Business Models

Theory and Practice

Lecture 8

Dr. Richard Phillips & Dr. Laszlo

Czaban
What is the constraint? All good things must come to an end
The question is when...
It is NOT a “factor”, a “bullet point”
It is an evaluation, a judgement about how factor(s) work to create a reduction in (usually) volume (throughput) in the
system of elements that defines a business model
In short, the constraint is your explanation of the causal forces at work which stops the scalability (or profitability, or
viability) of a business model, thereby leading a limits on the ability of the business to secure investment required to
maintain/grow activities, or the inability to even get a business started (if a start-up).
 Theory of Constraints
What performance measures matter?
Essential concept
Measures that show how interventions improve “the constraint” (things that slow down volume) +
Measures that feedback on the status of “buffers” (things company depends upon for volume to be continuous) +
Ways of visualising this to everyone

revenues

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cost
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fixed costs capability
multi-tasking unbundling &
ri organisational capabilities and specialisation of routines and substitutions destruction
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casfl ow break-even milestone priority growth priority recovery priority reinvention priority
h- priority

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What the Theory of Constraints implies in terms of
How to talk about business problems
 Identifying where constraints come from

How you react and attempt to deal with constraints will depend upon two things: time

1. How you ‘read’ the symptoms and;

2. How you then interpret the causes of these symptoms as traceable to the internal or external conditions--or
both (ie, the interaction or ‘misfit’ between internal configuration of a business and its external
environment)
Why have we been trying to model a business?
Because limitations in business modelling and/or limited attempts to systematically map out the causes
of a constraint symptom
necessarily lead to ==>
a reliance upon imprecise, ambiguous notions of cause,
which necessarily leads to ==>
a greater variation in the pool of possible actions for tackling that cause,
which necessarily leads to ==>
a greater uncertainty about how particular recommendations can be expected to help progress the