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

“Citi never sleeps” is the slogan next to the Citi logo that appeared on a pretty big ad on the front page of the New York Times this morning.

The Sunday New York Times remains one of my favorite things in the world, so part of me was happy to see the ad because as we hear about the newspaper business being in tough shape with the Seattle Post-Intelligencer and the Rocky Mountain News in Denver shutting down, I figured a front page ad is a great source of revenue for them.

But then as I read the ad, which had a picture of a lunch in a container on a desk, the theme was “Save Smarter” and it started with the suggestion “Bringing your lunch to work is one easy way to save.” and went on to say “Citi has many others” I thought, OK, this is a timely ad and it’s going to have some exciting information about how they have unique or innovative ways to help you grow your money with Citi.  But it didn’t.  It talked about some specific services Citi offers and pointed you to a web site with more suggestions.  It seemed like an old message from a different time.

Things are so different these days in so many ways, businesses really need to look at their messages and their value propositions and see if they need to be updated.  ING DIRECT is an example of a bank that was created to help customers make more money by offering very high interest rates (which they can do because they don’t spend money on branches – it’s an internet only bank, so their costs are a lot lower) and that message remains a great message for the current climate.  Their message is essentially that they are working really hard to grow what you save (instead of coming up with creative ways for their customers to save money).

Retail banks have traditionally made their money from investing the money we have in our savings accounts, so it’s no surprise they want us to save more – that’s what’s in it for them, but what’s in it for us?  Commodity services, free toasters, and run-of-the-mill interest rates were fine when location and the bank teller played such a key role in our choice of bank, but now that the internet and the ATM have for all practical purposes replaced the teller and made bank location much less relevant, banks need to tell us what makes them unique, like ING DIRECT has done.

So I hope Citi (and the rest of the retail banking world) will sleep on it and consider rethinking their message and value proposition.

-Ric

The old adage “if it ain’t broke, don’t fix it” holds up in good times and in bad, but I have found that the opposite (if is broke, don’t fix it) is also a valuable adage, and especially in these turbulent times when investment funds are so precious, it merits some  attention.

In organizations large and small, I see people concluding that when something is underperforming or not meeting expectations, they need to invest in it to fix it in some form or another.  While it seems like a perfectly logical conclusion, it is often insufficient information to merit an investment, or even a spot on a project prioritization list.  And the piece that is missing in the analysis is “cause”, will an improvement in the performance of whatever it is that is “broken” cause an improvement in the overall organization, or even just the area it is a part of?  Very often then answer to that question is “no”, and the reason that question is often not asked is because mamy people lack a way of representing their work in a way that enables that conversation.

I find heat mapping to be a very simple way of setting up this conversation.

This is an example of a heat map that shows several blocks of work, in this case from the work in developing a sales opportunity.  The content is actually not important for this example.  In every case, each shape has an “outline” color that indicates how the work’s current Performance, and each shape also has a color for its Value to the organization.  There are any number of ways to define performance and value, what’s important is that you define it, and while I have my standard definitions which I am happy to explain, it’s more important to use a consistent definition rather than argue over a best definition.  With a good current view of work, it makes it much easier to articulate what it should look like in the future, and from there create a roadmap.

So in this map, section 3.2.3 is Develop Opportunity, and we can read from the colors that Develop Opportunity is bright red, which means it is performing at the “Lowest” of the range, and it is pink for value, which is “High” so since this is a high value underperforming piece of work, it is worth looking into the pieces of work included in Develop Opportunity, and in this case there are five different blocks of work that make up Develop Opportunity.  I recently did some work with a group in this same area and a number of people started their conversations saying that the Prepare Quote work, where a price is calculated for the products they sell, should be the number one priority for investment.  So I continued to interview people in the group and the heat map is a reflection of their answers to the questions about value and performance (so in that sense it  is really a listening tool).  When I showed them the results, people were not surprised to see that Develop Opportunity was in need of attention, but when we got to the conversation about what to do to fix it, we looked at Prepare Quote and saw that while its Performance is Medium, it is a Low Value  area of work.  So when we had the conversation about what would “cause” Develop Opportunity to perform better, based just on this information ( of course plenty more analysis can be done) people saw that improving Prepare Quote was probably not going to have as much impact as  something like Match Customer Needs to Product Strengths, which has a Low Performance score and the Highest value score.  This is a simple example in a simple spreadsheet, but I would encourage you to try to do some of this on your own to ask what is, and is not likely to be the cause of an improved performance, and if your experiences are anything like mine, you will find yourself saying “if it is broken, don’t fix it.”

