Delivering Value Instead of Cutting Costs

Written By: John Glasgow 7/24/2021

Photo by Alexander Dummer on Pexels.com

When times are tough for an organization, the first thing that comes to mind is cutting costs, focusing on “trimming the fat.” For many, this is an initial reaction to a bad situation.  However, before cutting costs, try to find out why your organization is suffering.

Before making reactionary decisions, spend some time focusing on the value you are giving your customers.  Are you delivering more value than your competitors’ or customers’ expectations?  Do potential customers know what you are offering them?  Are there substitutes (alternative products that the customer can use) that are more popular than what you provide them?

Are you providing value?

Come up with at least five factors to compare your company to your competitors.  Put this in a spreadsheet.  Do your research, do not just go off what you hear or think!  Also, make sure no one is tied; if there is a tie, do more research! Compare your product and services to those of your competitors.

Comparing companies.

The categories can be anything you want but be sure they are not focused solely on one or two areas, such as marketing or finance. 

How does your organization want to differentiate itself over the competition?  Are you looking to be global or local?  Broad or niche market segment?  It would be challenging to be a leader in all areas, and in many cases, it is unnecessary and wasteful.

Next, weight the categories from 0 to 1, then multiply that number by each company ranking to get their overall scores.  The same rule applies here as above; no weight can be the same (you need to prioritize everything).

Comparing companies with ranking what is valued.

Assuming we are company A, how would do we stack up against our competition?  The leader, according to our example, would be company C.  In reviewing what we could do to improve our value proposition, we would want to change our focus.  We could, as an example, take resources from our social media and invest in more locations if possible.  Or assuming you had some funds available, leverage your strengths, such as social media, to promote new areas.  Each company is unique and should have a special formula for its success.

Looking Within.

Based on how you want to differentiate yourself from your competitors, what is not promoting your organization’s values in your organization?  It may be a waste and needs to stop.  According to Four Principles, “The focus is on identifying Waste in three areas: cost, processes, and people.” Before going and laying off or terminating people, there are often other areas to look at.  Based on your analysis of external competitors, identify those costs that do not directly impact the value delivered to your customer that makes you different from your competitors.  Are there products and services that your company has that do not provide value to the customers?  More likely than not, the answer is yes. 

A classic example is an organization with more than one service or system it maintains, such as a Customer Management System (CMS).  In this case, the company could save costs by unifying on a single platform, which could also benefit from having a company-wide communications approach.  This is part of why it’s crucial to think about Business and Enterprise Architecture.  The larger the organization becomes, the more likely waste accumulates.  One of my professors, Brian Cameron from Penn State, has stated that he was involved with Silicon Valley startups who saw value in setting up their companies intentionally to avoid waste as the company expands.  Of course, there are many more organizations that have grown organically. 

Photo by Andrea Piacquadio on Pexels.com

This gets back to my brief discussion on Efficiency Vs.  Effectiveness.  Are the employees doing the right things?  It does not matter how efficient the employees are if they are not doing the right things (such as contributing directly to the value stream or following the vision and mission statements).  Since employees are the most significant asset and expense most employers have, it would make sense to create the correct value.

If you honestly can say that we have eliminated redundant systems, services, and processes, you have come a long way to creating a lean operation.  If you have employees that are not interested in taking on new roles that provide value from what they were doing in the past, they will likely move on to an organization that values that.  It is not a negative reflection of that person or their capabilities; their work could be more valuable elsewhere.  In some cases, employees who have not contributed to the value stream will decide to continue not contributing; that is where management will have to intervene and clarify that everyone needs to contribute value to the customer.

Repeat.

Lastly, there is no end to the process, and it needs to be cyclical.  Once you are done implementing your changes, evaluate where you are and where you want to be.  Chances are the goalposts moved several times through this process, either due to unforeseen internal or external forces.  This is normal.  The difference is, what are you going to do about it?  What needs modifying to achieve your goals.

Conclusion

Don’t blindly look to cut costs; find out which expenses, processes, and people contribute to your organization’s value stream.  Focus on differentiating your organization from others.  Eliminate areas that are wasteful, such as redundant systems, by consolidating them in meaningful ways.  It is essential never to stop evaluating the goals and what needs to change to be successful.

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