I was raised in a management environment at United Parcel Service that obsessed about controlling costs. We did so because we had to if we were to meet our brand promise of best possible service for lowest possible cost. At the time, we were a manager owned private company, and no member of the team would think about leaving his/her office without turning out the lights to save on utilities.
I watched other organizations I have been part of also become much more mindful of waste and its impact on the overall financial health of the organization. This effort was most often seen in operations, where the waste of rework, scrap, and wasted motions could easily be measured.
My work these days is often with the executive levels and frequently with knowledge workers instead of production personnel. I observe waste that goes unaddressed largely because it is more subtle than what is observable at the point of producing the product or delivering the service. It is difficult to quantify, and all too often, accepted as a normal cost of doing business. (for one tool that quantifies these areas, see the Excellence Audit at www.tompterscompany.com) There are several areas I believe need addressed. They include:
The lack of executive alignment around strategic initiatives and the priorities placed on them is a source of great waste. The members of the executive team often see the organization through their area’s lens, and place the most importance on the work of their departments. One place this is manifested is the behavior at the end of the budget year. Departments scurry to spend what is left in their budget for fear they will receive less funding the following year. A truly aligned organization would look at the pool of funds as a mutual pot and allocate it based on agreed upon priorities. Funds that weren’t spent could be moved to priority areas that would most benefit the total organization. This is also seen in allocation of talent. Rarely do I see a department head offer their best and brightest to populate a project in another area. Typically the project receives who is available, not who is necessary.
Budget cuts that affect the speed, flexibility, and coordination of resources is another area to investigate. A short term blanket reduction across the organization may impede information technologies that are needed to manage complex systems. Many IT executives are stretching legacy systems rather than investing in time and waste saving improvements.
The cost reduction activities themselves can become a cost item. I often see an extreme case of organizational irony when the continuous improvement efforts lead to the creation of new departments and new levels of bureaucracy rather than following Dr. Deming’s admonitions that continuous improvement should be tools for the workers at the point of production. The companies end up with a department that eats up all the savings realized by the streamlining at the production level.
Another possible area of financial impact is the loss of brand equity when cost reductions lead an organization to think of themselves as commodity producers rather than value producers. Because brand equity is difficult to measure, it is often an afterthought. The recent history of the auto industry in the US is a dramatic example of cost reductions that led to branding problems, and ultimately market share.
Finally, we often don’t demand the same level of diligence and attention to detail at the executive level that is expected at the operations level. While the average first line supervisor knows the cost per piece and associated labor costs for their area, how many executives know the cost of losing a key person? The revenue lost when a customer’s call goes into an automated system rather than a real human being? Do they know the current level of engagement of their workforce and what each percentage point drop or gain means to productivity?
This is hard work and many executives are busy people. But those of us who have had the privilege of serving at the executive level know full well the retort, “that’s why you get paid the big bucks.”
