Bryan J. Kaus
If objectives are only good intentions they are worthless. They must degenerate into work.
Peter Drucker, Management: Tasks, Responsibilities, Practices
About a third of the way into Eliyahu Goldratt’s The Goal, a plant manager named Alex Rogo takes his son’s Boy Scout troop on a ten-mile hike.
At two miles an hour, the trip should be easy.
It isn’t.
Within minutes the troop is stretched out along the trail. The quick boys at the front keep pulling away. Alex keeps calling them back. The boys behind the gaps have to jog to close them, then fall behind again.
Eventually Alex finds the constraint.
Herbie.
Herbie is the slowest hiker in the troop, and he is carrying the heaviest pack. When Alex finally lifts it, he nearly drops it. Inside are sodas, candy bars, spaghetti, tuna, pickles and an iron skillet.
Telling the fast boys to walk faster does nothing. They simply get farther ahead. The troop arrives when Herbie arrives.
So Alex changes the system. He puts Herbie at the front, where the pace of the whole line becomes visible, and spreads the weight in his pack across the rest of the troop.
Herbie speeds up.
So does everyone else.
Goldratt used the scene to explain what became the Theory of Constraints. The output of a connected system is governed by its binding constraint, not by the average speed of its parts. Improve everything except the constraint and you can create enormous activity without adding much throughput.
It is a manufacturing lesson.
I have come to think it is also one of the most neglected lessons in capital allocation. Companies load Herbie’s pack all the time.
And in most companies, Herbie is not the one who packed it.
The Capacity We Rarely Model
Most of my career has been spent around businesses where capacity is something managers understand in their bones.
A refinery has a nameplate rating. So does a pipeline, a terminal, a compressor station or a power plant. No competent operator writes a plan assuming an asset can run beyond its physical limits indefinitely without consequence. If the system is constrained, you debottleneck it, reroute flow, add capacity, change the operating plan or accept less throughput.
Organizations often get different treatment.
A board approves a transformation. A sponsor approves a value-creation plan. Management approves an acquisition. Then the company launches a pricing program, a procurement initiative, an ERP implementation, an organizational redesign, a cost-reduction effort and three new growth priorities.
Examined one at a time, every one of them may make sense.
Then somebody has to do all of it.
I have watched this happen at more than one company. The same core group would be working the sale of an asset, the launch of a major project and the messaging around both, while still running the business and getting through another earnings cycle. Calendars compressed. Meetings overlapped. The tension was built into the system before anyone noticed it was there. It is rarely intentional, often accidental and frequently consequential.
Ask the simple question, who will actually do the work?, and the answer is usually some version of the same small group of capable people who are already running the company.
That is the point.
Every strategy is also a claim on organizational capacity.
We rigorously ask whether a project has enough capital. We model plant capacity, pipeline capacity, warehouse capacity and balance-sheet capacity, often to the decimal. Management capacity rarely gets a line of its own. It disappears inside an assumption called execution.
Private Capital Has Less Room to Assume
This matters particularly now in private equity.
For much of the last cycle, leverage and multiple expansion did a large share of the work. StepStone Group’s analysis of buyouts completed between 2010 and 2022 found those two factors accounted for 59% of returns.
That arithmetic has changed. Bain & Company summarizes it as “12 is the new 5.” A decade ago, a typical deal could return 2.5 times invested capital over five years on roughly 5% annual EBITDA growth. With today’s borrowing costs, lower leverage and record entry prices, the same return takes something closer to 10% to 12%.
If the capital markets do less of the work, the business has to do more of it. Revenue has to grow, margins have to improve, acquisitions have to integrate and technology has to produce something more than another implementation project.
And people have to do all of that.
Sponsors know it. In a 2022 Teneo study of 25 private equity firms and specialist recruiters, 94% of responding general partners rated portfolio-company leadership as very important, and on average they credited it with 53% of investment returns.
The same study found that attention did not follow belief. When a portfolio CEO began to underperform, firms waited an average of six and a half months before acting. From the first warning sign to a return to full productivity took roughly two years.
It was a small study, and I would not pretend any single percentage in it establishes causality. But the shape of the problem will be familiar to anyone who has spent time around a value-creation plan.
We can spend months diligencing a company, build an extraordinarily detailed model, negotiate the financing, stress-test the downside and write a hundred-page operating plan.
Then we hand much of its execution to a management team whose available capacity we never really underwrote.
