fascinated by its power to reach powerful insights you wouldn’t find elsewhere.

The best book on this subject is The Logical Thinking Process by William Dettmer. There is also an Executive Summary.

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[sos]

Don't forget to download and read my FREE Report - The SIX Steps PROFIT Formula: The Simple Rules That Every Small Business Owner Needs To Know available to download at Six Steps Report (Please click).

 

in Business Problems And Mistakes

Here is a 31 minute video of Christian Hohmann explaining the Goal Tree from Dettmer’s Logical Thinking Process (TOC thinking processes).

I like this a lot as it combines the goal of the business system, the critical success factors and the necessary conditions.

Problems within the performance of the business system, known as undesirable effects will come through somewhere on the Goal Tree.

[sos]

Don't forget to download and read my FREE Report - The SIX Steps PROFIT Formula: The Simple Rules That Every Small Business Owner Needs To Know available to download at Six Steps Report (Please click).
in 3 – Your Strategic Positioning, Business Problems And Mistakes

William Dettmer’s Logical Thinking Process Videos

Leading expert, author and trainer Bill Dettmer is interviewed by Erik Mano about the logical thinking process derived from Eliyahu Goldratt’s Theory of Constraints Thinking Processes.

Introduction – Video 1

[continue reading…]

in Business Problems And Mistakes

The full title of this book by H William Dettmer is

The Logical Thinking Process: A Systems Approach to Complex Problem Solving“.

In my review at Amazon.co.uk, I rate the book at the FIVE Stars level, this means that I consider it to be excellent.

Here is what I posted.

A clear explanation of TOC Thinking Processes

On the one hand, the Theory of Constraints Thinking Processes can be powerful tools for investigating the current situation and identifying vital ways to improve the system in ways to meet the goal. On the other hand, they can be daunting to prepare and/or to understand because of the acronyms, unusual terminology and complexity of both the diagrams and their underlying rules. [continue reading…]

in 2 – Your Inner Game, Best Business Books, Business Problems And Mistakes

The Theory Of Constraints For Small Businesses

The Theory of Constraints (TOC), as originally developed by Eliyahu Goldratt and introduced to the world in the business novel “The Goal“, has produced some remarkable successes in big companies, showing huge improvements in the three main measurements:

  1. More Throughput (T) – this is effectively increasing sales less the direct cost of sales without any questionable apportionment of shared costs.
  2. Lower Operating Expenses (OE) – reducing the other costs of the business.
  3. Lower Inventory and Investments (I) – reducing the money tied up in the business whilst also improving due date performance and cutting lead times.

This has been achieved by focusing improvement efforts on the main constraint or the weakest link in the chain. Quite simply, this is where you can get the biggest bang for your buck.

Just to be clear, a constraint is something that stops you from reaching your goal. For example, consistent customer service problems may stop a business from reaching its goal to increase profit. [continue reading…]

in Business Problems And Mistakes

80/20 Power by Dennis Becker

The full title of this book by Dennis Becker is

80/20 Power: Following Pareto’s Principle to Maximize Your Small Business Success

In my review posted on Amazon.co.uk, I gave the book Two Stars, meaning Disappointing.

Here is my book review.

A fundamental concept but this is not the book to start with

The 80/20 principle that a small numbers of things or activities produce the majority of results is a vital improvement concept. In theory, you can get more results by switching from low value activities to high value activities.

This is basic common sense that can all too easily get overlooked. [continue reading…]

in Other Business Books