In today’s increasingly complex business environment, controlling the costs of support functions has become more important than ever—even for top-performing companies. To thrive in this environment, companies need smart and simple support functions. By applying an approach called Simplify for Excellence companies have reduced the costs of support functions by up to 25 percent while increasing productivity by approximately 62 percent.
Support Functions Impact Competitiveness
The value that support functions create—or destroy—can be hard to identify, as the benefits or wastes are hidden in information flows and systems. Inefficiencies are difficult to measure and often reflect long-standing cultural habits within a company. Instead of enhancing competitiveness, support functions can often burden organizations with unnecessarily high costs and low productivity.
Simplify: Helps Improve Performance
In searching for the root causes of support functions’ poor performance, management teams should focus their attention on how they have responded to the increased complexity of the business environment. To understand how the wrong response can create inefficiencies, consider the distinction between complexity and what we call “complicatedness.”
• Relates to external conditions, such as regulations and customer requirements.
• Is caused by changes in the business environment.
• Can serve as the basis for competitive advantage when managed successfully.
• Pertains to the internal consequences of poorly managed complexity, such as additional layers and processes.
• Leads to inefficiencies and higher costs.
• Can be avoided.
By intelligently adapting to complexity, companies can avoid complicatedness and promote simplicity in the form of value-added services. By pursuing the “Simplification” approach, a company can manage complexity and generate competitive advantages. This projection is based on the insight that by understanding the relationship between organizational context and employees’ decisions and behaviors, companies can identify how to adjust the context to steer their employees toward better performance and more cost-efficient outcomes.
Achieving Simplification with S4X
The Simplify for Excellence, or “S4X,” includes the five dimensions of Simplification:
• Structures. The S4X approach helps companies look for opportunities to simplify and remove unnecessary organizational layers, pool resources in shared service centers, and outsource commoditized tasks, among other measures.
• Functional Efficiency and Costs. By applying S4X to this dimension, companies can optimize and simplify service levels, eliminate duplicative services among functions, and cut unnecessary spending.
• Leadership and Steering. The S4X approach helps management define governance roles and mandates, to simplify and remove unnecessary decision and approval gates, and set the right incentives and KPIs, among other initiatives.
• End-to-End Processes. The S4X approach guides companies looking for ways to reduce waiting times, standardize and reduce process variants, even out demand, automate manual work, and increase utilization.
• Individual Workplaces. Using S4X on this dimension, organizations can improve their effectiveness and efficiency by increasing each individual’s engagement and share of value-adding tasks performed, as well as the discipline with which each employee performs daily routines. Other measures at the individual level include clarifying accountabilities and roles within each team and minimizing unnecessary meeting time.
The S4X approach is centrally coordinated and managed by a proactive and empowered program-management office (PMO). This approach applies the strengths of the traditional top-down and bottom-up approaches to transforming an organization while overcoming their limitations, and promotes transparency by comprehensively analyzing resources and uncovering inefficiencies and redundancies.
Promoting Improvements in Cost and Productivity
Companies using the S4X approach have realizes cost reductions of up to 35 percent in their support functions, and have achieved cumulative productivity gains across the five dimensions of about 50 percent. Additionally, the approach also promotes greater levels of satisfaction with support services—internal customer satisfaction increases by 20-30 percent, and external customer satisfaction increases by 5-10 percent.
The S4X Approach in Action
Example. A manufacturer conducted a full-scale S4X program across each of the five dimensions for a select group of support functions. Reducing organizational layers and improving interfaces led to substantial structural improvements. The client also introduced daily routines for teams in the various support functions to help raise awareness of waste and establish a culture of continuous improvement. These measures allowed the automaker to reduce costs in support functions in scope by 19 to 27 percent. The company realized 40 percent of the savings by the end of the program’s first year.
Determining the Starting Point
To determine the starting point and make the case for action, companies should consider their responses to a series of questions, such as the following:
• Overall. How does our company’s performance compare with that of our peers, and are we prepared for intensified competition in our markets? Could our support functions create more value for the business? When we create support services and processes, are we destroying value by increasing the complicatedness of our organization?
• Structures. Do we have unnecessary organizational layers? Are there opportunities to combine dispersed, but related, activities into shared services centers?
• Functional Efficiency and Costs. Can we further improve the service levels provided by the support functions? Is the organization burdened by duplicative services? Do we spend money on services that the business units do not need?
• Leadership and Steering. Have we established clear accountabilities in our support functions? Is the organization hierarchy within functions sufficiently “flat?” Have we set the right incentives for our managers?
• End-to-End Processes. Are the business units burdened by long waiting times for support services? Can our manual processes be automated? Have we reached a satisfactory level of standardization?
• Individual Workplaces. Are employees focusing on value-added tasks? Can we reduce meeting times to allow for more productive work?
• Sustainability. Do we have approaches in place to ensure that improvements to support functions’ performance and our corporate culture can be sustained over the long term?