Improving the weakest link: A TOC-based framework for small businesses

Small businesses constantly face challenges as they respond to changing environmental factors such as the emergence of worldwide markets, marketing clouts, depth and range of better quality products and demand for faster delivery times. In order to survive and prosper, small businesses have to redesign themselves for successful and sustained innovations. The implementation of evolving management philosophies such as theory of constraints, can provide an effective opportunity for them to compete and lead. The purpose of this paper is to accentuate the distinctive features of theory of constraints framework consisting of 3Ms (mindset, measurements and methodology) in a simple way that will assist the small-business owners/managers in the implementation. The proposed framework suggests that the managers should have: (i) a mindset of 'making' money instead of 'saving' money; (ii) focus on 'increasing throughput' instead of 'reducing expenses', through recognition and attention; and (iii) implicit 'focused' continuous improvement method to manage business constraints instead of improving processes 'at random'. Using a simple case study primarily and citing real-life small-business examples (where possible), we demonstrate how the theory of constraints based framework helps small business managers improve profitability by making significantly better decisions in strategic areas like product mix, pricing, new product introduction, outsourcing/purchasing, and investment decisions. We conclude our paper by acknowledging a few shortcomings of our paper and discussing some future research directions.