As per the Reuters (quoted), ‘Volkswagen is under unprecedented pressure to restructure the business model that underpinned its success for decades, as it grapples with high costs and excess capacity at home. Those factors, along with rising Chinese competition, regulation, and U.S. import tariffs, have sliced its profit margins in half between 2021 and 2025.’
Factory closures.
Massive job cuts.
Labour resistance.
Pressure from Chinese competitors.
And a management team trying to make the business competitive again.
But here’s the real question…
Is cost the real problem or is something else limiting the company’s performance?
Tenali Explains,
“Imagine a kingdom where everyone works harder every year…
Yet the treasury keeps shrinking.
Would you reduce the number of soldiers first?
Or would you first identify what is stopping the kingdom from winning battles?
That is exactly what the Theory of Constraints (TOC) teaches.
Every business has one constraint that limits its overall performance.
Sometimes it is manufacturing capacity.
Sometimes product demand.
Sometimes slow innovation.
Sometimes decision-making.
If leaders attack costs without removing the real constraint, they may become leaner…
But not necessarily stronger.
The first question should never be, ‘Where can we cut?’
It should be, ‘What is preventing us from creating more value?’
Great turnarounds begin by identifying the bottleneck. Not by cutting everything around it.”