A comprehensive approach to cost reduction can in fact free the very resources needed to innovate and gain market leadership.
As the ongoing Six Sigma successes at GE and other industry titans demonstrate, organizations continue to benefit from the continuously evolving Six Sigma quality improvement process. The latest iteration, Lean Six Sigma, combines quality improvement with increases in process speed to help address both time-to-market and customer-satisfaction demands, while containing costs.
Clearly, Six Sigma continues to play and important role in operational improvement. At the same time, conditions that many companies now face suggest the need for a faster, broader and more encompassing approach to cost reduction.
Companies in mature businesses may find their growth rates at or below expected GNP growth. Barriers to entry continue to fall in industry after industry, while international competition puts pricing pressure on all enterprises.
In such an environment, even as economic and business conditions improve, an intense focus on cost structure, use of the working capital and global cash flow is essential. Companies need an approach that is tangible and practical, yet comprehensive enough to catch global cost reduction opportunities beyond those provided by point solutions such as Six Sigma.
Enterprise cost reduction is a wide-ranging approach to reining in expenses and positioning the organization for ongoing improvement. Rather than focus on specific operational processes that are confined to one or two functions, enterprise cost reduction addresses a range of key cost drivers that span the enterprise, including:
- Business configuration
- Organizational structure and design
- Business and process complexity
Addressing any one of these drivers can produce impressive cash flow improvements. But beyond their individual effect, the greatest opportunities for transformational cost reduction lie in examining al of these areas and identifying savings possible both within and between them.
Such an approach focuses on the strategic cost drivers not typically addressed through process-specific disciplines like Six Sigma. These drivers determine how far an organization can go in reducing cost without a negative impact on the organization’s culture and strategy.
An enterprise approach also catches many of the tactical cost-reduction opportunities that otherwise fall between the cracks in more traditional programs that are narrowly focused on a single area or process. Cost reductions achieved in one area through such programs can be offset by increases in another as work is actually shifted between functions instead of being eliminated.
Finally, an enterprise approach can serve as a sort of “opportunity guidance system” that identifies and zeros in on discrete candidates for process improvement. Then, Six Sigma and its operational-improvement kin can be unleashed in a strategic, targeted manner, adding to the effectiveness and longevity of those programs. Furthermore, an enterprise approach almost certainly will include initiatives like supply chain reengineering, IT infrastructure overhauls and changes in sourcing. But the enterprise approach will add an entirely new dimension to those efforts.