Tuesday, April 3, 2012


When describing me, former staff members said my mantra was "challenge the status quo, challenge the status quo, challenge the status quo..." This week, I shook up some people and created a firestorm where some people argued with me during my presentation! Yay!

 I spoke at a conference for quality improvement professionals and basically said that we calculate savings all wrong. One of the reasons we fail to get management's attention is because we have a hard time showing that the savings are real and that they really will drop to the bottom line. It's not the first time this line of thought has been raised, but it challenges the whole Lean and Six Sigma basis.

I said that if you pull Lean accountants aside they will admit that the savings are not real...unless you really shrink facility size, layoff staff, etc....or better yet (!) sell the created capacity and put people to more productive work instead of wasting time working on things that don't add value or can't be sold immediately. Intuitively, everyone knows this when you add up all the cost saving projects and yet the bottom line hasn't increased by that amount.  I also said that having a strategy of continually saving costs goes nowhere.

I proposed an alternative to traditional cost savings. The boss's boss, the big kahuna, has a boss too. It's the shareholder, the owner. If we're not creating enterprise value, then we're not helping them. Now, how do we create value? We increase cash flow and other metrics that are related to business valuation. Economic Value Added is a good, quick way to show this. EVA is net operating profit less some portion of the difference between the assets and liabilities. (I won't go into it here; I have some other blogs that show this or go to www.4wardassociates.com .)

If you can relate your continuous improvement project to how it's going to increase the value of the business, then you are more likely to get the ear of the corner suite occupants. I told the audience that I was one of them until I went to the dark side of upper management. I'm telling them what is important. We need to have our continuous improvement projects affect market share; they need to create opportunities for sales. They need to reduce the capital investment needed to operate the business (accounts receivable and inventory, cash, etc.).

Some dismissed me as a heretic as I'm sure some of you will. Some embraced the challenge and are beginning to rethink the assumptions behind the calculated savings. Some were pleased that I told them something new. I'm pleased. I'm not afraid of questions, comments or challenges. I am afraid of silence. The firestorm I created during the talk was exactly what I hoped for.

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