Efficient Efficiencies

gombadmin Blog

Where to Begin when Trying to Improve Performance
by Kristen Cox, Executive Director

Where should one begin when trying to improve an organization’s performance and cost efficiencies? The first tendency is often to go directly to reducing expenditures or budgets—assuming that by so doing the organization will automatically become more cost efficient. Those within the process improvement community would likely offer a different approach. Brian Joiner, a protégé of W. Edwards Deming, wrote: “Real benefits come when managers begin to understand the profound difference between ‘cost cutting’ and ‘eliminating the causes’ of costs.

Understanding the causes of costs requires addressing underlying processes and associated limitations. Specifically, in order to effectively reduce costs requires addressing quality and the capacity of a program or service to meet demand (throughput). For example, if a car manufacturing plant produced 100 vehicles a month and only 60 of those cars met quality standards; the plant is wasting precious resources by producing 40 cars that cannot be sold. Money is lost because of poor quality controls. Understanding the causes of poor quality will inevitably reveal where resources are being wasted and costly defects are occurring. Tackling quality will create more revenue with the same dollars by ensuring that all cars are ready to be sold.

Likewise, if the plant can learn how to maximize the production line in order to produce more cars to meet demand using only existing resources (jumping from 100 cars a month to 110), the plant can once again yield higher returns by producing more cars. In trying to maximize the flow of the production line, areas of waste will naturally be exposed.

In contrast, if plant managers were to simply implement cost cutting measures, the action could mask the underlying problems driving poor quality and even further exacerbate the weak link constraining throughput. Short-sighted cost cutting can potentially create more problems and even higher costs down the road. High-performing organizations understand that the big cost efficiencies result from improving quality and the capacity to meet demand (throughput)—not by implementing arbitrary budget cuts.

This approach is just as true for government as for the private sector. Ensuring that services meet quality standards and that resources are maximized to meet demand will have a domino effect on costs. By focusing on quality and throughput, agencies will:

  • Reduce the need for expensive intervention and remedial services;
  • Reduce backlogs and the corresponding systems and people that accompany them;
  • Prevent rework;
  • Expedite the completion of projects;
  • Avoid confusion by customers and the subsequent back and forth communications;
  • Extend the longevity of resources and equipment;
  • Expand the reach of an initiative;
  • Avoid wrong decisions regarding benefit eligibility and regulatory compliance;
  • Create more time for employees to focus on the work they are paid to do rather than managing distractions, paperwork, and avoidable interruptions; and
  • Avoid paving over the cow path by fixing business processes prior to automating them

What do all of these benefits have in common? The answer is people and processes. A significant portion of the costs associated with providing government services is tied up in labor. Just like maintaining a car, real and significant cost improvements cannot occur without “lifting up the hood” to understand how employees do their work and the processes which drive behaviors. The more effective our systems and processes become, the more effective our employees become—the more effective our employees are, the fewer resources we need in comparison to overall demand. When the entire system is operating effectively, people can do more work with the same or fewer resources and cost efficiencies become inevitable.

Leading out with across-the-board cost reductions without understanding the underlying processes that generate quality and throughput may yield to small cost efficiencies; however, such cost reductions can lead to decreases in quality and throughput that have a much greater negative impact to the system. Large and sustainable gains are only guaranteed after undergoing the hard work to improve the entire system and all of its elements. As Dr. Eli Goldratt argued in his book, “The Goal,” the entire concept is not focused on reducing operating expense but to improve throughput. While we should always be looking for ways to cut costs, learning to focus on the right things and in the right order is often the untapped key to unlocking the real capacity and efficiencies within government.