Gongol.com Archives: April 2023

Brian Gongol

April 3, 2023

Business and Finance Moving forward by holding back

Business is often thought of as the manifestation of possibilities. People start businesses because they see unfulfilled demands, either existing or soon to come, so they do things to create goods or services where either none existed before, or where what was in place was insufficient. Either way, it is a creative act that depends upon looking beyond limitations and towards a blue-sky future. ■ But one of the characteristics that makes some companies successful -- or, at least, what appears to be the secret ingredient to their success relative to their competitors -- is the adoption of an artificial constraint. This seems paradoxical at first: How does adopting a limitation feed success when business seems to be about those blue-sky possibilities instead? ■ Consider Toyota, which adopted just-in-time as its production model out of necessity. Japanese industry in the post-WWII era didn't have lots of excess cash to pay for inputs in advance and needed to be flexible with its outputs, so just-in-time really started as a reaction to external constraints. But over time, the approach was refined into a production philosophy geared towards waste reduction and quality control. Just-in-time certainly doesn't work everywhere; it does seem to work for Toyota. ■ Voluntary, self-imposed constraints are found in other highly successful companies, too. Chick-fil-A is closed on Sundays and only serves chicken -- no menu extension into burgers. The forgone profits are easy to estimate, but the constraints are a part of the culture. Likewise, Warren Buffett's Berkshire Hathaway is obsessed with investing only with a large margin of safety. And Honda resists using robots for automotive production, choosing instead to invest heavily in cross-functional training for human workers. ■ The existence of prominent case studies isn't dispositive; maybe self-imposed constraints are only holding these companies back. But that seems unlikely. Given how significantly the constraints appear to influence their respective company cultures, it seems more probable that self-imposed constraints might actually be a competitive advantage. ■ It seems less to be dependent upon the nature of the actual constraint -- cross-functional training doesn't seem to have much in common with being closed on Sundays -- but, much like the Hawthorne effect, more about the basic act of consciously choosing a decision-making path. Adopting and living by a code, if you will. It may not be a lesson often conveyed in business school, but it may do many a firm well to decide to pick a constraint -- just about any constraint -- and live by it.

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