Startups abound. There is no lack of imagination, determination, and even funding for a good idea. The problem becomes, what happens next? The mortality rates of startups is high. We were asked, how can you keep startups alive so they grow to the a next, bigger and economically sustainable phase, especially given the complexity of today’s markets? Our answer is that you need a path based on the right principles, method and tools. The following post outlines a complete and tested approach to what that path can be.
What is an organization anyway?
First of all, we have to understand that organizations are Systems, i.e. networks of interdependent processes all aimed at a common goal. Accordingly, ANY organization wanting to sustain its growth has to structure itself in a way that facilitates the management of these interdependent processes. With “management” we mean the ability to anticipate what is going to happen as a result of any taken action. define a measurement system capable of measuring outcome of taken actions; build the processes making up the system and visualize their “input-output” interdependencies; understand the intrinsic statistical fluctuations these processes are affected by. This last step is carried out with the help of Statistical Process Control (a body of mathematical knowledge developed last century) and the Theory of Management that it originated; it is called “Quality Management”.
How can we manage the whole organization towards the goal?
Managing a network of interdependencies towards a common goal can be greatly facilitated if we choose a physical constraint, i.e. an element of the system that we elect as “leverage point” for the whole organization; normally, in a manufacturing facility such a point is a well designated machine or process phase.
From an economic, i.e. cash generation, standpoint this constraint will dictate the pace at which the whole organizational system will produce results. In other words, managing the constraint is more or less equivalent to managing the whole system. How do we do that? By making the constraint work all the time, on the right economic mix (optimal cash generation) and by subordinating (i.e. sub-optimising) every activity of the system to the optimal functioning of the constraint. One minute lost on the constraint is cash that the system will never get back.
In order to prevent disruptions on the constraint AND at the same time have a firm grasp of how the rest of the system is performing, we need to institute a protection and control mechanism on the constraint, something that prevents the cumulated variability of the processes (breakdowns, snags, rework, strikes, etc.) to harm the constraint. We call this protection “Buffer” (a quantity of time we allow to exist in front of the chosen constraint – how much time in advance the batch to be processed by the constraint has to get there) and “Buffer Management” the Plan-Do-Study- Act cycle we trigger by measuring the statistical fluctuations that affect the Buffer.
Depending on the kind of typology of production and market needs there are different “finite capacity” algorithms (constraint-based) that can be used; they all have in common the idea of control and maximizing the performance of the constraint through statistical understanding.
Designing the organization as a system
For all these activities to take place successfully (and be integrated with a successful marketing and sales process, infamous for being enacted by people unwilling to act systemically) the organization has to be designed appropriately, i.e. like a real system. Such a design can be enabled effectively if we choose a control mechanism that is not artificially imposed, i.e. like the conventional ones driven by a hierarchical view of the organization.
Conventional hierarchies are silos that, by design, are hindered in the way they can cooperate; typically their performances are measured locally, i.e. at functional level, and different company functions have different performance metrics that are often conflictual.
In order to design an organization which is genuinely systemic, i.e. one where we can really manage the dynamic network of interdependencies, the “real life” community of practices that is foundational to the functioning and the growth of any organization, we must embed, not superimpose, a control mechanism in the way the network evolves.
A practical way of doing it is to design the organization as a “network of projects”. In essence, we can start looking at the life of any organization in terms of repetitive activities and new initiatives; repetitive activities are managed as processes (input-output, key performance indicators, statistical fluctuations), new initiatives are managed as projects, according to finite capacity scheduling (no multitasking and milestones, instead resource contention resolution, stacking, project and feeding buffers). The algorithm for this scheduling is called “Critical Chain”.
Shifting the mindset
An organization designed as a network of projects, while ensuring sustainable growth and optimal use of resources, does require a considerable learning effort from the people that work in it and, even more so, by the leaders that work ON it. It does require a shift in mindset and has to have continuous learning at the core of it. The ThinkingProcess Tools from the Theory of Constraints are unrivalled in their ability to simultaneously introduce and reinforce the necessary systemic shift.
How to Grow a Startup: A Methodology in Ten Steps
All of the above considerations are embedded in The ten steps of The Decalogue management methodology that has been applied in a wide range of organizations internationally for almost two decades. The ten steps represent a transformative pattern that can be adopted by any organization and they emerge very clearly from an in- depth analysis of what makes an organization fail in its effort to manage sustainable growth.
The Thinking Process Tools are the standard way with which The Decalogue has been implemented in a myriad of environments and they offer an exceptionally strong support in decision making as well as in developing the managerial skills needed to accomplish the transformation of the prevailing style of management into one of system optimization. This is the journey for companies who not only want to grow, they want to shift away from the formulas of the past that are no longer the answer.
About the Author
Angela Montgomery Ph.D. is Partner and Co-founder of Intelligent Management, founded by Dr. Domenico Lepore. Dr. Montgomery’s new business novel+ website The Human Constraint looks at how Deming and the Theory of Constraints can create the organization of the future, based on collaboration, network and social innovation.