‘Raising Quality and Lowering Cost’ – two fundamental principles and an effective business strategy.
“Mutually exclusive!” I hear entrepreneurs and CEOs of this world cry out!
At Waterstons we challenge this perception, with innovative business led and technology backed transformation consulting.
What is quality?
Quality in your business could mean many things, but perhaps the simple and ultimate measure is your customer’s perception of delivered value in relation to their cost of your end product or service.
What is cost?
“The effort, loss, or sacrifice necessary to achieve or obtain something.” (Oxford English Dictionary)
Costs are complex, ultimately the impact of cost can often be calculated in terms of the bottom line – but that is an overly simplistic view. Surely, if something costs more – it must be better quality?
We’ve all heard “Time is money” (originally a quote from Benjamin Franklin), and applied to the example where an alternative supplier offers a lower price for a raw material (sounds worthwhile), but the additional management costs due to their poor supply chain integration aren’t fully understood by the decision maker. The true costs in this scenario aren't captured correctly.
What is the Great Quest?
We believe that organisations can consistently achieve high quality outcomes while continually lowering operational costs. There is no conflict between the two, they can both be achieved through the strategic and pragmatic use of digital technology. This journey to raise quality and lower costs, is #TheGreatQuest for organisations.
Where to start?
As with all great quests, it starts with inspiration. This may be the simple appetite for improvement and change.
We all know that no real quest is clearly defined in detail from the outset (we’re not taking a simple walk in the park here)! So the first steps in the right direction are fundamental in achieving the vision. We believe everything boils down to data; the value and messages held within. Data holds the answers and the questions we don’t yet know to ask, and the human brain is excellent at problem solving given the right tools and the right materials.
One approach is to start anywhere – it may be considered better than not starting at all! This somewhat sporadic approach has been adopted by many, and is epitomised through an approach involving the hiring of a ‘Data Scientist’ and arming them with a shiny toolkit complete with the latest off-the-shelf “oh so easy to configure” data discovery tools. You’ve got to admit, the sales teams have an easy job on that one!
The issue with this sporadic approach, is the abundance of data. There is a better way. After all, if you’re going to eat an elephant, where do you start? One bite at a time…
A methodology for alignment
At Waterstons, we have a methodology which starts us on our quest in identifying opportunities to reduce costs and, or increase quality. This is based on work by Kaplan and Norton. It involves understanding and defining all organisation drivers, and key to this – determining appropriate measures which can be used as a basis to drive improvement (the scorecard). The right scorecard provides the data needed to identify where costs can be reduced and where quality is lower than it should be.
Figure 1 Kaplan & Norton Strategy Map (with Balanced Scorecard)
The Strategy Map (illustrated above), is a tool used in understanding business drivers from the Financial, Customer, Internal and Learning and Growth perspectives. The process begins at the top level, by clarifying the business strategy. It then moves through stages of understanding the requirements of customers and stakeholders, identifying the processes which support delivery of those requirements, and lastly identifies the skills, technologies and products necessary to support those processes. The objectives listed in each ‘swimming lane’ underpin the aims of the layer above.
- Financial Perspective – the first layer of the strategy map explores the financial and key business objectives; it may conceptually be explained as a value or mission statement. Of additional importance is the ability to optimise margins and maximise productivity through streamlined, integrated and automated processes; and the management of risk and the efficient use of resources.
- Customer Perspective – in the second layer of the strategy map, the perspectives and expectations of the key stakeholder groups are examined.
- Internal Perspective – the internal perspective layer of the strategy map shows the internal business processes which are required to be in place in order to meet the business financial goals and customer expectations. Once again, the different groups will have different outlooks on the processes required and the business’ identity, outcomes and offerings.
- Learning and Growth Perspective – this investigates the themes which support the layers above; showing the skills, culture, information and organisational values which either exist or should develop.
- Technology Alignment – this is not part of Kaplan and Norton’s strategy map, but is a layer added by Waterstons. This final layer of the strategy map identifies the key business systems, technology platforms and infrastructure which will be required to satisfy the requirements detailed in the layers of the strategy map above.
Clear perspective and empathy from all stakeholders is crucial to this process – preconceived perceptions often turn out to be fallacies – and basing decisions on these is a recipe for disaster.
At Waterstons, we’re often wearing our customer’s shoes (it works for us in what we do). Trying on your customers’ shoes can be adopted by any business and is a great starting point in understanding external (and internal) perspectives. Ask yourself: “How do our suppliers and customers measure us and the quality of our interaction?”
Determine the measures
So, how does this help me on #TheGreatQuest? With the organisation drivers defined in the Strategy Map, an appropriate target and measure on the scorecard can be introduced.
A particularly interesting organisation we worked with, who are a large manufacturing and distribution operation, looked to identify an overall measure of their supply chain integration and customer order accuracy. They strive to improve overall supply chain effectiveness, measuring the customer order through to fulfilment and invoicing accuracy. This is represented as a single measure on their scorecard – “invoice accuracy” and is based on the number of credit notes raised, against number of invoices produced (as a percentage).
In a complex supply chain consisting of many other stakeholders with back-to-back orders and logistics, this example provides a detailed insight into many quality measures: manufacturing accuracy, administrative and back office system accuracy and supply chain integration.
Credit notes and rework result in increased cost in terms of reputation and financial impact through re-work and additional administrative overhead. Since undergoing the exercise, the organisation improved their accuracy to 99.4%, which, while a marked improvement based on the hundreds of invoices raised automatically per day has resulted in the bar being lifted to improve further! The data collected for this single Key Performance Indicator (KPI) identified opportunities to improve quality. These opportunities were not just in the operational side of the business, but also in the office administration and supporting business systems. The drive to improve quality in these areas has also resulted in a reduction of costs.
Trusting your measures
Trusting your data is critical, if business decisions are made based on them – it needs to be timely and accurate. The wrong information yesterday is no value whatsoever.
An extremely powerful exercise in improving data quality and accuracy is the mapping of data flows across the business. This data management or cartography improves the visibility of data sources, integration (including manual keying) and distribution mechanisms. Look out for more on this topic in future case studies.
In summary, improving quality and reducing costs is driven from knowing your organisation’s objectives – not just the financial strategy, and not just the operational shop floor targets, but everything in between.
The right KPI will help identify where opportunities for improving quality and reducing costs exist. Measure performance against these using trusted and (where required) integrated data, continually reviewing and revising your aims and ensuring your scorecard is relevant and accurate.
Take action – the scorecard should be used as a tool to manage by exception. Green ticks offer little scope of improving quality, and red flags must not equate to internal blame cultures emerging. The key is using the data and offering transparency across the business to drive ownership of the continuous improvements to reducing costs and improving quality.
Rinse and repeat!
It’s all part of #TheGreatQuest…