Continuous Improvement Is More Than Cost Reduction — It’s a Way of Life
By Jim Bouck & David Priestley
Planning & Operations
Universal Advisor, 2005 Issue No. 1
Far too many organizations wait until the creditor is at the door before they realize that some form of cost reduction is necessary. Then the campaigns begin. There are slogans, banners, exhortations about belt tightening, ceremoniously rejected spending requests, decreased authority, layoffs, and organized projects. One foreign company even went so far as to remove hand towels from the washrooms so that staff would carry personal handkerchiefs to dry their hands — a reminder that cost control was everyone’s responsibility. The usual results of these well-intentioned campaigns? Very short-term relief.
High performance organizations forego ceremonial, one-time cost reduction campaigns in favor of continuous improvement. It’s in their DNA. It’s always a core competency. It’s a way of life. Truly high performance companies apply continuous improvement to every business function and process and include the entire supply chain as active and involved partners. Anything less is unthinkable.
Cost Reduction vs. Continuous Improvement
For organizations in crisis, strategically applied, skillfully managed cost reduction and operational restructuring is often the single most important part of an operational turnaround. For those companies, the importance of cost reduction cannot be overstated. However, for companies that aren’t in crisis mode, cost reduction is sometimes seen as a quick fix; maybe that’s why it seems so tempting. You get a group of the brightest staff together and give them a cost reduction goal. They proceed to find enough savings to meet the target so that they can declare victory and return to their regular jobs. Some of the cost savings projects will yield real benefit, some will never be implemented, and some will save cost but harm the value of products or customer service.
In an automotive example from the 1980s, cost reduction suggestions ranged from eliminating spare tires, because no one in the room had a flat in the last year, to eliminating the visor vanity mirror, the mirror light, or the mirror light dimmer (those engineers had a fixation with the visor vanity mirror!). No one looked beyond the obvious. In addition to the significant, less obvious, savings that this cost-reduction project team missed, the targeted savings items were features that were obvious to, and valued by, the customers.
In contrast to cost reduction, continuous improvement (CI) focuses on the systematic elimination of waste — anything that adds cost or time without adding value. Waste has no value to the customer, even though it’s included in the overall cost. Examples of continuous improvement savings from a ’90s transplant automotive manufacturer include the elimination of several wire harness clips hidden behind the headliner, used because of past practice but found unnecessary with testing; discovering that a smaller air cleaner would be just as effective as the larger one (carried over from last year just because it was available at the time); adding stone chip coating to the front view surfaces of the car that increased customer satisfaction and provided a five-fold warranty savings; and supplier initiated revisions that reduced tooling costs by 33 percent.
Properly applied, CI is practiced by everyone in the organization, all of the time, and it’s hard work. However, as is the case with most hard work, continuous improvement pays off — in addition to the financial rewards, it’s a source of pride for those who do it well and is appreciated by those who receive and benefit from it.
The Benefits of CI
CI provides a significant financial return for the limited initial investment required to align the company culture, establish the system and process, and mentor the implementation that will create the initial successes. Once firmly established CI creates its own energy and, through the initial savings, becomes self-funding. We’ve yet to implement a CI process that failed to produce immeasurable increases in employee morale and provide a continuing positive financial return. Employees at all levels appreciate the opportunity to remove the waste and non-value added elements from their daily tasks; everyone likes to be productive and feel good about what they contribute to an organization’s success. We’ve also yet to find the person who didn’t have something positive to contribute, given the right opportunity and a bit of positive recognition. Frequently the “trouble makers” that historically seek negative attention become the new, informal leaders when positive attention becomes available.
Culture Shock
The most frequent obstacle to CI’s success is an organization’s existing culture. More often than not, it’s management, not the workers, who are more resistant to the cultural changes that are necessary. It seems the “old bulls” like to have it their way and keep things operating within their personal comfort zones, regardless of how ineffective or inefficient that may be. However, through continuous engagement and careful coaching and mentoring of managers and staff, the transition to a CI culture can be relatively painless and is usually accomplished quite quickly.
On the other hand, some organizations tentatively jump on the CI bandwagon and take a do-it-yourself approach; these companies send a bright, young, aggressive staff member to school for a few weeks and assume they’ll reap the benefits. This certainly can work, but the usual result is a profound lack of cultural acceptance, slow implementation, and staff frustration; moreover, the results achieved are often far less than optimal, possible, or expected. A trained but inexperienced apprentice cannot go beyond their skill level. The best and brightest young staff member will be highly challenged to create and then lead the cultural changes necessary for success, even if they can successfully analyze a process and correctly apply the right tool at the right time.
Finding a “Sensei”
Companies most frequently achieve best results by finding a “sensei,” or master teacher, from outside the organization to act as the mentor and change agent. A true sensei can lead you and your team through the process and create a culture to engage everyone in the pursuit of continuous waste elimination, establish a valid and verifiable measurement system, and coach and mentor staff of all levels. The end result? Continuous improvement becomes a way of life — part of your corporate DNA.
