Expand Your Focus to Locate Previously Unperceived Targets for Cost Reductions
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Business
Feb 29, 2008
donmitch
Expand Your Focus to Locate Previously Unperceived Targets for Cost Reductions
New breakthrough solution cost reducers often lack confidence when they begin. As a result, they pick some area of glaring inefficiency as an easy target. In such activities, it's not unusual for a breakthrough solution to be possible by simply applying methods known since the 1920s. That approach is unfortunate because the solver often gets a sense that breakthrough solutions for cost reductions only exist in a few places where horrible results are occurring. However, move this attention into an organization's most important activities, and you can have more impact with one solution than with a thousand small activities. Think about the toy industry as an example. A new breakthrough cost reducer might focus on locating lower-cost suppliers for low-volume toys 20 times faster. If the toys account for less than one-tenth of 1 percent of an organization's sales, these savings might only succeed in eliminating a few salaries. Compare that potential to making the sales of new toys 20 times higher from the same development efforts, and you can see the point about how much more valuable such a focus would be. A recent example among dolls impressed me with the availability of better development methods in what seem to be mature industries. Barbie dolls had dominated the U.S. toy market for over 50 years. These dolls were made to look somewhat like Donald Trump's second wife, Marla Maples. If scaled up to adult size, Barbie would have been about six feet, two inches tall. Her measurements on an adult woman's scale would have veered towards the unrealistically large for chest and bra sizes with a waist that barely existed. If you saw someone in real life like Barbie, she would have been in danger of falling over frontward. Clearly, that version of Barbie didn't look like any little girls anyone had ever seen. Girls tended to play with Barbie like they would have with a pretty Mommy doll. MGA Entertainment was a small factor in the toy business but was on the lookout for ways to grow. The company's owner noticed that his not-so-young daughter didn't find Barbie dolls appealing when she wanted to play dolls with her friends. At the 7 to 11 age level, girls more often like to pretend that dolls are friends who are doing activities together. Barbie clearly looked like a Mommy, not a friend. MGA decided to bring out a line of dolls that would facilitate this friend-oriented play. Bratz dolls have huge heads, teenager-like bodies, and lots of teenage clothes. They also come in all hues of skin color and hair, just like real girls. Girls in the "tween" stage, between being little girls and teenagers, quickly adopted these Bratz with a vengeance. Within three years, Bratz became the number-one selling doll brand in the United States, and annual sales exceeded one billion dollars. That's quite a hit for the tiny toy company. By shifting its focus from developing toys like other toy companies did to studying what children found lacking in current dolls, MGA Entertainment was able to reduce its cost of developing a new toy by more than 95 percent as a percentage of sales. Notice that by making such a critical activity more effective, MGA also expanded its revenues so much that other cost-reduction opportunities are much larger now, as well. Observe, too, from this example of improving product development that not all breakthrough cost reductions entail spending less for something. You may spend about the same amount, but accomplish more than 20 times as much. In the case of MGA Entertainment, the shift allowed the company to accomplish over 50 times as much. As you can see from this example, making new product or service development more productive can be one of the most highly leveraged areas for breakthrough cost-reduction solutions. Yet most organizations seldom look at becoming more effective at developing new offerings as a cost-improvement opportunity. Traditionally, most people think of cost-reduction opportunities as being most concentrated in operations that provide offerings, in initiating outsourcing, and in improving information technology. Those initial reactions of where to focus attention for cost reductions usually reflect stalled thinking. Here are the highest potential places for cost reductions in most organizations I've studied: -Developing new offerings -Accelerating customers' trial of offerings -Expanding awareness of offerings -Increasing availability of and access to offerings -Reducing capital intensity of offerings -Raising low cost capital -Eliminating flaws that harm customers and other stakeholders As a result, I encourage you in establishing your checkup scheduling to be sure that all of these areas receive breakthrough solution cost-reduction attention on a frequent basis. Naturally, you should add other areas that might be more important for your organization than for most other organizations.
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at http://www.2000percentsolution.com .
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