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Andrei Perumal, Managing Partner of the Strategy Consultancy Wilson Perumal & Company, Inc., and Co-Author of Waging War on Complexity Costs
Duration 60 Minutes
Does a 15 to 30 percent reduction in operating cost interest you? Thought so.
For the past two decades the pursuit of growth has created massive complexity in companies, and with it, massive complexity costs. What are complexity costs? Complexity costs are those costs in a business associated with having too many parts, products, services, systems, processes, business lines, and so on.
But here’s the kicker: For many companies, the value of taking out bad complexity can amount to 15-30% of its cost base.
The only good news about this weakness is that your competitors may be carrying as much or more complexity cost as you are—and hence the opportunity: Learn how to effectively remove complexity, and you can regain competitive footing by creating a cost advantage over your competitors.
In their recent book, Waging War on Complexity Costs (McGraw-Hill), authors Stephen Wilson and Andrei Perumal provide new insights on the nature of the issue, and innovative and effective battle strategies that the business executive can use to finally grapple with the issue.
Please note that this program will be interactive and our expert speakers will give advice and insights to your current challenges during the program. We will ask for your live participation by calling on you in a "round robin" exercise. You can choose to “pass”, however, in order for this to be of full benefit for you- your participation will be requested.
In the session Wilson and Perumal will discuss new strategies for taking out complexity costs and highlight key fundamentals for restructuring your cost base, including:
1. Making it a priority by “sizing the prize”. While many managers intuitively grasp complexity as an issue, companies need to quantify the financial benefits of going after it to put it on the corporate agenda.
2. Use 80/20 thinking to size it and go after it. Companies struggle to quantify the opportunity because they approach it bottoms-up. They see the costs of complexity tied to excess inventory, for example, and other complexity costs, and try in vain to sum up the individual costs of “bad” complexity. But this is an almost impossible task.
3. Don’t get caught up in product or SKU complexity. While SKU-reduction is a big lever, it is insufficient by itself to win the war on complexity costs.
4. Complexity costs creep in incrementally, but you need to remove them in chunks. The answer is not to trim the bottom 5% of SKUs. That will do little to free up capacity, cost, and focus. Only when you can cut deep enough to cut a brand, close a warehouse, or cease a productivity-draining process will you see substantive cost savings.
5. Unlocking the benefits requires “coordinated” actions. For example, consider the pharmaceutical company that was looking to reduce its factory footprint and distribution network. The focus soon became how to best rationalize the footprint assuming the same or near same portfolio of products. This is a decision trap: assuming the portfolio is fixed and designing around it.
This is relevant for executives, business leaders and managers who have been charged with improving the cost-competitiveness of their business and building a platform for profitable growth.