Hopefully adding “cause” to the context of your discussions will help you rethink your project selection and prioritization approach.

-Ric

Recently, there has been a lot of discussion about US auto manufacturers and what, if anything, should be done to save them.  I am not going to get into the politics of it, but it strikes me that there are some valuable lessons to learn from their troubles.

This week, after many delays, Tata Motors finally launched their Nano, the so-called “people’s car” intended to make cars accessible to the masses at a price point of about $2,000.  While in this economy, it may make sense to copycat the Nano, and I won’t be at all surprised to see that happen, I think that looking in the rearview mirror, if you will, of the past years of the US auto industry, they failed to do something that Tata Motors has done with the Nano, and I would argue that most of the big German automakers have also done well, and that is to say “no” to specific sets of customers.

The Nano isn’t trying to be any more luxurious than it is.  The makers of the Nano decided very clearly that there is a segment of the car buying market that will buy a car that is “just” transportation and nothing more.  Many of the big German automakers went the other way with luxury cars from Porsche, Audi, and Mercedes and while they have some more affordable models, they are unambiguously, unapologetically, luxury cars.  The US automakers lost their way because they tried to be all things to all people, and in the process didn’t really do a good job of meeting the needs of any one segment, be it price, quality, big, little, you name it.

I don’t claim to have the answers to solving the global auto industry’s problems.  My point instead is that right now most companies are in more of a retraction mode than a growth mode, so right now is a perfect time to be very specific about who is, and who is not, your target customer.  Stay away from the gray areas of what they value, and make that what you value, and if there are things that don’t directly link to that value set, look at them and ask if they can be cut or outsourced (many cannot, but it’s worth asking).  Eclipse Aviation is an interesting example of a company that went with one-size-fits-all luxury in the private jet world.  Their customers like the luxury, but their customers don’t mind giving up choices in the luxury, because what they really value is a cheaper private jet for their transportation needs and stripping out all of the personalization time and cost is a big part of where Eclipse cut their costs.

So rethink who your most valuable and profitable and loyal customers are, and think seriously about saying “no” to some of the others like Tata Motors and Eclipse Aviation have done, and look at the impact that can have on your costs and your overall operating model.

-Ric

Today’s economic climate some are calling a depression is forcing managers in every business to make huge cost reductions.  There’s no escaping it.  Reduce expenses substantially and quickly or you’ll be out of a job.  And if you can’t do it, your replacement better do it.  If she can’t, she’ll be out of a job and the company may be out of time if other managers can’t do it.  There is a way to do it, but more than anything else – more than money, time, or operational knowledge – it requires thinking about how a business needs to operate VERY differently.  I call this shift in mindset “Getting out of the ‘how’ trap.”

By the end of this post you will have a much clearer sense of what you are doing, and experience tells me that it will change the way you approach what you do.  In my experience it’s a lot like the arrow in the FedEx logo (it’s in the white space between the “E” and the “x”).  Most people haven’t seen it before, but once they see it, they can’t believe they didn’t see it before, and can’t not see it from that point forward.

OK, now are you ready to see the arrows in your work?

