Reinvent Cost Innovation for Digital Transformation
Depending on an organization’s services or products, the cost strategies can vary, as every decision in the product development process or operations re-design affects the cost. Many product and service organizations are under tremendous pressure to drive several initiatives around cost as no business can escape from disruption happening in lightning speed around them. The low hanging thinking strikes best as saving through Value Engineering, Six Sigma or Total Quality Management, and so on, as a part of the business excellence or strategic initiative. These initiatives have delivered some level of positive results in the past as the product life cycle used to be longer than it is today. Cost reduction or saving projects have helped to increase, maintain the profits or survival, this trend could further step-up as leaders and businesses have increased cost pressure to face post COVID19 pandemic crisis.
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Innomantra Viewpoint - Reinvent Cost Innovation for Digital Transformation
1. Volume 20 | Issue 2
July 2020
“Efficiency
innovations arise in
industries that
already exist. They
provide existing goods
and services at much
lower costs. They are
not empowering.
Efficiency innovators
become the low cost
providers within an
existing framework.”
-Clayton M. Christensen
Viewpoint
Reinvent Cost Innovation for
Digital Transformation
Depending on an organisation’s services or products, the cost
strategies can vary, as every decision in the product development
process or operations re-design affects the cost. Many product
and service organisations are under tremendous pressure to drive
several initiatives around cost as no business can escape from
disruption happening in lightning speed around them. The low
hanging thinking strikes best as saving through Value
Engineering, Six Sigma or Total Quality Management and so on,
as a part of the business excellence or strategic initiative. These
initiatives have delivered some level of positive results in the
past as the product life cycle used to be longer than it is today.
Cost reduction or saving projects has helped to increase,
maintain the profits or survival, this trend could further step-up
as leaders and businesses have increased cost pressure to face
post COVID19 pandemic crisis.
“Organisations need
to value and choose
their partners wisely
to discover next from
amplifying process
efficiency or cost to
new revenue and
exponential growth
opportunities as their
innovation engine”
Cost Pressurized
Large Organizations v. Small Organizations
This mantra has also benefitted the organisation in bringing a
common language and realise that cost reduction is everyone’s
job in the organisation, by optimising their process or cutting
cost to core year on year for decades. In the process, it has set
a mindset of inward thinking within the organisation and its
leadership by over obsession as a DNA of the organisation,
without considering the intangible damage to the culture of the
organisation. Organisation’s design their reward system to
encourage a focus on cost and not on new revenue streams or
new value to enable the customer retention. The cost focused
Digital
2. “IT and Software
services
organisations
which respect the
origin or source
of ideas. But this
scenario is more
or less inverted in
Manufacturing
sector with a
‘factory mindset’
as the contractors
are seen as
vendors and
generally treated
as a secondary
workforce”
Kaizen improvements is celebrated expecting year-on-year
contribution to bottom-line or transfer price / delivery cost.
No organisation is built to last by just focusing on saving cost
for their increased profit or growth, instead by new products
and services that touch the customer needs excellently well
and a purpose to stay in the business. The large organisations’
inability to innovate is transferring this burden to shoulders of
their suppliers and vendors to reduce cost year-on-year by 10-
15 percent but asking rate is anywhere between 35-50 percent
to save business from low-cost competitive countries such as
China, leaving India even countries like Singapore, Korea
and Malaysia have a difficult times competing with Chinese
firms than US and Europe. Small and Medium Businesses
and contractors are hard-pressed to take increasing cost
pressures as the operational costs and cost of labour is ever
increasing, which could lead to unwarranted practices to save
their business.
New Mindset – The Art of Leading Collaboration
It is high time for organisations to reinvent their cost
innovation strategy to an all new level. The software services
industry has been a great reference of way finder for industry
across sectors, as they could maximise the value of contractors
by weaving them into the culture of the organisation with no
disparity and equal opportunity in their professional and
technical contribution. These organisations which respect the
origin or source of ideas. But this scenario is more or less
inverted in Manufacturing sector with a ‘factory mindset’ as
the contractors are seen as vendors and generally treated as a
secondary workforce. They do not weave in the culture of the
organisation deeply to solve innovation challenges nor on
initiatives towards shaving cost year-on-year. The contractors
lose their urge to go beyond definition of job work, and this is
a lost opportunity as no organisation has a clear profit sharing
policy in place with vendors.
Digital
Digital