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Theory of Constraints in a Professional Services Firm - draft

Hypothetical example of concerns in a services firm where the constraint is in production

Albert Frank

on 24 February 2011

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Transcript of Theory of Constraints in a Professional Services Firm - draft

the great business challenge was... Theory of Constraints in a Professional Services Firm People needed: After World War II production soap cars everything in fact, they needed... The Goal: make more money, now and in the future Production increased: Equipment modernized Better methods arose, like:
"just in time" and the
Theory of Constraints Result: lack of production no
longer limited
making money The new constraint became
marketing, and marketing MBAs
began replacing engineers as CEOs What does this mean for
a professional services firm? precious little! After all: professional service firms
are not factories, and an individual firm might be
in a different boat
from most other firms. New factories were built With customers no longer lining up to buy,
lack of production was no longer the limit on sales Find the real constraint If (and only if) the firm has excess capacity, the constraint on making more money can be getting more projects,
i.e. marketing/sales Given more projects for the firm it could provide the services for those projects, bill the work, and thus make more money But if more projects are available than the professionals could handle, finding additional profitable projects beyond capacity is IRRELEVANT to making more money Given the lack of capacity relative to profitable work available the real
constraint is production, not marketing The only way in such a situation to
make more money is to focus on the
constraint, improving production.
(In time there might be excess capacity
again and then a lack of capacity would
stop being the constraint.) How else could all this be
shown? How to increase
production? Increase support
from staff Support from staff
can be increased by: Increase productivity
of the professionals Increase number
of professionals Some of what they do
can be billed directly,
and so counts as production They can reduce the time the
professionals spend on various tasks,
giving the professionals more time
for production But there are distinct limits
to what staff can do More full or
part time staff Improved
& software Improved
procedures Better equipment and software Improved procedures: Administrative Handling the services
work (e.g. checklists) Physical fitness Time management More professionals Part-time and
outsourced Problems: Administration Client relations Finding them Work coordination Merging with a larger firm
whose junior professionals
can do much of the work Experience says... Unfortunate Result: Hire full-time professionals Find someone good Suitable compensation structure Consider both now, and when
current partners ultimately retire For the sake of the partnership all partners should benefit from any new professionals in terms of: Doing the work Profits generated
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