We are very good at asking how much capital a plan requires.
We are less consistent about asking how much organization it requires.
That is not an HR question. It is part of the investment thesis.
Management Is Part of the Productive Asset
That can sound soft until you look at the economics.
Economists working with the U.S. Census Bureau examined management practices across roughly 35,000 American manufacturing plants. They found wide variation in how plants were run, much of it between plants owned by the same company. Those differences accounted for more than 20% of the variation in productivity across plants, as much as R&D or information technology.
An earlier randomized experiment made the relationship more tangible. Beginning in 2008, researchers provided free management consulting to a randomly selected group of Indian textile plants and compared them with control plants. Better practices in quality control, inventory and daily operations raised productivity by 17% in the first year.
Years later, the researchers went back. About half of the adopted practices had disappeared. Two of the most commonly cited reasons were managerial turnover and lack of director time.
Lack of director time.
It may be among the least glamorous explanations for lost enterprise value ever documented. It is also one of the most believable.
We are used to treating equipment, technology and intellectual property as productive capital. Management capability tends to get filed somewhere else: overhead, culture, organizational development, the HR agenda.
That filing is wrong. Management is part of the productive system.
Capacity Is Not Headcount
There is an obvious response to all of this. If an organization lacks capacity, hire.
Sometimes that is exactly right. But capacity is not the same thing as headcount, and capital is not the same thing as capability.
The infrastructure buildout around artificial intelligence is making that visible in physical form. There is no shortage of money for data centers and substations. But capital cannot install a substation. People do that, and the Bureau of Labor Statistics projects roughly 72,700 openings for electricians every year through 2035. When the Department of Energy surveyed power-generation employers for its 2026 employment report, the positions they found hardest to fill were in management.
The same is true inside a company. You can fund a pricing program, but money does not create commercial judgment overnight. You can buy software, but money does not redesign the process around it. You can authorize a new strategy, but money does not add ten hours to the CEO’s week.
People do not come with nameplate ratings. What someone can contribute changes with experience, clarity, authority, motivation, trust, workload, systems and the people around them.
A study published in The Quarterly Journal of Economics this year shows how much that matters. The economist Virginia Minni followed personnel records at a multinational with about 200,000 white-collar workers across 100 countries, and used routine manager rotations to see what happened when employees landed under managers who had been promoted unusually fast.
The better managers did not simply extract more output. They moved people. They recognized what workers were good at and shifted them, laterally and upward, into jobs where those skills were worth more. Years after the manager had moved on, those workers were still earning more and performing better.
That is a useful way to think about leadership. A good leader does not merely ask the same people for more. A good leader changes what the organization is capable of producing.
It is also why a team of twenty with ambiguous accountability can move more slowly than a team of ten that knows exactly who decides what. Fred Brooks made a version of the observation half a century ago: adding people to a late software project makes it later, because the new people have to be recruited, taught, coordinated and reviewed.
And who usually does that work?
The capable people you were trying to relieve in the first place.
A talented executive with five clear priorities, a strong team and genuine decision authority can create extraordinary value. Give the same executive fifteen “top priorities,” six steering committees, unclear accountability and a weekly procession of approvals, and within a year someone may conclude that the executive has an execution problem.
Perhaps.
Or perhaps Herbie is not the problem.
Perhaps management put too much weight in Herbie’s pack.
Find the Load-Bearing People
This becomes especially important in an acquisition.
Talent diligence naturally starts at the top. Who is the CEO? Who runs finance, sales and operations? Who is staying?
Those are essential questions. But enterprise value is not always organized according to the boxes on an organization chart.
McKinsey has described a serial acquirer that nearly lost an individual contributor at a target company before discovering that this person was the only employee who knew how to run an important process. The acquirer kept the employee at the last moment and found a serious blind spot in how it identified critical talent.
I think of people like that as load-bearing employees. Every experienced operator knows some version of them.
The scheduler who knows what really happens when a customer changes an order at four in the afternoon.
The engineer who remembers why the unit behaves differently from the manual.
The controller who understands why an odd accounting treatment exists, and what breaks if you remove it.
The project manager who knows which contractor will actually deliver and which one merely wrote the best proposal.
Their importance rarely tracks their title.
Companies keep asset registers. They rank equipment by criticality and identify single points of failure in physical systems. It is worth asking whether we understand our human dependencies half as well. An acquisition can be strategically sound and financially attractive and still lose the capability that made the thesis work in the first place.