Starting to see your arrows, that is to say actually understanding what it is that you and your colleagues do, starts with what I call the “how” trap..  People get so attached to “how” they do what they do, that it actually masks “what” they are doing. It’s a totally human condition, and it’s the same thing as when we go to a favorite destination like a restaurant, we always drive the same way, we associate the route we take with the destination so much that when someone else drives there and they take a different route we ask “why are we going this way?” we know darned well it usually doesn’t matter “how” we get there as long as we get there.   The “how” trap also traps us in our work.  In a work setting if you walk up to someone, we’ll call him Tim, sending a fax and ask “what are you doing Tim?” Tim will probably look at you a little funny, because it seems so obvious, and say “I am sending a fax.”  Well I can tell you with absolute certainty, not knowing any more about Tim’s job or his company, that’s not “what” Tim is doing.  Tim is in a “how” trap.  In this instance, “what” Tim is doing is something along the lines of Communicate Status or Confirm Order, the fax machine is simply a “how” he is accomplishing that what.  Common “how” verbs are:

·         Fax

·         E-mail

·         Automate

·         Phone/Call

If you define your “what” in terms of the outcome (with verbs like communicate, verify, create, etc.), it enables you to disentangle it from the how language and see it for what it really is.  So what? Well for starters, if I need to cut costs in Tim’s department, one of the things I might do is ask what’s really required in the work they do and what’s not.  If I ask Tim if sending a fax is a requirement, odds are he will respond quickly with an “absolutely” when the “what” of Communicate Status is the actual requirement, the fax is what’s probably discretionary (absent some regulation or customer/partner contract that mandates it).  A-ha!  If the fax machine is an optional “how”, if we have Tim use e-mail instead of the fax machine, maybe that’s a good way to save on long distance costs for the fax machine and I am on my way to cutting costs.  Not so fast.  Separating your “whats” from your “hows” is just the first step.  Before I just start changing “how” things are done, I need to get a better sense of where the Communicate Status fits in to the overall work Tim is doing.  This Tim happens to work for an insurance company, and he is sending faxes to communicate the status of an insurance quote to one of his insurance agents.  Communicate Status is just one of about 10 steps Tim goes through in the overall Create Quote “what” that Communicate Status is a part of.

Once you have unmasked the “whats” that make up a block of work such as  Create quote, things get a lot more interesting, because now you have the ability to do three things much more easily than before:

·         Unmask redundancy and repetition of “whats” –  Most organizations know there is some repetition, but few realize how much there is.  One big organization I worked with thought they were repeating a “what” but they didn’t realize they were doing it more than ten times and in under three months we eliminated more than $40 million in cost and redeployed over 60 people.  Then there was a logistics company with five different divisions and they thought that there was about a 10% commonality in the “whats” in each division and it turned out to be more than 70%.

·         See what is contributing the most, and the least value in your organization.   People are often surprised when I say I want to talk about their low value “whats” first.  Fixing high value work can be hard and risky (you should still do it but eyes wide open on that).  Low value work, by definition matters less “how” it gets done so it tends to be a lot easier to cut costs and to innovate in those areas, because if you make mistakes, since it’s low value stuff, it’s not such a big deal.  That logistics company I mentioned, a lot of the repetition was in pretty low value work, which made it obvious that we needed to identify best practices in each area and just standardize across all areas for that best practice, and since it was, by definition low value work, we knew we didn’t need to be too careful about it.

·         Understand where the real performance levers are.  This is huge for project selection and prioritization.  If you can start to see which “whats” are the real performance drivers, you can focus on them and also work to remove any performance impediments around them, and that is powerful.  If you want to start rethinking your organization, really understanding what drives your performance is a key

So that’s some food for thought on what’s what and how to get tactical and high level in the discussion of “what” and in my next posting I will talk more about business value and why even though the self-service check-in at the airport (outsourced to customers) may seem like a similar decision compared to the ATM (also outsourcing work to customers), they are at opposite ends of the business value spectrum.

I look forward to hearing your comments and I will write again soon.

-Ric