Your team is working like clockwork, all your projects are delivered on time, your business is so profitable that it leaves the competition behind?
No? Yes, but…?
Then may be YOU HAVE TO CHANGE SOMETHING.
When talking about change, one simple, but nevertheless important question could arise – when is the right time to change something? Should you introduce a new process when the old one failed to deliver several times, or should you plan the implementation of a new process when the old one’s effectiveness is still at its peak?
You can also ask a much more general question, which would be relevant to almost any field: WHEN TO STOP DOING WHAT YOU’RE DOING right now? Should you continue investing additional resources into a project that missed deadline after deadline or should you cut your losses and transfer the resources to other, more promising projects?
All these questions are related to one of the most basic laws of Business Management: the Law of Diminishing Returns.
Its essence is pretty simple: after a stage of growth when investing new resources meant more output, this relationship begins to fade and putting more effort doesn’t result in improved benefit. How can the knowledge of this law help you in understanding when to stop or when to implement change?
First of all, by analyzing the curve of relationship between input and output based on data you have (if you don’t have it, your problems are much more serious 🙂 ) you can detect if your returns are diminishing. By simply looking at the angle of the curve, you can learn how much output you gain for the invested resources. If this angle drops to zero – you better stop doing what you’re doing.
But the most interesting stage is the stage before the relation between input and output levels out. Because this is the stage when you should become aware of a need to change something before the curve turns into this:
It can be very enticing to push yourself until the end, but if you don’t change something before reaching the apex of the curve – you’ll definitely find yourself on its downward slope and the best thing you’ll be left with is cutting your losses by scraping the project. If you hesitate by pondering the possibilities of saving the project by pouring more resources into it, you are endangering the whole system.
I hope that the words “rescue package” and “Europe” ring a few bells…
I’ve also seen projects that keep steady after they reach the 0º slope, and after a while they suddenly collapse.
You are right, this is exactly what I described in the third figure.
In your third figure I see that many organizations reach a peak and then slowly fall down.
I’ve seen others spend some time (maybe months or years) on a 0º plateau. Very stable, they think, and they don’t fall slowly or gracefully. They collapse in a few days. One day they wake up and they are history.
I see what you mean…