Depending on an organisation’s services or products, the cost strategies can vary, as every decision in the product development process or operations re-design affects the cost. Many product and service organisations are under tremendous pressure to drive several initiatives around cost as no business can escape from disruption happening in lightning speed around them. The low hanging thinking strikes best as saving through Value Engineering, Six Sigma or Total Quality Management and so on, as a part of the business excellence or strategic initiative. These initiatives have delivered some level of positive results in the past as the product life cycle used to be longer than it is today. Cost reduction or saving projects has helped to increase, maintain the profits or survival, this trend could further step-up as leaders and businesses have increased cost pressure to face post coronavirus pandemic crisis.
Cost Pressurised Large Organisations v. Small Organisations
This mantra has also benefitted the organisation in bringing a common language and realise that cost reduction is everyone’s job in the organisation, by optimising their process or cutting cost to core year on year for decades. In the process, it has set a mindset of inward thinking within the organisation and its leadership by over obsession as a DNA of the organisation, without considering the intangible damage to the culture of the organisation. Organisation’s design their reward system to encourage a focus on cost and not on new revenue streams or new value to enable the customer retention. The cost focused Kaizen improvements is celebrated expecting year-on-year contribution to bottom-line or transfer price / delivery cost. No organisation is built to last by just focusing on saving cost for their increased profit or growth, instead by new products and services that touch the customer needs excellently well and a purpose to stay in the business. The large organisations’ inability to innovate is transferring this burden to shoulders of their suppliers and vendors to reduce cost year-on-year by 10-15 percent but asking rate is anywhere between 35-50 percent to save business from low-cost competitive countries such as China, leaving India even countries like Singapore, Korea and Malaysia have a difficult times competing with Chinese firms than US and Europe. Small and Medium Businesses and contractors are hard-pressed to take increasing cost pressures as the operational costs and cost of labour is ever increasing, which could lead to unwarranted practices to save their business.
New Mindset – The Art of Leading Collaboration
It is high time for organisations to reinvent their cost innovation strategy to an all new level. The software services industry has been a great reference of way finder for industry across sectors, as they could maximise the value of contractors by weaving them into the culture of the organisation with no disparity and equal opportunity in their professional and technical contribution. These organisations which respect the origin or source of ideas. But this scenario is more or less inverted in Manufacturing sector with a ‘factory mindset’ as the contractors are seen as vendors and generally treated as a secondary workforce. They do not weave in the culture of the organisation deeply to solve innovation challenges nor on initiatives towards shaving cost year-on-year. The contractors lose their urge to go beyond definition of job work, and this is a lost opportunity as no organisation has a clear profit sharing policy in place with vendors.
The future of ‘Build to Last’ Organisations
Forward looking business organisations are thinking to reinvent with a new mindset - mission zero ‘cost to zero’ ‘downtime to zero’ ‘defects to zero’ ‘accidents to zero’ ‘waste to zero’ ‘mis-communication to zero’ as every aspect is cost to the company. There is an attempt to re-define cost innovation with digital transformation solutions by integrating to co-create and profit sharing with vendors as business partners by encouraging to develop intellectual property. Traditionally these organisations had adopted methods of costing with wide tolerance. Organisations need to design a holistic digital transformation blueprint by revisiting their end-to-end manufacturing or process journey, identify the inefficiencies, the risk of safety, the data transparency and openness to work with young organisations by setting the corner stone based on quick return on Innovation, thus, building a confidence for subsequent stage of digital transformation. Organisations need to value and choose their partners wisely to discover next from amplifying process efficiency or cost to new revenue and exponential growth opportunities as their innovation engine. As their short sightedness must not hinder their long term goal of end-to-end growth innovation in a circular economy.
