Operational Excellence is all about process

 

In the world of technology today’s hot product or service is tomorrow’s relic. If you don’t constantly cannibalize your product line or your service offering your competition will. Certainly the growth of the Internet and its broad array of on-line businesses have shown us that over the past decade. Run your business the same way by constantly inventing new ways of doing things.

Over the past several years, both as a business executive and now as an executive consultant, I have been working with people to help them understand how to innovate in their working processes. I began by working with the late Dr. Michael Hammer, who was brilliant in this area and years before had coined the phrase Business Process Re-engineering. What I learned most from him is that while most companies think about innovation in terms of the products and services they offer, they often fail to think about innovation in the way they do their work. That is Process Innovation.

I discovered a similar thought in the midst of the outsourcing craze of the early 2000s. Companies of all shapes and sizes were outsourcing their labor to cheap labor markets like India and China. Jobs were exported. Labor costs were reduced. The only thing is, they were just performing the same inefficient processes with cheaper labor. It is what one outsourcing company called “your mess for less”. Saving money was the objective. Instead, what should have been the objective is innovative processes that better served the customer and delivered better results at a reasonable cost. Here are 2 opposing examples:

Airline Travel

I do a lot of airline travel and can’t imagine why anyone would consider it fun any more. The truth is that this is a commodity service and the goal is to lower the cost as much as possible: pay toilets anyone? We know what has happened.

I read a statistic awhile back that said that the total profit in the airline industry from the Wright brothers until today is approximately zero! For every dollar made, someone else is losing a dollar. That is crazy! But one airline has pretty consistently made money. Who? Whenever I give this speech in the U.S. it seems everyone in the audience knows the answer immediately: Southwest Airlines.

So what is the difference? Do they pay more? No. Do they charge for luggage? No. Do they charge to rebook your ticket if your plans change? No. What they do is have a consistent process that limits the type of aircraft they use (lower maintenance cost). They have an open seating plan (less overhead). They have a high level of employee engagement (everybody helps get the planes out on time). And their employees seem happier than everyone else’s (more pleasant to do business with). In short they have honed their process to eliminate waste and reduce any unnecessary work so they can focus on loading the planes and pleasing their customers.

Computer Manufacturing

Similarly the computer manufacturing business has become highly commoditized over the 4 decades that I worked in that industry. A decade ago the PC was taking over as the primary computer for most people in their personal and business lives. And the pre-eminent company to beat in making and delivering PCs was who? Right; Dell.

Like Southwest they had process that delivered better results to their customers and a quality product in a timely way.

The difference in this story is that while Southwest stayed focused on their process and their purpose (serving the customer), Dell heard the competitive footsteps behind them and felt they had to focus on cost. They outsourced a lot of their work to Asia. In particular they outsourced customer service hot lines to India. They didn’t adapt and improve their processes, they just moved it to get cheap labor. The problem is that the people on the phone were not as trained, accessible or understandable. The backlash from the customers was so severe that Dell had to bring back their customer service to the local market. But they paid a steep price in terms of market position.

Today, Dell is still a strong player but no longer is in the #1 market position they once enjoyed.

The Solution

The solution to the cost issue, I have found, is to focus first on your process. Ask yourself  “Are we doing it the best we can?” Then ask, “Is there someone who can do it better than us because they specialize in this area?” If so, you now have a good reason to outsource. Notice I did not say cheaper, because we know cheaper is not better. Truly doing things better involves a better process, with better results for the customer at a reasonable price.

A simple change in thinking can save you more money and customer loyalty than the money you would have saved by using cheaper labor.

 

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