Cost reduction and new tech capabilities aren't the goals for a performance breakthrough

The rear-view mirror shows these goals are worthy of investment — but won’t transform a business.

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There’s a proverb that says old habits die hard. This is certainly true in business, even those that aggressively move forward in their markets. Why do I remind of this proverb? Because most businesses, no matter their size or industry, have been oriented toward reducing costs and/or implementing new technology as their performance goals. These goals are their means of improving competitive posturing and nibbling at market share. This goal orientation hasn’t changed for decades and is growing more popular with the advent of digital technologies. So, what’s wrong with this picture?

Although cost reduction and technology capability infusion are tools that enable change, they are not tools that can yield a breakthrough in performance.

Cost reduction is not the goal

Achieving a breakthrough in performance is not about finding new ways to compete on cost. Competing against cost has always been challenging as it leads to commoditization. The rotation to digital technologies and digital business models makes it easier to compete on other value – dimensions of importance to customers and end users.

Companies need to stop running down the path with better price performance as the goal at the end of the path. Instead, they need to focus on delivering new value to customers and end users – something that meets their needs and delights them in the speed and manner of delivering it.

It’s important to put cost reduction in the proper light in a digital environment. Although it should never be the goal in digital transformation or breakthrough performance initiatives, dramatically lower cost is a byproduct of digital technologies and models in most instances.

Infusing technology capabilities is not the goal

Technology is becoming a differentiator in how companies execute business. The digital world places emphasis on using new technologies to create new business value, and rapid technology shifts are radically changing customer expectations around delivery of value. Thus, meeting current market demands requires major transformation efforts that include technology infusion.

However, achieving a performance breakthrough doesn’t happen with technology infusion as the goal. That’s because technology does not drive change for a breakthrough. It enables change. This is an important distinction.

Why shouldn’t it be the goal? Because technology implementation initiatives often come up short in delivering the anticipated value and a big impact in performance. As I blogged before, creating substantial business value requires changing the business model. And a business model change requires many changes in operations, not just new technology. Yes, those changes are cross-functional, usually end to end, and always disruptive. But without changing other operational aspects than technology, the transformation initiative will fail to deliver the anticipated outcome.

Metrics

A business transformation initiative aiming to achieve a breakthrough in performance changes the desired end state as a goal such as cost reduction or technology infusion; instead the focus is on delivered the desired business outcomes. As such, the service-level metrics for the initiative should not focus on cost reduction or completion of technology implementation.

Service-level metrics typically align with goals of doing work better. They focus on completion of tasks, excellence of the completion, and the cost of an activity. In contrast, metrics in a performance breakthrough initiative must align against the strategic intent the company wants to achieve. The metrics must be tied to factors that allow achieving the breakthrough impact. This is a crucial success factor for breakthrough initiatives, as metrics drive users’ behaviors in accomplishing the desired change.

Bottom line

As I explained in a prior blog post, the promise of Lean Six Sigma is continuous improvement and that it will deliver business performance improvement by three percent every year. A worthy goal. But that’s not a breakthrough performance. Digital transformation allows companies to completely re-conceive their business processes to create new value yielding performance gains of 40-60 percent or more.

Companies often invest in benchmarking their performance and then use the resulting world-class statistics to identify performance weaknesses and goals to inform their strategy for business transformation. Yes, this strategy often leads to making a company’s operations and performance better. But achieving a breakthrough performance requires doing something different, not just better. And doing something different requires changing the business model. Technology will be an enabler of the “something different,” and cost reduction likely will be a byproduct. But as end goals, they fall far short of the competitive differentiation and breakthrough performance a company can achieve with transformation. 

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