In several of my recent readings and discussions, I see and hear concerns being raised about several organizations going awry with respect to cost reduction efforts.
No matter what industry you are in – it`s critical to be innovative and do the right things (i.e. be effective) vis-a-vis products, services or even the business model to deliver growth and top line, and it`s imperative to do the things right (be efficient) – to deliver bottom line.
In today`s era – majority of (if not all) the organizations are implementing programs to achieve higher levels of efficiency / reduce costs under various names – Operational Excellence, Efficiency for Growth etc. Often such programs include using frameworks such as Lean Six Sigma, Re-engineering etc., as well as depending on the path of restructuring (aka down / right sizing) to take the extra pounds off.
While, from a holistic perspective – becoming efficient should lead to success, it might not always be the case.
I tend to call it the efficiency effectiveness paradox.
While aiming to becoming efficient, an organization could end up loosing sight – and – reduce the capabilities of being effective, in turn having a negative long term impact on organizational performance.
It`s akin to running faster to win the sprint, but getting exhausted and hence not being able to run the marathon, or because you dehydrated (since you choose to drop the water bottle), or worse off – end up running in the wrong direction because you dropped the compass (while wanting to loose weight to be the first in the short race)..
To leverage lean terminology – we identify – activities / tasks / processes and associated assets and expenses (machinery, human capital, etc) as Value Adding (VA), Value Enabling (VE), and Non Value Adding (NVA). So, to achieve the efficiency improvement goal – NVA`s get targeted ..Rightly so…But, something somewhere goes wrong.
To put things in perspective, let`s go to the very basics of the concept of Value Addition.
A process or activity is considered to be a VA iff it adds value to a product or service. Value is judged by the customer, who can be the customer of the company, or an internal customer who receives the output of the process or activity.
An activity or process adds value, if it satisfies all three of these requirements: (1) the customer is willing to pay for the process or activity, (2) the process or activity physically changes or transforms the process or activity, and (3) the process or activity is performed correctly the first time its undertaken.
While it`s fairly easy to classify an activity as an NVA (given that it`s expected not to follow any of the above 3 rules), the challenge arises when considering activities / resources which could be classified as VE. Value Enablers are activities or processes that do not, in themselves, meet the criteria of value adding activities, but which must be performed in order to make it possible to perform value adding activities.
Unfortunately, the assessment of NVA`s sometimes ends up including VE`s and even long term VA`s. Let`s admit – some activities could be best deemed as VE`s or even NVA`s in the short term perspective – especially if the organizational leadership is focused on here`n now (present) vs. there`n then (future), or doesn`t have a complete appreciation of the capabilities required in the future to be successful.
So, the question perhaps for an organization and it`s leadership while undertaking restructuring efforts is to take the decision – Is it worth carrying the compass and the water bottle et all while wanting to run the sprint OR …