Training and cost reduction

Training plays a central role in shaping up an individual to the requirements of a job and the organisation. As can be observed from the above statement training must have twin focus viz. requirements of job and requirements of organisation. Lack of training for job performance is easily detectable whereas lack of training for orgnisational requirements hardly shows up unless one digs for it. Even then it is hard to establish.

The diagram given alongside captures various issues that are associated and caused by poor or lack of training. In the diagram, ‘Delay’ and ‘Poor Quality’ issues are caused by poor training for the job while ‘Wastage’, ‘Cost’ and ‘Poor Control’ issues are caused by lack of training to integrate people with the organisation. As mentioned before it is difficult to spot, track and remove wastage, cost and poor control issues arising out of ‘poor or lack of training’. Therefore it is important for every company to ensure comprehensive training for all. It should be continuous and reemphasizing. A comprehensive approach to training is given below.

Training framework

1. Right way of doing things

1.1 Work
1.2 Reporting / communication
1.3 Feedback

2. Responsibilities / Authority

2.1 Outcome of work
2.2 Quality of work / Timeliness
2.3 Team performance
2.4 Decisions / Actions

3. Knowing and relating with the organisation

3.1 Organisation structure / businesses / locations / people
3.2 Organisation mission / vision
3.3 Work process
3.4 Work goals / performance measures
3.5 Work - Interacting departments / functions / roles
3.6 Organisation systems and practices
3.7 Cooperation / coordination
3.8 Overall role in the big picture
3.9 Compensation - Quantum / breakup / methods / criteria / systems
3.10 Rewards - Methods / Criteria / Systems

4. Upgradation of knowledge / skills

4.1 Technical training

4.1.1 New developments
4.1.2 Changes in methods / process
4.1.3 New machinery / tools etc
4.1.4 Improving work performance

4.2 Management training

4.2.1 Methods and topics
4.2.2 Soft skills

4.3 Company / Topical / Industry information newsletter

5. Being a value adding employee

5.1 Delivering on work goals / performance targets
5.2 Owning up responsibility for decisions and actions
5.3 Sharing and using knowledge and ideas
5.4 Complete cooperation and coordination as required
5.5 Questioning and improving work practices / methods and ideas
5.6 Open mindedness to new practices / methods and other changes

Structured approach has to be adapted in order to provide well rounded training to people at work.

1. Initial orientation at the time of joining

• Right way of doing things
• Responsibilities / authority
• Knowing and relating with the organisation

2. On the job training

• Right way of doing things

3. Periodic training needs assessments

• Job requirements
• Organisation requirements

4. Corporate newsletter / blog / KM system
5. Programs to help people align with organisational interests

Hope you find it helpful. Give me your feedback.

Analysing wastage

Every business model has a value proposition and to create this value cost is incurred. If the cost incurred shoots up disproportionately then the whole picture will change and could affect the profitability of a company. Value should be there for both the company and its customer. If either of them suffers then the value will be distorted. One aspect of poor performance that can alter the value significantly is 'Wastage'.

Anatomy of wastage

Wastage takes many forms and prime among them are

• Material Wastage
• Time wastage
• Knowledge / Skills wastage
• Technology wastage

These aspects are in turn caused by various operational issues and problems as given in the diagram below. This diagram (OIP - Wastage) is built keeping manufacturing industries in mind. It can however be easily adapted to other sectors with modifications where necessary. Even for the manufacturing industry, the diagram below can be expanded and enriched further. Click on the picture to expand it.


Deep analysis of each sub aspect will help us unearth deeper and finer reasons why wastage happens. But even at this level (as given in the diagram above) it is clear to us on what is causing different types wastage and where to look at for each of them. For example Rejects, Rework and high material consumption points finger to process and quality management while high inventory, idle stock and storage loss points to materials management. Outmoded systems and bureaucracy points finger at poor management practices while unused or poorly used technology speak about the work culture and people attitude. Like this each sub-element can be localised and further analysed for exact reasons why they happen. It will lead to uncovering the roots of different types of wastage. Once the root cause is identified and understood, solution to set things right would be much easier.

Less tangible wastage

Traditionally material and time wastage attracted much of management attention. Knowledge/skills and technology aspects of wastage rarely attracted time and energy of managements for the simple reason that they are less tangible. Even today some companies do not accord necessary importance to these two types of wastage. It is criminal, in a business sense, to use a comprehensive ERP system for just transactional purposes. But still many companies do that, spending millions on a ERP system but failing to use the analytical and informational power of it. Like wise there could be different technologies that are not fully utilised to their potential. This type of wastage is less tangible and hence escapes attention. The best way to measure technology wastage is to figure out different usages for which a particular technology is intended and how much of it are put to no or sub-optimum usage. By quantifying benefits missed we will get a fair idea on how much a company loses due to technology wastage.

Knowledge/skill wastage is another aspect that was long ignored but gaining importance now. People are more aware of the potential of Knowledge/skill inventory that an organisation in possession of and therefore emphasise on better utilisation of it.

Removing wastage

• Focus on all aspects of wastage
• Identify various forms of wastage in vogue, term and specify them
• Tolerate 'zero' wastage and make it known to everyone, clear and loud
• Collect data, analyse and interpret
• Implement necessary changes to systems and processes
• Link it to performance of units / departments / individuals
• Make wastage data known to all and invite suggestions to remove it
• Reward and encourage sharing of best practices, suggestions and actions
• Penalise inaction and continued poor performance on this front

Try to modify the generic OIP - Wastage diagram given above to reflect your own industry / company. Give me your feedback and inputs.

