Tragically my cartoon from August 2018 of the airliner above was sadly prophetic. My LinkedIn article made the point that too often cost-cutting directly or indirectly destroys the capabilities of organisations to deliver value to customers or service users.

Sadly in October 2018 there was an air crash in Indonesia and another in March 2019 Addis Ababa of the same type of aircraft. We are still waiting for official reports on the causes. Could the crashes be due to cost-cutting?

Indications in the press seem to point to possible problems with the flight control system. You can read for yourself speculation that there might be technical problems with the system. There is also speculation on whether the absence of manual overrides contributed to the accidents. Further speculation concerns the training received by the aircrews.

RISK ASSESSMENT

Such tragedies only go to highlight the need for high quality design of a product or service. That design needs to take into account the consequences of failure of the product or service. Failure Modes & Effects Analysis (FMEA) is essential no matter what the price of the product or service

Design for low cost of products and services, including the means of production or service delivery, needs to be rigorous just as much as for high priced items.

The problem is that when organisations are in trouble or driven by dubious ideology or greed, there is always the temptation to arbitrarily cut costs no matter what the consequences.

FINANCIAL CONSIDERATIONS

However tempting a contract may be it is clearly unwise to put the survival or your organisation at risk. That seem doesn’t stop businesses quoting below cost just to win a contract. Unsurprisingly the ‘race to the bottom’ is all too common in many markets.

If there are markets for certain low priced products and services what possibilities are there to eliminate costs? As I have said before, there is huge waste in too many organisations.

The research published in 2002 by Cardiff University clearly show half or more waste in activity.

If you want to cut costs there is MASSIVE potential if you do evidence-based improvement. Just cutting costs arbitrarily across the board will almost certainly affect things that you should be doing to support value-adding activity and even value-adding itself!

QUALITY COUNTS

The long-term survival and success of any organisation depends upon customers’ satisfaction. What is cost-cutting, especially of the arbitrary type, going to do your customers’ satisfaction? Take a look at the Kano Diagram below:

For me this summarizes the whole situation at a glance. It is clear that if you do not meet or ideally exceed customer expectations you are laying yourself open to the risk of eventually going out of business. And the fundamental truth is that customers’ expectations rise.

ENVIRONMENT

Just to cite one example; think of all the rain forests that have been cut down so that palm trees could be planted for the production of palm oil. The object of that exercise being for food manufacturers to cut costs on their products.

UK CHANCELLOR OF THE EXCHEQUER

Dear Chancellor,

Whilst it may make the books look good, arbitrary cost-cutting is destroying the UK. The dogma that says you have to make cuts anyway is not incontrovertibly true. Do not waste the potential of our fellow citizens, make life miserable and cause the avoidable deaths of some.

All the years of so-called austerity should have been invested the people and building a stronger economy.

THE BETTER ALTERNATIVE

Instead top management should be committed to inspiring, encouraging and supporting an internal ecosystem of continual (or if you prefer it continuous) improvement. That ecosystem should also include openness to innovation.

Building that ecosystem is needs to be developed over time and it cannot be rushed. Start with improvement projects that are visibly fully backed by top management. Critically there must be an emphasis on learning whether projects have succeeded or not.

BOTTOM LINE

Just don’t do arbitrary cost-cutting anyway, but…

Avoid arbitrary cost cutting especially if:

There is ANY reason that people’s lives or health are at risk
It will affect the financial sustainability of your organisation or its suppliers
It will affect the customer or service user’s satisfaction or perception of your quality
It will affect the environment
You are the UK Chancellor of the Exchequer

Instead build an improvement and innovation ecosystem.