Insights from The Lab

3 Valuable Corporate Cost Cutting Strategies & How to Apply Them
By The Lab Consulting Cost Reduction Knowledge Work Industrialization
0
0 Comments

3 Valuable Corporate Cost Cutting Strategies & How to Apply Them

Our last article detailed the numerous risks inherent in business operations lacking sufficient standardization. It told the story of a globally-known brokerage whose front- and back-office operations were hobbled by low quality, connective processes, what we’d described as “junky speaker wire,” borrowing a term from the audiophile world.

In this article, we’re going to help you understand and overcome three major roadblocks that stubbornly stand in the way of using simple technology capabilities to achieve cost cutting in business operations.

How these cost reduction strategies came to be

Before we tackle these issues, a little background is in order. That’s because the three strategies we’re about to discuss, and the roadblocks that stand in their way, were nearly a century in the making.

Large-scale office automation technology first appeared in the 1920s. There were new mechanical filing systems. There were calculators. There were punch-card tabulators. The vendors of the day promised that this “early IT” would deliver breakthrough productivity gains and cut costs.

But the promised benefits required that office work first be standardized. Industrialized.

Industrialization was already delivering big productivity benefits on the factory floor. Work was standardized and specialized. Workflows were turned into assembly lines and methodically automated. But in the 1920s, executives resisted the plea to apply industrialization to office work.

What happened next? The technology vendors simply modified their sales pitch. They told prospective customers that their new technology, once installed, would “gently force” office workers to change the way they worked. They would have to standardize, since the equipment required it. The (sales) strategy of tech-driven innovation was born.

Unfortunately, the promised results failed to appear. Productivity didn’t increase. Costs didn’t drop. Reports from the era describe abandoned and under-used technology.

Vendors were unfazed. They simply promised that the next generation of their technology would fix the problem.

It’s a sad story. But it also rings true today. Vendors of digital technology still claim that their solutions will “gently force” knowledge workers to change their ways. But if that were truly the case, where are all the productivity gains and cost savings? It’s déjà vu all over again.

With that backstory in mind, let’s discuss the three strategies and how to apply them to any business:

Cost Cutting Strategy #1: Standardized interpretations and definitions

You’d think that a term like “business process” would mean the same thing to different people within the enterprise. But that’s not the case. IT in a brokerage, for instance, would proudly categorize “currency conversion” and “invoice generation” as examples of business processes which they can automate. But business line executives, if they even bother to think about it, chuckle at the narrowness of this definition. They view these as transactions, mere parts of a more comprehensive “business process,” such as customer onboarding, order-to-cash, or record-to-report. And that’s a simple example. Once you introduce risk and compliance-related regulations, the complexity snowballs.

The definition of a given business process is often highly subjective—and thus wildly inconsistent—within the same company. For example, when two different teams within one company’s mortgage-servicing department documented their internal business processes, one team counted 1,400. The other team identified just five. Neither team invited anyone from IT, risk, compliance, or marketing to participate in the exercise. Not only that, the second team was unaware of the first team’s work!

This casual, open-ended approach (all too common today) is a business-as-usual embrace of costly, operational chaos. It encourages people to talk past each other, since each assumes that the other shares a common understanding which never existed in the first place.

How, then, do you get past this roadblock? There are numerous ways that can be lifted straight from any factory operation:

  • Create a standardized dictionary of common interpretations with the various groups involved.
  • Store this dictionary in an easily-accessible repository.
  • Define a process to manage changes and additions.

Cost Cutting Strategy #2: Design for machinability

After the introduction of assembly-line robots, it only took about a decade for automakers to produce their chassis in fully automated plants. How? They redesigned their products to make them compatible with the capabilities of the new machines. Errors plummeted. Product quality and reliability skyrocketed.

Contrast that story to the implementation of workflow automation and office enterprise software. It’s been three decades since its arrival, and yet the gains for workers—and the opportunities for leaders to pare costs—have remained elusive. That’s because office work remains designed for the capabilities of people. It is almost never redesigned for the capabilities of machines.

Office workers are allowed to design their own, individual work methods. These decentralized, undocumented business processes make it nearly impossible to design for machinability. You can connect organizations such as finance, marketing, compliance, risk, order management, and customer service via automated workflow technology. But when each worker operates differently, productivity does not increase. Costs are not reduced. Errors remain high. Customer service fails to improve. All you’ve done is install a digital conveyor belt to more quickly transmit the one-off work product.

How do you get past this big, fat roadblock? Do it by designing knowledge work products for machines (not people) to produce. Follow these steps:

  • Adopt a manufacturing mindset: Use standardized terms and interpretations to develop standardized, knowledge work products.
  • Deconstruct existing products and redesign them so that existing IT technologies can perform as many activities as possible.
  • Keep a central file for “bills of material” and production instructions on file for each work product and related technology.

If all this sounds intimidating, take heart: Ford’s first Model T assembly line took 18 months to develop.

Cost Cutting Strategy #3: Embed know-how into business processes

A manufacturing line is easy to understand. Its business processes are clearly visible. As a result, both IT and the business can begin their manufacturing-automation efforts from the same tangible baseline. Valuable learnings and know-how are built directly into these processes over time.

It’s when you venture into the realm of non-manufacturing business processes that the distinctions grow murkier. These processes are intangible. They may exist only as a vague collection of individual perceptions or tribal knowledge. That’s a bad starting point for an effective automation initiative. Consider, too, that any know-how resides in the minds of the knowledge workers; it can walk out the door.

Fortunately, there are lots of ways around this business-process roadblock:

  • Create visual representations of knowledge-work business processes.
  • Map out the critical decision points in the operational workflow. Connect risk, compliance, and legal requirements to these vital nodes. And don’t forget customer contact points.
  • Commit tribal knowledge to paper (or Visio software) in the form of a process flow, replete with all human work activities and technology touch-points. Review it. Refine it. Refine it again. Keep at it until it represents the pure and accurate representation of the existing process. Then use this to standardize, improve, and manage the work… just as you would in a manufacturing line.

Intangible assets represent yet another ripe opportunity for cost saving initiatives. We’ll talk more about them in our next post.

But before you read about that, you might want to read more about how The Lab Consulting helps companies dismantle the roadblocks that hinder their performance and profits. We employ a unique self-funding model with guaranteed results.

Email us at info@thelabconsulting.com to learn more today.

Improvements from Start-to-Finish

Since opening its doors in 1993, The Lab has helped some of the best companies in the world become even better.