Monday, November 22, 2004

How do you price your Excess Capacity?

How do you price your Excess Capacity?


Those of you who understand Theory of Constraints or Lean realize that, at the macro level, all improvement efforts must increase the capacity of the organization.  What few talk about after that is "So what do you do with that capacity?" 


In many cases, the capacity is still with you.  You still have a part of a building.  You still have staff.  Unlike extra machines or equipment, you just can't sell off a quarter of your building and laying people off who have participated in improvement efforts is remarkably stupid and self-defeating. 


What you can do is to price the excess capacity at a price that only needs to exceed your direct costs. 


And here is one of the coolest examples of selling excess capacity. Jeff Angus, in his excellent blog Management by Baseball, writes of how the Minnesota Twins are selling extra seats in the Metrodome by a most creative season-ticket plan that is not a season ticket plan. 


A further lesson from the Twins' experiment is that "all of us is smarter than any of us."  The Twins are trusting (gasp) that busy people in the Twin Cities know how to use their own time better than Twins management does.  And they have set up a structure to achieve this. 


This lesson builds on a most excellent recent book I'm still working through titled The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations by Jim Surowiecki.  It also builds on a great topic Hal Macomber blogs on today about just enough leadership. 


We are stuck with so many assumptions.  And breaking out of them is hard.  And our people will help us do just that, if we only ask.  The Twins demonstrate this, in spades, on pricing excess capacity. 


I hope you find this helpful.



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