It’s more accurate to call it a false dichotomy, but when people talk about cost cutting, they often talk about it almost as though it is the opposite of innovation, that they are mutually exclusive. Not so.
It is (literally) yesterday’s news that you can use technology, even cloud computing, to create an innovative business model. Yesterday Microsoft announced that it will stop making the Encarta digital encyclopedia product and many people speculate that the success of Wikipedia, a cloud-based encyclopedia, was a big part of the demise of Encarta.
We have seen this many times before where Netflix used the cloud to help create an innovative new way to rent videos, Amazon used the cloud to sell books, the list goes on. Even though people understand that these innovations cut costs out of the business model, they seem to see it almost as a footnote to these innovations.
Someone recently asked what the biggest mistake is that people are making in thinking about cost cutting in these turbulent times. My answer was that people are underestimating how much cost and waste has crept into their operating models in the past 20-odd years of growth. I have evidence that companies should be able to cut 20%-40% from their operating costs just from eliminating duplication and waste. But I will go a step further and say that one of the best ways to achieve this level of cost cutting is innovation, and while cloud computing opportunities absolutely open a world of new possibilities for innovations in cost cutting, they are not the only way.
Look at Tata Motors and their new $2,000 Nano car. The focus of my work is outcomes, “what” you are doing, and “what” Tata Motors did was come to market with a car that is 90% less expensive than other cars in its class such as the Smart Car from Daimler-Chrysler. “How” they did that is their business, but the point is that they did it and that sends a powerful message about the magnitude of the cost cutting opportunities to the rest of the world, not just the automotive world.
One piece of advice in terms of “how” to see where to cut costs innovatively, instead of asking “can we do this differently?” I suggest you ask “why can’t we do X?” and whether X is outsourcing work to your customer (like banks did with the ATM) , or using a cloud service (like airport check-in) or getting rid of an entire department (ING DIRECT eliminated paper checks, and with only online checks, people can’t bounce checks, so there is no need for the department that handles bounced checks), or something else, my experience is that you will find all kinds of innovative ways to cut costs out of “what” you do if you just ask “why can’t we?”
When you rethink your cost cutting approach, and you shed your doubts, I think you will find innovation and cost cutting to be an even better combination than most of us have found with peanut butter and chocolate.
-Ric
The prevailing opinion seems to be that people see these as mutually exclusive because cutting costs in the absence of rethinking your business model just makes everyone work harder on the same broken mess. Therefore… cost cutting limits your ability to innovative. If you rethink your business before you do the cost cutting and reduce cost based on that innovation… your point is well made.
While I agree with your article, It seemed a little bit like you setup a straw man and knocked him down. Cost cutting in the first scenario would preclude or limit innovation. Thoughts?
BTW – Dennis Stevens turned me on to your blog. I like what I’ve read so far.
Mike