Simplicable Guide

10 Types of Business Constraint

John Spacey, October 26, 2015 updated on December 05, 2016

Business constraints are the forces that every organization must contend with in order to execute its strategy. Each organization has its own unique set of constraints that collectively influence its competitive position in its industry. The following are a few basic constraints that businesses typically face.

1. Time

Business is essentially a way to put assets to work over time. Physical assets typically depreciate with time and cash tends to go down in value due to inflation. In contrast, investments in competitive businesses have a remarkable history of going up in value over time. In order to perform this remarkably feat, businesses must keep assets productive and make continual strategic moves to stay competitive. As such, time is a fundamental constraint and techniques to use time more efficiently such as time management or efficiency practices are common management considerations.

2. Assets

Assets are anything physical or intangible that you own that contributes to the future cash flow of your business. An example of an asset related constraint is a slow piece of equipment on a production line. Any asset including property, plant, equipment, intellectual property or brands can represent a constraint.

3. Liquid Assets

Liquid assets such as cash and investments that are easily turned into cash are a special constraint. Cash is critical to paying for operating costs such as salary and if you run out of it, everything tends to fall apart.

4. Resources

Resource is a broad term for anything that you need to conduct business. For example, a farmer may require access to water for irrigation and a bank may require access to programmers to maintain their systems. Access to sufficient resources is a business constraint.

5. Quality

Quality is often cited as a business constraint. However, it's not a primary constraint but is related to other constraints such as your assets and organizational culture. Quality is also a trade-off with cost and time.

6. Knowledge

Knowledge is a common constraint that's often underestimated. For example, an organization may try to emulate the products or services of a top competitor but lack the know-how to achieve the same level of success.

7. Regulatory Compliance

In some industries, compliance with regulations and laws is a major constraint. Products, services, processes and practices that don't comply with the law can represent an significant risks to an organization.

8. Interests of Stakeholders

Organizations are expected to act in the best interest of their stakeholders that may include investors, employees, customers, partners, regulators and the communities in which an they operate.

9. Organizational Culture

Organizational culture related effects such as resistance to change is another constraint that's commonly overlooked or underestimated.

10. Risk Tolerance

Risk tolerance is an organization's target level of risk. This can be considered a constraint for investments, projects, new products and any strategy that represents a business risk.