Cost saving through collaboration? Bob Lillis Steve Macaulay Today we are going to explore an issue that is common in many organisations, and that is cutting costs. Some people say that is likely to ruin the organisation; it will destroy the culture of the organisation and cause more problems. However, there is one angle that we are going to explore today, where it is about building the culture of collaboration and reducing costs. Now to explore this is Bob Lillis. Now, Bob, the two seem almost contradictory don’t they? Bob Lillis Yes they do, don’t they. I was taken by some newspaper clippings which I have brought along with me that appeared in the business press; let me just quickly read these out to you Steve. “HSBC plans up to £2bn in savings as it cuts its retail arm; battle lines are drawn over the sorting office closure plan in Royal Mail.” And this one is my particular favourite, “Fresh jobs cull – taxpayer backed Lloyds Banking Group will see 15,000 staff lose their jobs in a £1bn cost cutting exercise. “ It is emotive language, isn’t it? I know that is to sell papers, but it is emotive stuff. Steve Macaulay It’s all too common; how on earth then do you not destroy a culture in the process? Bob Lillis Well, it is interesting; if you look at some of the solutions that are being advocated and that are taking place in various sectors at the moment, we are seeing a continuous move to outsource production to various low cost economies. More importantly than that, or linked to that perhaps, we are seeing a reconfiguration of the network of operations around the world for large companies – that they have different roles or missions for different plants located in different localities. This can generate, because we have seen it happen in companies that we have worked with here, up to 35% savings can be made in efficiencies by doing that. We are seeing increasing moves for flexi‐hours along monthly‐ised or even annualised hours to take advantage of peaks and troughs and seasonality in demand profiles. And even, interestingly enough, I have a colleague who told me recently he had visited a factory in the South of England – of all places – that all its staff were employed by a recruitment agency. The management were fully employed by the company, but its 60 or 70 staff were recruitment agency employed and there was even a place in the plant where the recruitment agency conduct training, not the management. Steve Macaulay Surely efficiency is good, Bob; you don’t want to destroy that do you? Bob Lillis No, of course not; what you see with a lot of these solutions though, I would advocate Steve, is a one off big hit. We see a huge cost reduction, but then it is not sustained. I was talking recently with a senior operations leader with an insurance company and he had told me that when they had moved some of their back office processes to India seven or eight years ago, they saw immediate savings of something between 30 and 35% in efficiency improvement. Now, it is down to 2‐3% savings a year – it is not to be sneezed at, but it is difficult for them to sustain it. So the long term answer, Steve to the original question which is how do we reduce cost and at the same time build a culture of collaboration? We change the nature of the question: how do we reduce costs by building a culture of collaboration? It is achievable; there are companies that are actually compelled to do this. Some www.cranfieldknowledgeinterchange.com June 2011 1 companies are forced to offer in the market place a lower price next year for their products than they are offering this year – these sort of things have been a feature of the motor trade for many years. How do they do it? Dare I suggest they actually adopt fully the philosophy of lean. Steve Macaulay Now, everybody talks about lean these days; it doesn’t seem to produce the results that you are suggesting? Bob Lillis I think unfortunately for a lot of companies, it is seen as a short term fix. And the word itself, with the workforce particularly, may even have fallen into disrepute. I recall a couple of years ago on a factory visit with one of my colleagues here, at the invitation of the directors of the company, we were walking round the shop floor and if looks could kill – daggers in your back. They thought we were there as consultants to implement lean, because unfortunately the way lean has been sold and advocated, it is automatically associated with job redundancy. And of course, this is not what it is supposed to be about. Its features are about eliminating waste, developing social capabilities of your workforce and utilising those, exploiting those, combined with sustaining improvement. The irony is that as you eliminate waste and you become leaner, it frees up capacity; the company then has a choice – do we need to still employ so many people or shall we release some of those people to the market? And if you are one of that workforce who is embarking on this lean approach, advocated by the company, you must ask yourself what is in it for me? If we do become leaner, do I see my job disappearing and I become a statistic in the job market? Steve Macaulay So how do you get over this idea that lean actually isn’t mean? Bob Lillis The way you do it is to ensure that the full philosophy is implemented, not just the bit you like. You don’t cherry pick. Part of the philosophy is about the building of trust and respect within all categories of management and I actually believe that some of the headlines we have seen recently, where CEOs and senior leaders of companies have given themselves 10% pay rises at the same time as the workforce, if they are lucky, have got 1%, it doesn’t help develop trust and respect. But principally, what we are finding in the research that we are carrying out is that this sense of security becomes so much more important; that if you want really to develop a lean journey then you have to make sure you have an answer to the question to our workforce that if we embark on this there is something in it for them, other than being released to the market. This sense of security is really important. Steve Macaulay So if you were to sum up then, how do you build a culture of collaboration and reduce costs? What would your message be? Bob Lillis I would change the nature of the question, Steve; instead of saying it is one or the other, you reduce costs and at the same time you build a culture of collaboration. You reduce costs by building a culture of collaboration, but not to the detriment of losing the sense of security that the workforce must possess if they are going to go along with this lean journey. And, hopefully, avoid what I call lean droop, where lean peters out after a while. Steve Macaulay Bob, that is a very clear message, thank you very much. www.cranfieldknowledgeinterchange.com June 2011 2