The imperative to change the First question
Cost is king. Today’s organizations have a “cost culture”. The first question asked when assessing any project is “What is it going to cost?” The first action when pressures arise is to “reduce costs”.
Project costs are managed to the cent. Both the project and governance teams obsess on the costs. This is the norm.
Every operational manager has a cost budget and therefore is used to managing costs. They make operational decisions to ensure they come in “within budget”. At times this means spending the balance of a budget just to ensure they get the same amount next year. This all-to-common example points to a good idea that is going horribly wrong.
Costs are also easy to measure. You know your payroll costs and therefore it is easy to measure the reduction in costs if you fire staff. You can easily set a “Ten percent staff cost reduction” target and track its achievement through your cost budget reporting.
But your organization does not exist to manage costs; to be cost efficient or have a cost culture, per se; it exists to profitably deliver value to its customers, its staff and its shareholders.
If cost is king, value should at least be queen
Focusing on value generates value
In our research into organizations that generated the greatest long-term returns on their project investments, the highest returns were from organizations that focused on delivering customer value. Next highest were those organizations that focused on delivering business value. Those that focused almost exclusively on cost control and delivering projects were found to deliver little net value.
A massive opportunity exists for organizations to become value focused and develop a “value culture” and capability. A value focus pays off exponentially. Organizations with a value focus routinely delivered three or more times the returns of those that were project-delivery focused. Three times!
Profit first, cost second
My first company, Black and Decker in the UK, was run by accountants but was totally customer value focused. It knew that only by providing excellent customer value would it succeed (and it was in the UK’s top-10 for profitability each year).
The first question it asked of any initiative was, “What will this do for the profit?” IE How will it increase revenue and/or reduce costs? The focus was on the outcomes and value to be delivered, not on the cost of delivery; that consideration came later.
What this example illustrates is that a culture is, in part, determined by the questions asked. In this case, “What will this do for the profit?” rather than “What will it cost?”
Changing the question
In a commercial organization it should not be too difficult to get senior management to focus on profitability and value rather than just cost control. Then, as soon as you achieve this change in the first question being asked, the whole outcomes, benefits and value side of the organization’s Value Equation comes into play.
Try asking, “What will this do for the profit?” each time a new idea comes up to see how that changes the overall conversation (and results).
It really can be that simple.
To answer this question you will need to have a full Value Equation.