Optimising financial processes

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The Cost Conundrum – Operational Efficiency vs Process Effectiveness?


I read a great article from two former Procter & Gamble executives, Tony Saldanha and Filippo Passerini, yesterday.

“The Hidden Dangers of Focusing Excessively on Operational Efficiency”.

They share some classic examples.

It got me thinking.

We are in a period where CFOs are being asked to focus on cost reduction.

Deloitte’s latest CFO surveys including the 2Q 2023 CFO Signals Report reinforce this point.

So, we need to focus on cost and cash (as well as revenue, hopefully!).

Most businesses, when faced with the need to reduce costs, will logically focus on efficiency. Afterall, standardizing, automating, outsourcing, and so on are proven methods to reduce costs.

Except there’s a limit to how well these “efficiency-alone” solutions can work before they start to hurt overall business process effectiveness.”

This is the “silo mentality” in which we easily get stuck in business.

Driving efficiency in silos often has un-intended negative consequences on end-to-end process outcomes and customer experience.

Interestingly, this problem was solved in the automotive industry decades ago and fueled the Kaizen movement in all manufacturing disciplines.

Kaizen, the rapid improvement processes, is often considered to be the “building block” of all lean production methods. It focuses on eliminating waste, improving productivity, and achieving sustained continuous improvement.

It is difficult to argue with the 5 Principles of Kaizen for end to end processes;

  • Know your Customer
  • Let it Flow (eliminate friction)
  • Go to Gemba (where the work gets done)
  • Empower People
  • Be Transparent

Tony and Filippo echo many of these sentiments in their article. They assert;

  • Always seek an improved customer experience
    • Ensure ALL KPIs are measures of  “end to end process” outcomes
    • Use process and journey maps to explore AS-IS and better TO-BE experiences
    • Focus on end to end process excellence as well as end to end customer support
    • Siloed organizational designs are a killer
  • Design efficient AND effective processes for delivering business value
    • Avoid assuming that process efficiency itself drives increased business value  
    • Assign end to end “global process owners” to ensure delivery of business value
    • Report business relevant performance results regularly
    • Get granular and specific on the costs and benefits of each end to end process

Avoid overemphasizing efficiency improvements to the exclusion of effectiveness!

The article from Tony and Filippo is an extract from their forthcoming book (no plug intended 😉 ) and is a brief but important read here . . .  

You can read the Deloitte 2Q 2023 CFO Signals Report here . . .  

You can read the Playbook for “End to End Processes and the GPO” here . . .

Thanks for reading!