There are two fundamental ways in which any organization can reduce its costs: cut operating budgets or improve processes. For a company to be successful, it must nurture both methods and keep them in balance.
Too much process and not enough budget controls leads to a lack of focus, poor priority-setting, financial chaos, and, more than likely, a river of red ink. Too much budget control and not enough process work creates a rigid, change-averse environment, stifles creativity, and leads to stagnation.
Can’t Teach An Old Dog …
Unfortunately, as organizations grow and mature, they tend to devote more and more attention to budget controls and less and less to process innovation. Dictatorship of “the numbers” is a proven formula for a lengthy and painful decline, as the organization will become more and more inflexible and unresponsive.
Successfully walking the tightrope requires both methods to be in balance.
Companies that embrace the dogma of “we don’t do anything without an ROI” are going to gravitate too far toward financial dictatorship, because the return on process investments is often hard to quantify at the outset. Process improvement activities are fundamentally R&D investments, i.e., trying something new or, at least, trying to do something in a new way.
These activities might be a great success or a total waste of time and money, and nobody knows which will be the outcome when the work begins. Since the costs of these activities are usually clear and well understood up front, given any sort of pressure to reduce budgets, managers will toss process improvement initiatives overboard first, because any benefits from these initiatives are speculative and distant, while the costs are real and right now.
Persuasion & Accountability
So how do we persuade our companies to try new stuff, while still keeping enough of the financial discipline that helped bring us the success we’ve had up to this point? The solution is to manage routine, core, day-to-day business operations separately from process improvement activities. Having a separate budget for process improvement activities is a good way to keep from falling off the tightrope.