Leadership Creates Capacity
This is where Goldratt’s parable becomes more interesting than the simple identification of a bottleneck.
Herbie does not get faster because Alex gives a motivational speech. The troop does not improve because the fast hikers demonstrate more commitment. The group gets faster because the leader finally understands the system around it.
Good leadership does not merely consume organizational capacity. It creates it, or destroys it.
Leaders create capacity when they remove work that no longer matters, and when they decide which priorities are actually priorities instead of announcing that all of them are. They create it when decision rights sit where the information sits, so every judgment does not travel two levels up and two levels back. They create it when they put their strongest people around the real constraint rather than spreading scarce talent evenly across everything, and when they build successors and move knowledge out of one person’s head before either becomes a crisis.
They protect attention, perhaps the scarcest resource a management team has and one of the most casually spent.
And they connect people’s work to something worth accomplishing. Motivation is sometimes treated as an engagement accessory applied after the serious work of strategy is done. It isn’t. People perform differently when they understand what they are trying to accomplish, why it matters, what they own and whether anyone trusts them to own it.
Clarity adds capacity. Confusion consumes it. So does a portfolio of projects that nobody had the nerve to rank.
Which is why strong leaders sometimes create capacity by doing something particularly difficult.
They kill a good idea.
Not because it lacks value, but because the organization cannot absorb it without sacrificing something more important.
That is capital allocation too.
Underwrite the Organization
I have been thinking about this more in recent conversations around private credit, middle-market infrastructure and private equity. There is substantial capital looking for under-optimized assets, businesses that have outgrown founder-led systems and platforms that can support another acquisition. Many of those are compelling theses.
But eventually someone has to turn the thesis into an operating result. Someone has to renegotiate the contract, integrate the acquisition, fix pricing, recruit the team and decide what not to do.
Operational alpha requires operators. Not simply people with operating backgrounds sitting adjacent to an investment, but enough execution capacity inside and around the company to carry the plan all the way through.
That should change what diligence asks.
Consider a line that appears, in some form, in a great many investment cases: plus $20 million of EBITDA from commercial excellence.
As written, that line is incomplete.
Who owns it, by name?
What capabilities does it require, and does the company have them today?
What are those people already doing, and what has to stop so this can start?
Where does the required knowledge actually reside?
Which decisions can management make without escalation?
What happens if the three most important people in the plan leave six months after close?
And the hardest question of all: are we underwriting what this organization can reasonably become, or what we need it to become for the model to work?
Those are not soft questions sitting beside capital allocation. They are capital-allocation questions. Management attention, experience and trust are scarce, and scarce resources deserve to be allocated deliberately.
What This Does Not Mean
None of this is an argument for accepting mediocrity.
Capacity can become an alibi. Every organization contains people who will describe almost any additional demand as overload, and a leader who accepts that answer reflexively will never learn what the team can actually do. Standards matter. Urgency is a legitimate management tool. Some of the best periods in an organization’s life come when people discover they are capable of considerably more than they thought.
Nor is the constraint always human. Sometimes the asset is wrong, the market moved or the commodity price destroyed the economics. A great management team cannot make every investment good, and no amount of organizational underwriting will rescue a thesis that was wrong on the numbers.
There is no precise hurdle rate for organizational capacity. Human systems are too complex for that, and any attempt to reduce them to a single metric would probably create more false precision than insight.
But the absence of a precise number is not a reason to assume the answer is yes.
The objective is not to ask less of people. It is to understand what we are asking of them, and to build an organization that gives them a reasonable chance of delivering it.
The Point Taken
The scouts in The Goal did not reach the campsite sooner because the fastest hikers got faster. They got there when the person leading them understood what governed the pace of the entire troop and changed the system around the constraint.
When a business falls behind its plan, the instinct is to demand more urgency. Sometimes that is exactly right. More often than we like to admit, the better question is whether leadership built a system capable of producing the result it is asking for.
Capital has a hurdle rate. Strategy has a capacity constraint.
Every acquisition makes claims on people who already have jobs. Every transformation competes for management attention. Every value-creation plan eventually reaches the same point, where a human being has to turn the idea into something real.
Great investors underwrite the economics. Great owners also underwrite the organization, and before committing another dollar or adding another initiative, they ask one deceptively simple question.
Who will actually do the work?
If there is no convincing answer, there is not yet a strategy, only an ambition.
© 2026 23.5 Strategies; The Point Taken™