Cost - Square The Benefits Of Your Recent Breakthrough Cost Reductions

When clients and students describe their first breakthrough solutions, they always acknowledge that repeating the process will be a good idea. When the improvement has been related to reducing costs, however, few set a date for that repetition. I strongly encourage you to set such a date . . . and consider making the time to begin again sooner rather than later.

I had a recent experience that led me to think that frequent repetitions might be a good idea. See what you think after you read this story.

The breakthrough solution involved a large nongovernmental organization (NGO) that provides relief activities for poor people. Because of the scope of the organization's activities, each step in obtaining and distributing aid resources needs to be carefully coordinated.

Otherwise, people would be waiting around for resources that weren't yet available. To create such closer coordination, the organization saw an opportunity to upgrade the quality and frequency of its status reports on resource availability by location. The savings would be over a million dollars a year in a single unit of the NGO.

When the person working on the problem first explored the solution options, he reported that the only choice was to hire expensive database experts. This solution meant a cost of over $340,000 to create the necessary reporting and communications' capabilities.

While that might be a breakthrough solution over time, I was skeptical. Surely, the software and systems would have to be redone every few years. If each update cost $340,000, this might be an 800 percent solution, but it probably wasn't a breakthrough solution.

I suggested that the solver look for cheaper ways to put the information technology in place. With the help of a colleague, a reputable local supplier was found who charged only $50,000 for the information technology. Within a year of beginning to use that technology, it looked like this NGO had a breakthrough solution for reducing costs. Naturally everyone was happy.

The very same week that this solution was devised, a different person working for a government organization in another country reported on his progress with a similar problem. Major projects in the government organization were being delayed because it took the staff so long to accomplish each step. Everyone else was waiting for the information in the meantime. Yet the information could be easily summarized, reconfigured, and communicated by sending out e-mails containing answers from Excel spreadsheet calculations.

Because the government group had no budget to work on the solution, the solver wrote the necessary formulas in Excel and trained the person working on this activity how to use Excel to make the calculations. He spent about 50 hours on this task. At the end of that work, his organization was able to make the necessary calculations and communicate them in less than 1/20 of the time traditionally spent.

As I applauded this second excellent solution, I couldn't help but think about the first solver in the NGO. His reports and communications could probably also have been provided through an Excel spreadsheet attached to e-mails.

But the first solver hadn't thought of that option. Instead of spending $50,000, he could probably have gotten the job done for 50 hours of someone's time who is good at writing Excel formulas.

If that alternative were truly available, the NGO had another 2,000 percent cost solution waiting in the wings for the next time it needed to update its software and reports. If the first solver happens to pick that software update as a cost-reduction checkup date, the second solution can be created. Otherwise, another $50,000 (plus inflation) will be spent.

By setting the first software update as a checkup point now, the first solver is more likely to repeat the process then and create a 2,000 percent squared cost-reduction solution for this reporting.

What are the lessons? Clearly, you should set a definite checkup date before you will have to spend money again.

But if you normally have a lot of staff turnover, you may run the risk of that checkup never taking place. If you are the problem solver and later leave that part of the organization, who will repeat the cost-reduction process?

The odds of the timely repetition are greatly improved if everyone involved in that aspect of the organization learns about creating breakthrough solutions during the first solution-finding process, and you create a consensus among the group about when the repetition should occur. A further benefit could come in agreeing during the first solution process on some hypotheses about how the next round of breakthrough solution cost reduction might take place.

In the case of the NGO, such hypotheses could include amending the reports to allow for better coordination of expensive activities, locating less costly information technology solutions, and looking for more problems to solve through improved reporting.

An even more valuable lesson is to hold more frequent checkups. If the group could find a second breakthrough cost-reduction solution soon after the first, that would impress everyone with the full potential of this important discipline. Such an approach would also mean that the skills of everyone in creating breakthrough solutions would expand a lot faster.

I have a radical suggestion that may shock you: Shoot for a breakthrough cost-reduction solution with squared benefits on the first application of the breakthrough solution cost-reduction process. If you don't succeed with going past a single breakthrough solution, you will have only spent a little more time than if you had sought a regular breakthrough cost-reduction solution.

But if you make a little more progress, you may well end up with a 2,300 or 2,800 percent solution as a reward for relatively little more consideration. If you succeed, the benefits are, of course, magnificent. You have a breakthrough cost-reduction solution with benefits that are the squared size of a normal breakthrough.

In addition, you'll have created a capability for additional cost solutions in other areas that will probably be unmatched in your industry or activity. That capability's value is priceless.