An ever-greater number of organizations are trying to make do with less. In the first half of 2001 alone, 712,000 workers were laid off in the United States. Companies are being forced to cut not only people, but also research, marketing, training, and capital expenses.
While some organizations simply cut by a fixed percentage - "we need to eliminate 10% of our workforce" - others are trying to manage costs without diminishing their future.
Typical across-the-board cost cutting does not distinguish between areas that add value from areas that are no longer essential. Few organizations can make across-the-board cuts and still find themselves as competitive as they had been.
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We worked recently with a large measurement-savvy pharmaceutical company that was looking to reduce costs. The experience of its Human Resources department illustrated how the cost issue should be approached. The department conducted a company-wide employee survey and then linked 10 key issues from the survey to market-share growth across the company's 22 sales districts. Of the many survey questions, six related to supervisor behaviors that most closely predicted sales success. The message was clear. Human Resources moved swiftly to eliminate dozens of training programs but left intact those related to developing the skills of sales supervisors. This may all seem elementary, but many organizations -- even the very best -- can be caught up in a never-ending, repetitive cycle of cost-creep followed by ax wielding. |
Our experience and research suggest that there are six major contributors to cost excess, each of which can be managed by an effective strategic measurement approach.
Cost reduction area #2: Activities over results.We have found that more than 20% of employees' time is typically wasted on low or no value-added activities, due to fuzziness over strategic priorities. Linking strategic measures to unit, team, and individual goals lets people purge unessential, low-value activities. Savvy employees with well-defined measurement targets can find between 15 to 30 percent of low value-added activity. Even if your employees could root out just 5 percent of low value-added activities, the cost savings would be staggering.
Cost reduction area #3: Cycle-time sluggishness.People tend to focus on activities rather than results. Busyness takes precedence over strategically relevant business. The solution is using metrics - measurements - in a disciplined process keeps everyone focused on results. Strategic metrics keep attention focused on both strategic results and the activities and processes that produce those results.
Cost reduction area #4: Functional silos.As competitors react more and more quickly, the cutting cycle time becomes increasingly essential. Using and communicating critical measures of performance can cut through departmental rivalries and excuse making, to dramatically improve cycle time.
Cost reduction area #5: Ineffective customer relationship management.Functional silos can prevent unbiased assessments of economic value. An integrated measurement system with balanced metrics can bypass disputes and power issues to identify and track huge opportunities for cost savings.
Cost reduction area #6: High-performance churn.Few organizations have a measurement model that clearly and accurately identifies the most important drivers of customer attraction and retention. Thus, they waste money on less powerful drivers, or, worse, lose customers by neglecting important causes of customer loss. The solution is to empirically identify the drivers of customer attraction, retention, and purchase volume and track performance in those areas. The right measures can greatly increase customer retention and "wallet share."
Turnover is costly, especially when high performers head for the exit. Metrus helped one client to install a turnover measurement system that cost the organization less than $40,000 a year, a bargain given the $2,000,000 annual turnover cost. The investment led to substantial savings.
Metrus Group works with clients to install a measurement approach that aligns each level and function with the business strategy and then puts teeth into that alignment by measuring only what matters.
To cut through the clutter, the power of measurement must be put in the hands of every employee. Everyone must assess how well employees are reaching targets and identify the warning indicators and milestones that help them make course corrections.
Metrus Group has worked with a wide range of clients across the industrial and service landscape to install measurement processes that help to manage value at competitive cost. Contact us today to find out how we can help you to manage costs in your organization.
Click here to visit our Recommended Reading page and download our cost management white paper - complete with a test of your "cost management IQ" and Metrus Group's six golden rules of strategic measurement for cost management. This white paper goes into greater detail, with more real-life examples and cost management strategies.
Also available at our Recommended Reading page:
- Creating the Measurement-Managed Organization by William A. Schiemann; from the 2002 Handbook of Business Strategy
- The Strategic Measurement Collection: A trio of articles focusing on different aspects of strategy execution through measurement, available at a reasonable cost.
We also recommend the critically acclaimed Bullseye! Hitting your strategic targets through high-impact measurement, available through Amazon.com and other fine resellers.
Also available on this Web site:
Cost Management Audit -- A rapid, but comprehensive analysis of cost opportunities using surveys, on-site interviews and focus groups, trend data, and financial analysis. Contact us for details.
Business Acumen Workshops [Click here]
Huddling Workshops [Click here]
Facilitated Consultation [Contact here]
Business Mini-Games that drive cost out rapidly [Click here]
Customer Cost Management assistance. [Click here]
Measurement Acumen Workshops [Click here]
Click here to write directly to Bill Schiemann!