Stern Stewart Research // Volume 21
Authors: Stefan Heppelmann, Dr. Oliver Russ and Christian Grethe
It seems that conventional reaction mechanisms are becoming ever-less effective in response to high cost: large-scale projects for the introduction of process-cost calculation frequently take many years or get lost in details. Savings programs conducted with the "lawn mower method" have an impact on quality. In many cases, the cost benefits of outsourcing and off-shoring are overestimated, while the control expenditures are underestimated.
One thing is certain: one of the main causes of high cost in too many cases is the waste of resources due to outdated processes and structures. However, instead of strategically analyzing this problem, many companies choose what seems an obvious solution: process cost. When process cost is too high, processes must be simplified. If others can do it better: outsourcing. If the production cost is lower in other countries: off-shoring. This type of cost reduction measures can only be successful when the right activities are outsourced or shifted in the correct scope. For this purpose, companies must initially get an overview of their core processes, which means organizing processes into a portfolio by strategic importance and relative efficiency in order to determine the specific thrust. This approach avoids cutting into value potentials through cost reduction and at the same time highlights the differences between internal (improvement) and external (outsourcing) solutions.
Companies looking to improve their process efficiency already have another trap waiting for them: since the approach requires a detailed understanding of processes, it is easy to lose sight of the overall scope. In addition, the approach frequently only makes changes to the processes themselves. This can be countered by expanding the horizon through a strategic filter after prioritizing the processes. Ultimately, products and services are the drivers of process cost, especially due to their complexity. In addition, the utilized resources can yield information about cost savings potential. As an example, a reduction of untied and tied empty capacities, the use of economies of scale, and a structural change of resources can lead to sustained cost reduction potentials. This approach frees the company of inefficiencies that stand in the way of growth instead of cutting into future potential.
available in German only
