Having spent a large part of my career in developing and selling Operational Intelligence Systems, I am one of many businesspeople around the world -- Manufacturing Systems vendors, Business Intelligence providers, Lean Manufacturing consultants and Six Sigma Black Belts who make their money persuading corporations to focus senior management attention on how they operate, and to spend money on ways to improve it. After all, a company's operations are what deliver value to its Customers and Owners, so why wouldn't they want to invest effort and resources in making them better. Right?
A presentation by Eoin O'Driscoll, (chair of the Irish Government's Enterprise Strategy Review Group) at the 2009 Midwest Entrepreneur Showcase gave me pause. In discussing how to create value for Customers, he referred to Peter Drucker's assertion that "Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs" (my italics). Therefore we in the "Operational Excellence" industry are trying to persuade corporations to spend scarce management time thinking about things that they do not consider core to their success, and then follow that up by asking them to invest even more money into an area of the business they already consider to be primarily a cost. What’s wrong with this picture?
While the issue is not quite as black and white as I describe above -- otherwise there would be no manufacturing software companies or Lean Six Sigma consultants at all -- it does jib to a startling degree with what we see in the market. In 2004, average western manufacturing efficiency was quoted as 45%, with world class companies at 85%. The figures have not changed that much since; the opportunity has been obvious for decades -- see the US vs. Japanese auto industry saga -- and yet many companies still at best reluctantly invest leadership time and effort into Operational Excellence as it's currently sold. They don't want what the industry is trying to sell them. Could they be right?
1 comment:
Well, all is not quite so bleak -- some companies in competitive but non-commodity markets (coronary stents, for example) recognize that once an innovation is commercialized, you have to extract value from selling it, in order to fund the next innovation or marketing effort. Reducing your COGS is an easy (easy to understand anyway) way to improve margins. The challenge is in demonstrating a return on the investment that exceeds alternatives such as investing in newer products.
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