Top Management Story

Writen by James La Trobe-Bateman

"Change is the only constant". We have had it drummed into us so much that we find it very strange to leave things as they are. But just think about the benefits to your organisation of changing nothing:

* Your attention will not be diverted from the daily need to meet customers' needs

* You will not create anxiety amongst your people that they are about to be "restructured"

* You will save the cost of the project resources needed to make those changes happen.

So why are you hell-bent on throwing it all up in the air and changing everything? The issue is not really changing nothing, but not changing everything. You can be sure that there is something you must do to continue to compete. Have you identified what it is? Maybe you know that you need to change, but are not clear what and why. So you change more than you need in order to be sure that you nail the real problem.

Let's put this into context. Suppose that your business supplies healthcare equipment across the world. You have to develop products, market, sell, make, distribute, and service them to your customers. You expect to make a profit and you would like to make more. You call for ideas. In a typical organisation this is how different functions might react to such a call.

* Product Development Make the best use of the technology that you have to develop new products with the minimum of effort and risk in the quickest time

* Production Reduce Unit Manufacturing Cost

* Distribution Use the 80-20 rule to sell more to the minority of customers that are most profitable

* Field Service Reduce headcount

* Marketing Seek new high value niches or new markets for existing products

Is this the best approach?

Resource Needed

Whenever you try to do something differently, you must create a 'project' to make things happen. Projects absorb effort, even when managed by the existing staff. So, in the case of Product Development, for example, the efforts to work out how to match existing technology to new product needs will actually reduce the resource available to actually develop products. This may indeed pay off, but not necessarily so. Certainly in Production, reducing cost will require teams of professionals (industrial engineers, lean experts) to plan and manage what has to be done. Implementation will absorb the energies of the production staff as well as incur the expense of the change agents. Presumably Marketing will need to research new niches and then fight internal battles (often of a political nature) with their peers and managers to accept their new ideas. This is again resource sapping. Overall, investment of resource (and that boils down to money) is needed to make things happen across all these functions. The more things that you change, the more resource it will consume.

Will it Lead to More Profit?

In principle, all of the above actions could lead to more revenue for less expense, i.e. more profit. In practice, all of the above actions could also lead to more revenue with more expense, or less expense but lower revenues:

Product Development

If the cost structure and performance of your products is in fact largely determined by the current technology (for example, in diagnostics the use of micro-titre wells) then the only long term way to eliminate constraints to cost and performance must be by adopting a new technology.

Production

Suppose that you can adopt a '6 sigma' philosophy. This will involve a large investment in training and staff. Their choice of projects will be compromised by the need to do things that fullfill Black Belt certification timescales (for example). Further, in a highly regulated environment, you will soon find that you need to change things that will involve validation that is expensive or takes too long. At the end of this exercise, you might be lucky to get your money back on the investment.

Distribution

You may decide to promote a current best-selling product to more of your best customers. However, their calculation of "profit" will be based on transfer prices from the factory. The true profit margins may well be completely different. This means that the organisation as a whole may end up making less profit from the change.

Field Service

This department is widely regarded as just expense. The only way to reduce it is to reduce headcount. This could well lead to poorer service to the customer. Eventually you pay the price in losing customers. You reduce expense, but then reduce revenue too.

Marketing

It will be difficult for marketing to assess the incremental operating expense for any new markets that they enter. If the extra revenues are not up to expectation, then profits will not be as good as they hoped.

Could You Do Better?

It is clear that an uncoordinated approach will definitely involve extra expense in the short term and is unlikely to produce the best possible increase in profit for that extra effort. This means that at best you will have improved profitability, but you will certainly have spent more effort than you needed to do so. There is a worse scenario. Suppose the key constraint on profitability lies outside the individual remit of any of the departments, or more probably depends on actions across departments. In this case, you will not achieve any kind of "breakthrough" improvement at all. You will effectively get nothing for your money. Doing nothing in this situation is better than doing a lot that is ineffective.

Of course, you WILL hit the jackpot if you identify just one project that removes the key obstacle to improving profitability and apply resource to making just that happen. Elsewhere you simply change nothing. Is that so outrageous?

***************************** by James La Trobe-Bateman, Founder of reMODEL Consultants International Ltd.

About the Author: James La Trobe-Bateman. Co-author of NEW BOOK 'Bridge Of Faith for Operations with examples in Medical Device & Diagnostics'. Presented with 'Global Innovation Award' by Bristol-Myers Squibb. Nicknamed the 'dynamic duo' by operations director for a division of Johnson & Johnson.

Over 25 years ago in oil & petrochemical industry, he first started predicting the effects of one change on all parts of the organization. Inspired by Eli Goldratt in the early 80's. For over 15 years now in the Healthcare Manufacturing Industry, James very passionately continues to drive highly successful, ongoing Operations Improvements as well as resolve New Product Development & Market issues Internationally.

James has won various prestigious awards over the years for his work. He is a Chartered Engineer, Member of the Institute of Mechanical Engineers and graduate of Cambridge Univ.

You are probably trying to change many things. If you could only change one, what would it be?

You can reach James La Trobe-Bateman at to find out where to start. www.remodel.co.uk