I How to convert soft benefits to hard benefits.
a. Top Line Growth--- Capitalize and Sell: Go get market share for those projects that enhance top-line potential. Capitalize on the “Good Will” with increased sales or convert a customer from a competitor. Leverage a new brand of (truly demonstrable) quality, delivery, or innovation to gain market share. Note: These are real hard benefits, but may not be fully credited to the project. Brand enhancements are long-term and significant sales/marketing efforts are still needed. The project is just a portion of the overall strategy. Projects that are directly aligned with the company growth strategy are nearly impossible to trace to the P&L, but benefits are real.
i. Projects that:
1. Align with Strategy/Enhanced Brand: how will this be capitalized? – Long-term sales/marketing effort to capitalize
2. Reduce COPQ, Enhance Customer Satisfaction or Create customer “Good Will” – Short term relief in strained situations, but long-term sales/marketing effort to capitalize.
3. Increased OEE/Capacity Enhancements or Demand Driven Cost Avoidance Projects – Short-to-medium-term effort to sell more product. Easy if capacity was a barrier to sales. More long-term effort if the barrier is due to market competition.
b. Soft Savings “Bank Account” - E6S Soft 10:1 Theory: For every $1 million accrued in the soft savings bank account, at least $100k can be converted into hard savings through good management decisions and restructuring.
i. Projects that reduce direct labor needs due to improved OEE or capacity, Cycle Time, Transaction Time, Lead Time or Throughput Time reduction, but do not reach the incremental load for head-count reduction or where higher throughput does not result in greater sales
1. Example: 5 projects in 5 separate areas each demonstrate and 25% improvement in efficiency and each require 25% less labor hours to complete. Individually, each project cannot claim hard labor savings, as no head-count reductions could take place. Collectively, though, there is enough improvement to justify 1 reduced head with restructuring and cross-training. (Like defragging a hard-drive)
c. Cost Avoidance – if giving money back that was in the budget for new hires, over-time or equipment, take that credit. Otherwise, measure only benefits for meeting new sales demands due to capacity enhancements. (still debatable between hard/soft)
d. Internal Real estate reduction,
i. Consolidate to open up as much space as can be rented
ii. Shut-down unused portions for Utilities savings (electric, heat, etc.)
e. Risk or Liability Avoidance, Regulatory Requirements or Social Responsibilities
i. Just be happy you’re still in business. These are the costs to comply. No measurable return unless you can absolutely prove you pulled the business from the grave by avoiding these risks and liabilities. Won’t show on P&L.
II Cautions: Overemphasis on the hard benefits can kill a Continuous Improvement or LSS program.
a. It puts short-term gains before strategic value, which cannot be directly measured in short-term financial increments (usually less than 3-5 years).
b. Any headcount reduction as a result of a program undercut the value of the program and kill future ability to gain cultural buy-in. Headcount reduction/layoffs have more than just an impact on those getting let go. They skewer the engagements of the devoted workers and cut morale at the core for those who “survived.”
i. Create fear for those remaining. “Am I next?” Energy, attention and time become redirected to protecting themselves and family, rather than for the good of the company
ii. Survivor’s guilt when good people or friends are let go
iii. Lose faith in leadership and don’t believe what they’re told. “Calming” speeches don’t work.