Focus on Removing Waste not Cost
Blog: Mark McGregor's Process Performance Blog
This is a repost of an article I did last year, it is being reposted a) because it is highly topical right now and b) because some nice person hacked it on the blog!
So at last, governments around the world have woken up to what businesses have known for a long time—we are in a downturn, which seems set to turn into a recession. So with everyone scurrying around looking for ways to minimize the effects and hoping that it won’t turn out to be as bad as that of the late 80’s / early 90’s, what can we do to help?
Well, it is pretty certain that many organizations will look to Business Process Management (BPM) as a way of reducing costs and trying to manage their way out of the situation, and for some this may well be the correct approach. The challenge will be how well they manage the use of BPM; will they go with a sledgehammer to crack a nut, or will they look at the wider possibilities and allow themselves to position for success.
It will be fascinating to see whether we go for the history repeating approach or learn the lessons from the past. Those with long memories will remember that Business Process Reengineering (BPR) was seen as a way and used as a tool to help businesses out of the earlier recession, then as business picked up people said that BPR did not work and was too blue sky. The lesson, of course, is that everyone was focused on removing cost as opposed to removing waste; it is the removal of waste that will serve us when the upturn in the market starts.
Pretty well for the last 15 years or so we have seen steady growth in the economy overall and revenues and profits have grown with it, primarily as a function of scale and market sector growth, especially in newer sectors. Inevitably this means that businesses have not needed to be as efficient as they might otherwise be. Of course many would argue that they have been on top of efficiency or that they have always managed costs—well, I am sorry but this has not been my experience.
Now though, there is a need to chase efficiency and, whilst true to form, many will simply ask their purchasing people to squeeze their suppliers. I contend that this is a lazy approach and is management acting without managing. Simply taking costs out of a business across the board has never been seen as a successful long term survival strategy in the past and there is no reason to believe it will be the right strategy for the future.
Instead, managers should focus on getting a better handle on their cross functional or business processes and allowing their own staff to identify waste or non-value adding activities that can and should be eliminated. By removing waste as opposed to cost will mean that the company is not being damaged in any way and will, in fact, be in a better position to serve its customers in the market upturn. Some smart organizations may well realize that if they do this well, they may actually be able to go to their clients and offer cost reductions without being asked, thus forging stronger relationships and, potentially, even increasing the share of their customers business that they get. Now, wouldn’t that be neat; remove waste, leading to lower costs which leads to higher revenues, seems like a win-win to me.
To benefit from waste or non-value add removal it is a simple matter of process analysis and redesign. I say a simple matter, because it does not require teams of analysts to be set running around taking months to report back before coming up with a redesign that is based purely on reduction or deduction. Instead it requires a few good coaches or facilitators to help people identify what they are doing now and get them thinking inductively about how they can make improvements. The caveat, as ever, is that managers need to focus on empowering and leading rather than controlling and managing.
The outputs from such exercises can literally save some companies millions for only a few days efforts. They also serve to provide IT people with a much better brief on what might be expected from, or required of, some kind of process automation. This in turn means cheaper system implementation costs, lower resistance to change and greater value from the IT part of the project.
Now, if we move forward and deliver on this vision people are certain to look make this time and say that BPM helped them deal with the issues and was indeed practical and results focused. In summary, we learned from the lessons of the past, focused on waste and helped to ensure the survivability of our organizations and ultimately our jobs!