Business improvement programs: The self-funding way to cut costs and improve performance

Ari Sharp: Hello, and welcome to NousCast shorts, a podcast that brings you short and sharp insights from the team at Nous Group, an international management consultancy. I’m your host, Ari Sharp, and today on NousCast shorts, we’re talking to Martijn Schroder, a Nous Director based in Melbourne. Martijn is an expert in business strategy, transformation optimisation and service excellence. Recently, he wrote an article for Nous insights explaining how business improvement programs can deliver a tenfold return on investment. Martijn Schroder. Welcome to NousCast shorts.

Martijn Schroder: Thank you, Ari. It’s a pleasure to be here.

Ari Sharp: Now Martijn, you’ve written for Nous about the incredible potential of business improvement programs to deliver large returns. Can you explain more about business improvement and how it can make such a difference to an organisation?

Martijn Schroder: Yes absolutely. It’s a real passion of mine. Many organizations are inherently complex, and many teams work on particular parts of a puzzle. If you like to deliver great service and great performance, what often happens over time is that the way people interact, the processes they run and the investments they make are not aligned. And this misalignment often leads to what we call waste, and waste is a beautiful source to work on when you do business optimisation.

Ari Sharp: So Martijn, what does this look like in practice?

Martijn Schroder: In practice, Ari, what organisations often benefit from tremendously is what I call the baseline review. And this looks at the services companies deliver and how they are underpinned by finances – how much they cost – and how much they deliver, as well as the capabilities and skills of people and the processes and practices they attribute. When you understand how these services work financially and practically, you can then look at their potential to be optimised and improved. This often leads to significant potential for cost saving, quality improvements and improve service delivery to customers.

What we often then want to do is design a number of very targeted projects that remove particular issues or challenges that organisations have. And these challenges then need to be understood in terms of the value they deliver and the costs they reduce.

Ari Sharp: Martijn, you’ve put this thinking into practice before working for clients. What was the evidence and experience that guided your thinking on business improvement?

Martijn Schroder: To give you a very practical example, to start off with, I’ve worked with an organisation and a significant workforce that did manual time-sheeting, which in practice meant that every single day each worker – and about 120 of them – filled in a paper time sheet. When we understood this practice really well and how much time they each spent on it, which was to the tune of five minutes per day, we could aggregate that and relate that to about 2000 hours per year that people were spending on filling in a piece of paper, which largely had very little value in the organisation when understood in the wider context. Eradicating that practice immediately led to a $30,000 real saving.

But beyond that saving, in terms of what we call opportunity cost, the time people spent on time-sheeting was not time they spent on actually delivering services that had value to their customers. Generalising, we seek to find these opportunities where there’s real, tangible savings to be made by improving practices, and they add up.

Ari Sharp: You had an example that you talk about in the article of an organisation that had achieved savings of up to tenfold that they invested in business improvement. How did that work?

Martijn Schroder: In this particular organisation it was a complex organisation that delivered over 100 different services to the community. We did a baseline review to understand all those services and cost structures. Then we held a broad range of interviews with management and staff to highlight what the challenges were that were standing in their way of productivity.

From that we defined well over 80 projects that could generate cost saving through making changes to processes or operating model, or even revenue-raising services. We then prioritised those projects, resulting in a list of the 20 most important ones. The projects involved managing property, fleets and revenue-raising activities; and the investment for them totaled $3 million over three years, while each project in total generated about $30 million return over five years. These were significant results with minor implication for staff, and no one in this case lost their job.

Ari Sharp: And Martijn, in delivering those results, were there many challenges that you faced along the way, and how did you overcome them?

Martijn Schroder: Yeah, it’s an interesting point Ari. There were challenges, there of course always are: particular challenges were about highlighting the right information in the organisation. This business optimisation thinking relies on the organisation having the data to create the evidence for your work, but also the trust with employees and managers and executive to be open on what is not working so well. So I like to work on these challenges, as well as working with the finance officer to ensure the savings that can be made are tangible, and working with people in culture to ensure that staff understand what the impact will be on them.

Ari Sharp: Given what you’ve told us about business improvement, how do you think organisations should approach the task?

Martijn Schroder: In principle, I think they should get practical, and when unfamiliar with business optimisation, find a few simple examples where they can apply this thinking and actually make a real, tangible change really quickly. And this is very possible, as I said at the beginning: organisations are inherently complex, and that means that there are probably plenty of opportunities to find a small bite-sized project that is easy to implement and show progress with, and then build on that. Once you have the momentum of a project that has gone well and optimisation that has delivered, the methods can be increased in size and scope.

Ari Sharp: So Martijn, what are the preconditions that you need for a successful business optimisation?

Martijn Schroder: Preconditions are important. Of course leadership will need to be across this and on board to fully understand the initiative. But right after that, a very important thing is that workforce is allowed and able to contribute. The more people contribute thinking and activity, the more successful this approach is. One barrier I’ve seen often with clients is that people are hesitant to take risks, whereas when you optimise business, you inherently take risks because the outcomes are often uncertain.

We can mitigate that through good evidence, through definitions and prioritisation. But the organisation thrives with business optimisation when they feel safe to fail. And that means that they can experiment and run many little experiments that lead to better practices. A lot of those will work, but some will not. So I think we need to give our staff the permission to fail.

Ari Sharp: How do you know where to best target your efforts?

Martijn Schroder: One technique I often use is called Value Driver Trees. When you look, when you define the projects that are more suitable for business optimization, you need to understand them in terms of what value they generate and what costs they take away. Value Driver Trees break down the contribution of projects to an organisation.

For example, if I understand a garbage collection service, a Value Driver Tree would break this down in terms of the cost of the service and the value it creates. Costing would be staff payroll, fuel nd maintenance; and value would be customer satisfaction, deferral of expenditure through better maintenance, and fuel reduction through reduced number of kilometers driven by achieving the same results. So these Value Driver Trees really help us break down and understand how projects contribute to the overall cost and revenue of an organisation.

Ari Sharp: And just finally, Martijn, how do you know when you’ve succeeded?

Martijn Schroder: Success needs to be feasible and needs to be measured. We lay the foundations with business optimisation, through the definitions of projects that show clearly how they contribute. And then we need to measure and show that we are achieving. Achievements can be measured in percentage cost reduction, service quality and revenue performance; and we make that feasible and market that very feasibly.

Ari Sharp: Martijn Schroder, thanks for talking to NousCast shorts.

Martijn Schroder: My pleasure, Ari, good to be with you.

Ari Sharp: That was Martijn Schroder, a Director at Nous Group. You can find Martijn’s article titled “Business improvement programs that deliver a 10-fold return? Here’s how it can happen” on the Nous website. You can also contact him directly via email and LinkedIn.

Before we go, some information on us at Nous Group. For more than 20 years Nous has offered a broad consulting capability that allows us to solve our client’s most complex strategic challenges and partner with them through transformational change. We’ve contributed to significant agendas in Australia, the United Kingdom and Canada; including shaping the future of higher education, advancing indigenous reconciliation, digitally transforming service delivery and developing models of regulation for the future economy. You can find out more about Nous, meet our people and read our insights at our website www.nousgroup.com.

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Thanks for listening. We’ll catch you next time.