What business ought to know about cutting costs and increasing value
I’ve been struck by how consistently I see, read and hear that price (or expenditure) and service are a zero-sum game – to increase (or maintain) service, the price must go up; to reduce price, the service levels must go down. Our politicians tell us that to maintain levels of social service (without ballooning deficits) they need to increase sources of tax revenue, or, vice versa, depending on the political message du jour. Businesses that operate in price-competitive markets often look to find their customers’ point of pain…what services can be reduced, eliminated, or made “cost adders” before the customer cries foul and takes their business elsewhere.
In my project work, I often hear that to go faster there needs to be a commensurate increase in the expenditure on resources. To improve quality or safety, we need to slow down or spend more money. In fact, the Guide to the Project Management Body of Knowledge (PMBOK) tells us that project management is a constant trade-off between time, cost and quality.
Inherent in each of these perspectives is the belief that there is a fixed relationship between price and service. For services that customers truly demand, they will be willing to pay a higher price. To maintain control over the price that they are paying, customers will compromise on the standard of service they receive.
The flaw in this perspective is that it perceives no point of leverage between price and service…there is a “natural optimisation” that has already occurred. Therefore, if we market effectively, if we sell more and if we continue to focus on our core business, we’ll be successful.
This might have been a perfectly acceptable approach in the last century but at today’s pace of change it leads to two potential problems:
- It makes the organisations that ascribe to it susceptible to disruptive influences that remove substantial portions of their customer base. If there are fewer customers to market, sell and deliver to, then growth is significantly undermined. The core business can quite easily go away.
- It tends to commoditise the industries in which it is prevalent because there is no differentiation at the service level. If the customer perception is that everyone can provide the same service depending on how much they are willing to pay, then price will be used as the differentiator. As a result, those that will do it cheaper will drive the market behaviours – those willing to make less money, take greater risks, or offer a lesser product in hopes that it will be “good enough.” This erodes profitability for the entire industry and leaves customers constantly looking for a different solution to their needs.
The blind spot in this thinking is that a point of leverage between price and service does exist – it’s called PERFORMANCE.
By focusing on improving the performance of our organisations, we shift the perspective of price from “a cost to be minimised” to one of “an investment to be optimised.” By focusing on performing our business’s services in an exceptional way – the efficiency, the effectiveness and the connection to our customer’s wants and needs – we can improve BOTH the customer experience and the price of the services we offer. A performance focus allows organisations to meet the need that their customers have to increase capital efficiency and get better outcomes as well as increase the profitability, cost-effectiveness and growth of their own business.
In today’s fast-paced business environment, creating the time and space to focus on performance improvement is easier said than done. Day-to-day operational demands, reporting needs of senior management and stakeholders, and the far-too-frequent need for crisis response all conspire to drive performance improvement far down the priority list. However, there are 5 key things that can be done to maintain a consistent steady focus on both improving performance and making high performance a prominent part of your business’s value proposition:
- Strategic Intent. A business strategy that places high value on continuously improving your operational performance and the service that you provide your customers creates the sense of purpose the makes enduring change possible. The greater the clarity around the vision for a high-performing organisation – what it actually looks and acts like – the more it will serve as a rallying point for the way you do business.
- Strategic Priorities. Set priorities for performance improvement that are strategically aligned to what would represent the greatest value to your customers and serve the developmental aspirations of the organisation. This allows your team to focus their “available capacity” on the most important improvement activities at any given time rather than dispersing it across a broad range of initiatives that never reach completion.
- Adaptive Project Portfolio. Establishing and maintaining a portfolio of performance improvement projects allows you to continuously adapt your business performance, as well as your products and services, to your strategic priorities. It provides a structure that keeps driving performance to higher levels and creates a framework for engaging the full depth of knowledge and expertise within your organisation.
- Transformational Leadership. In many cases, the leadership objective is to transform the way the business thinks about operational performance and the organisation’s view of continuously improving that performance. The most profound elements of that type of leadership are demonstrating to your people that senior management values exceptional performance and will trust and support their teams to be the source of the transformation.
- Engage Your People. To create a high performance organisation, your people must be the primary source of your improvement efforts, not the resistance movement you’re trying to defeat. To make this cultural shift you need to engage your people in way that allows them to see the value in improvement for the business, for your customers and for themselves. You need to look to them as the source of improvement and innovation that will yield ever-greater levels of performance. You also need to give them the autonomy to translate their innovative ideas into operational reality. It is by seeing that their efforts are helping to progress toward a shared vision of the future that your people become engaged and motivated to help shape that future.
Putting these five things in place will create the cultural and operational foundation on which to build a high performance organisation. They will drive performance improvement in a sustainable and progressive manner. They will also make the organisation more resilient and adaptable in the face of changing market, economic and competitive conditions.
Questions for consideration:
- Does your business differentiate itself through price, level of service, or both?
- Does your organisation’s strategic vision include elements of performance transformation?
- Are your customers delighted with the value that they receive from the industry? From your business?
I would love to hear your thoughts and experiences. Please share them in the comments below.
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