Most businesses track current performance through measures like sales volume, margin, or service levels. But few try to estimate or measure maximum capacity. We know how we are doing–but we don’t know how we’re doing compared to what we could be doing.
Maximum capacity is the highest level of performance a system, organization, team, or individual can achieve using existing resources and without breaking down. It is about achieving the most you can with what you have, without damaging it.
Anytime a part of your business that is critical to growth is at maximum capacity, your growth will be limited. For example, If HR can’t hire quickly enough, new sales ventures may be delayed. If hotels don’t have enough management bench strength, they cannot open new hotels. If your real estate division takes too long to build a retail outlet, sales will be delayed.
One area that thinks about maximum capacity is operations. They need to understand the highest level of performance their operation, refinery, or facility can manage without breaking down so that they are prepared for peak production volumes, new product ramp-up, or peak sales periods such as holidays. If they need to operate near maximum capacity, they ensure raw materials are available, staffing levels are high, and facilities are running at high speed.
If they do not need to operate near maximum capacity, they shut down lines to conduct maintenance, train employees, and prepare for the next sales cycle. They can only manage effectively when they understand their performance requirements and their maximum capacity.
Here are 5 ways to help you figure out if your business is at maximum capacity or if you could be doing more
Understanding your maximum capacity helps you manage business performance and determine what is you will need for the future. If there is a big gap between current performance and maximum capacity, you know you have a lot of room for improvement in productivity or efficiency.
Sometimes benchmarking information is useful because you can challenge beliefs about what current performance could be. Maximum capacity defines your limit to growth.
When Eric Schmidt was first CEO of Google, a chance conversation with an engineer who he shared an office space with changed his thinking about what the company could be doing – as he recounted to Reid Hoffman in Masters of Scale. Schmidt was pushing the sales team to raise the revenue forecasts when Amit interjected with a higher revenue number that turned out to be exactly correct. The engineer, Amit, was building the analytics that would eventually predict how exactly much revenue Google had at any given time. Being presented with the data changed the way Schmidt thought about what was possible and helped him realise that the sales team figures did not represent Google’s maximum capacity.
Understanding maximum capacity is especially important when your business is growing because that growth requires you to increase maximum capacity fast enough to sustain the growth. If this growth involves a change in strategy, you’ll also need to build new capabilities in order to increase maximum capacity.
Let’s say sales are increasing exponentially, and your operation is running close to maximum capacity. In this situation, you cannot keep pace with demand and you’ll experience high loads of stress on people and on processes. So, the better you can predict maximum capacity in the future, the more easily you can prepare for it.
Our understanding of what maximum capacity is now and what it could be in the future doesn’t have to be perfect. A good enough, but realistic, evaluation helps us know how much we can handle today and how much we need to build to handle future demands.