Just as an Olympic athlete is unlikely to win gold without effective training and preparation, enterprises wanting to reduce cost, without harming service should first look to their state of readiness in a number of key disciplines before they even approach the starting line. These productivity disciplines are:
The success of your productivity strategy depends on the role it plays in delivering corporate strategy. Is the firm focusing on productivity as a key source of competitive advantage? Does revenue maximization remain the explicit (or implicit) goal? Does the firm regard productivity as a synonym for cost-reduction or does it recognize the importance of end-to-end efficiency and revenue generation?
Transparency of revenue and cost drivers
How well does the organization – and all its’ people – understand what drives revenues and costs? How well are these drivers embedded in performance management and management information systems? Alignment with people’s performance measures is critical.
How well do management and staff understand what the customer sees as value? Does the organization systematically deliver value to customers and eliminate those activities that are not value-adding? Are operational performance metrics aligned to customer value, end-to-end across functional boundaries? Based our experience, good customer service is 25 percent cheaper to deliver than poor customer service. But there needs to be a political appetite at the top of the organization to recognize the benefits and institutionalize change.
Most cost reduction programs are relatively ineffective over the medium- to long-term because they do not reduce the amount of work required per unit of output, so costs tend to grow back over time. Indeed, some short-term cost-out initiatives, such as project deferrals, actually detract from the medium-term performance of the business. Clearly, operating model change programs can create sustainable productivity improvements – for example, through eliminating duplicating functions, outsourcing and offshoring. But they are inevitably periodic in nature. By contrast, continuous improvement is an approach to running the day-to-day business, not an initiative. We have found leading organizations keep driving productivity improvement through a combination of sustained executive focus and support for team-led change through closed-loop learning and improvement cycles.
How is investment funding allocated within your organization? Is it effectively a divisional/bottom-up bidding process with limited challenge? Are funding decisions fixed or are they able to change as circumstances change throughout the year? Leading organizations use their understanding of revenue and cost drivers to create a line of sight between strategy, investment spend and benefits across the organization. This results in investment decisions that are based on, and aimed at delivering, the desired future operating model.
Tools and techniques
The key issue here is an organization’s ability to inform and enable its people to understand customer value, to gain insight into the state of core processes, and to identify, evaluate and deliver opportunities for improvement. This means putting relevant financial and operational information in the hands of people who can interpret and draw insight from it in order to drive learning and improvement cycles.
The effectiveness of any productivity strategy is directly impacted by the engagement of its staff and their feeling of empowerment to make changes that enhance productivity. People in the organization have to believe they will be supported and recognized if they come up with and implement ideas to reduce waste. Of all the productivity disciplines, the trust and willing engagement of staff is the most important and often the first to be sacrificed.
Back to top