Long but most profitable road to cost reduction

A while back I was reading an article in the magazine 'outlook business' that touched on the need to be prudent when it comes monetary policy. When an economy surges ahead it gives some scope to tighten interest rates. But rarely central banks do that as that is seen as anti growth by corporates and even politicians. If tightening the belt makes one sit upright, it will only help in sensible and safe driving. However we do see rate cuts to further fuel growth. When the tide turns it leaves central banks gasping for breath with already low rates. Rates can't go below '0'. Similarly businesses get carried away when times are good and don't look around much for cost cutting opportunities.

Cost cutting and cost reduction may have hardly troubled the corporate minds when the picture was rosy. But today everybody wants to cut costs. Nothing wrong with it just that people turn cost conscious only when pushed to a corner. If companies constantly work on reducing / eliminating unwanted costs, they will find it easier to navigate through rough waters. Unwanted costs present greater opportunity to achieve substantial recurring cost savings. However they also pose greater challenge and prove harder to crack.

Operational issues and problems

Unwanted costs happen due to operational problems and issues (OIPs). They are not something that can be easily and immediately done away with. They (OIPs) require a systemic solution. For a systemic solution we need better understanding and clarity of what they are and where to look at. In this post I am presenting a broader picture of operational issues and problems. It is an attempt to understand various factors that contribute to operational issues and problems and what causes each of these factors to thrive at work. The diagram given below captures two different sides of OIPs. On one side it has 'causes' and on the other side 'outcome' of operational issues and problems. By no means causes listed in the diagram are exclusive. There could also be some that may not find a place on the left side of this diagram but can impact one of the outcomes listed on the right side, directly. Click on the diagram to expand it and give me your feedback and suggestions.


I have broken it down to the next level, for example, expanding 'myopic view of the organisaiton' under 'Cooperation'. Currently going through them to filter and identify high impact causes. It's too huge a picture currently and there are some 128 causes with 39 duplications. In any case we are looking at not less than 89 different causes that when unattended infects and negatively impacts a business with the business virus called OIPs.

I will take up major causes of OIPs and discuss them one by one in future posts.

Link to earlier post on cost reduction

Cost cutting - The way forward

Cost is something that a business must incur to create and deliver value for its customers. However it is far from the reality. Businesses do incur costs that do not create value or costs that add little value to its customers. 'So what's the big fuss? Just remove costs that add no value and your job is over'. well it's not as simple and easy as that. Each cost, rather each expense item that figures in the financial statements of a company conceals both 'wanted' and 'unwanted' costs. Chaff should be carefully separated from wheat as otherwise wheat could be mistakenly thrown out.

Operational issues and problems (OIPs), a business virus, cause unwanted costs and to ward off against this virus a company needs to take a systematic approach that may require changes at various levels and things, in-depth training and a change in attitude. OIPs and guarding against them is a big topic that could fill many blog posts. But for the moment we will focus on a n approach to cost reduction.

If you are on a cost cutting mission then I would recommend you to consider the following approach to cost reduction.

Reducing cost

We can classify costs (not in the cost accounting way) into four different categories viz., essential, necessary, optional and unwanted costs.

Essential costs are those that are incurred to create and deliver value for customers. If by any chance these costs are reduced then a company will be compromising on the value it offers. To distinguish essential cost from the rest, ask the question what if this cost is removed or reduced? If the answer casts a shadow on quality, customer satisfaction, or sales capability then stay clear of it.

Necessary costs are those incurred to keep the business running. Certain employee related expenses, statutory costs and the like do not add much value to the customer but are necessary. It's hard to reduce these costs but they can at best be monitored and kept as tight as possible with some rules and tinkering.

When a company can afford luxury it incurs optional costs. They also help boost the image of the company among employees, customers, industry, analysts and the lot. It may not be possible for a company to entirely root out optional costs as some of it, when reduced, can damage the image of the company. But with effective PR and communication most of the negative impact of reducing optional costs can be avoided. For each expenditure falling under optional cost ask, what would happen if this is removed? If the answer is not damaging and the company can afford to remove it go ahead.

click the picture to enlarge

If there is one cost that requires most attention and effort to deal with then it's got to be unwanted costs. Generally six sigma and lean management interventions help companies achieve significant cost reductions as they attack unwanted costs head-on. There are case studies that claim 40 - 60% cost savings. But one thing can be said with confidence that operational issues and problems (OIPs) present huge opportunity for companies to achieve greater and recurring cost savings.

The picture given alongside captures some of the factors that contribute to unwanted cost. They reside in every process and activity right from the top to bottom. Many a times they may not be obvious and would require lot of questioning to identify. To identify and attack unwanted cost, scan each process, raise questions, scrutinise decisions and actions. A picture will emerge out of this exercise and that act as the basis for eliminating unwanted cost.

Final words

Form a team to handle the whole cost reduction exercise. Start from understanding what is essential, necessary and optional from companies' point of view. It would also be a good idea to explore people's mind on what these could be. Once this picture emerges and is clear then straight away attack optional costs by questioning each item under that. Form a separate team with a clear mandate to attack unwanted cost.

Good luck.