Focus On Costs: Day 9 – Enlightened Approach – Business Perspective Posted at: April 14, 2020 Posted in: All, Focus on Costs Programme Today we are concerned with the application of the Enlightened Approach across your business. So far in this series we have focussed very much from a Procurement perspective to address third party spend and value adding benefits. The same concept of simultaneous cost reduction and value improvement can be applied across the business both externally and internally. This article explores the application of the Enlightened Approach internally and tomorrow we finish this series with the external view. Trading Conditions are currently a nightmare, I’m sure most of us would agree unless you are operating in one of the sectors where demand is high and supply is able to meet the surge or where longer term prospects are being re-enforced due to the building of national resilience. Most of us, however, are wondering what the future will bring and this is where we start this article. John F Kennedy is attributed with stating that we should not waste a crisis. “The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognise the opportunity.”John F Kennedy We are in a crisis and there is a well-recognised hierarchy of priorities which humans must address in such circumstances. These needs were set out by Maslow in 1954. The lower order needs are associated with survival and security. Thirst, hunger and threat are rare visitors in the developed economies, however, today they are a real and present danger for a lot of people and organisations. This article assumes that these needs are being or have been addressed within emergency planning activity. The second brush stroke Kennedy refers to is where we are applying the Enlightened Approach today; what opportunities does this crisis present? It may seem bleak but there will be some if we look hard enough. We frequently hear that clients are just too busy with the day to day to focus on initiatives which will pay off in the future. The key opportunity we have in this crisis is ‘time’. TIME to THINK and PLAN. The Enlightened approach directs us, in the first instance, to take TIME to THINK about what makes us successful. What do we have or what do we do that gives our business a source of competitive advantage? Prior to any cost reduction it is crucially important to understand this in order that we do not damage our fundamental strengths by cutting cost blindly. A simple framework to assist with this is to look at your organisation from a resources perspective as set out in Fig. 1 Strategic Resources. This diagram shows strategic resources as Critical Assets (things we have) and Critical Capabilities (things we do). It also helps us to consider these assets and capabilities in terms of Tangibles and Intangibles. The key assets and capabilities are: LegalLegal entities often with property rights e.g. Patents, Trademarks, Copyright, Registered designs, Trade Secrets, Contracts, Licenses, Proprietary Operating systemsFunctionalIndividual or team skills e.g. Employee ‘know how’, Distributor ‘know how’ Supplier ‘know how’ and generally knowledgeCulturalThe characteristics of the organisation e.g. Perception of high-quality standards, Ability to manage change, Innovation, Team-work, Values, CommunicationHistoricalThe positional characteristics which are the result of previous endeavour e.g. Reputation of company and products, Value Chain configuration, Distribution Network, Unique Access to Raw materials, information or customers, Organisational networks, Installed (non-proprietary) operating systems etc…Databases, Market share, Liquidity etc Each of these attributes are to be strategically considered in terms of their PROTECTION, IMPROVEMENT and LEVERAGE. Once this has been done, we can focus on costs without fear of blindly ‘slashing and burning’ and we should not miss opportunities to deliver simultaneous value. Focus on Costs Where do costs lurk within the business which we can eliminate and simultaneously improve performance? Focus on these costs should be people and what they do, followed by plant in the first instance. Plant is any capital invested in to enable productivity. We pose some challenging questions for you below: People Who is essential and delivering value, who is necessity but non-value adding and who is in your organisations for other reasons including historic?Are these people doing the right things and doing them right?What do these people know and what would happen if these people are unavailable?What are the opportunities for up-skilling during this period of crisis to be able to do more with less? Of course, to reference Kennedy again, this current crisis is a good opportunity to remove ‘dead wood’ or re-deploy it. Process How much of your process is adding value?How much of your process is not adding value but necessary?How much of your process is not adding value just cost?What new processes and ways of working have we been forced to do under these conditions of crisis which work well which we should carry over into ‘business as usual’ once we emerge from the crisis? “If you can’t describe what you’re doing as a process you don’t know what you are doing”“Learning is not compulsory… neither is survival”“A bad system will beat a good person every time.”W. Edwards Deming The simple strategy questions to be applied to your processes, depending upon your initial analysis are: START? Doing something that was previously missed or needs changing. STOP? Doing something which has been done but does not work or just does not add value. CONTINUE? Doing something which is working and cannot be reasonably improved. A simple tool for mapping process is a swim lane diagram as shown in Fig.2. This tool is used alongside a RACI chart as shown in Fig 3. To use the ‘swim lane’ tool simply list the parties involved in the process down the left and side of the chart. All process steps are set out in the swim lanes. If there is a prior process it is named in the top left and a following process, if required, on the right. The flow of the steps is shown with arrows. The RACI informs the nature of the responsibility each party has with the process and the process steps. RACI is an acronym that stands for Responsible, Accountable, Consulted and Informed. A RACI chart is a matrix of all the process steps, set out down the left and side of the chart with all the people involved or their roles named along the top side of the chart. The responsibility of each party within each step is set out in the cells as RACI. Plant Is your plant fit for purpose?Is outsourcing an option for you to have access to better or different plant? The key question to ask at the current time is whether plant can be ‘sweated harder or longer? Why update systems which are at the end of their planned life? Squeezing a few more years out of assets would, subject to them being fit for purpose, be prudent. We have recently worked with a client who was planning a major upgrade programme of its IT infrastructure assets. Instead we worked with the client to identify an Enlightened support provider which has extended the shelf life of the existing assets for a further 24 months with an acceptable SLA. Transformation Should your THINKING lead you to conclude that a seismic shift is required then a good way of looking at the whole picture including the ‘As Is’, the ‘To Be’ and the journey between is use of a T-Map (see Fig. 4 T-Map). A T-Map is only of use once a critical view has been taken of the ‘As Is’ status of your business or the elements of the business under analysis. A useful THINKING framework is to extend the people, process and plant THINKING to the following list of mental triggers designed to be interpreted as broadly as possible to provide maximum insight to your business: People Process Plant Place Product (or Service) Performance Politics Upon completion of the ‘As-Is’ picture the ‘To Be’ picture requires deep consideration; what will the business look, feel and behave like on the future horizon, say three years away? Once this new vision is confirmed then all key milestones against the thinking triggers can be populated against time. Transformation of a business or business unit is not an easy task at the best of times but when operations are ‘too busy’ to take on the task despite a transformation being required to secure the existence of the organisation beyond the near horizon, it becomes virtually impossible without huge cash reserves, even then it is difficult. In times of crisis things are different. People are prepared to do what was previously unthinkable to preserve their jobs. Remember Maslow from above? Today is the time for transformative change where no challenging question is left un-touched: What is our purpose? What is our vision? How do we get there? Whatever the nature of the transformation it should pursue the enlightened ambition of simultaneous cost out and value up. Tomorrow the final article in this series of ‘Focus on the Bottom Line’ from JMCL looks at the external transformation and ‘owning it’!