Unfortunately, too few of today’s business managers have taken the time to consider the truth in this statement, consequently adopting the wrong strategies, and creating a vicious cycle in which value is removed from the transformation process and – ultimately – the company’s bottom line.
And, what’s even worse is that this statement is not only true of manufacturing businesses, it applies to the service industries, such as advertising and marketing, as well.
Consider the logic: A final product that goes to market, is the culmination of all the processes and inputs that came before it. Therefore, if the processes and inputs are inferior, then the final product will be of the same nature. This is true for both products that come off of an assembly line, like cars, toys and a cup of coffee, and products that come from the minds of talented individuals, like advertising campaigns.
Today’s highly volatile business environment calls for companies to continually increase shareholder value, usually in the form of profits after tax and expenses, and in so doing, ensure longevity for the business.
For most managers, the way to do this is to continually cut costs, usually in the form of inputs such as raw materials and labour. This creates the vicious cycle mentioned above, rendering an inferior product at the cumulative end of the process. This inferior product then needs more advertising and sales drives, as well as a higher market price to satisfy the business objectives that created it.
The paradox is that the value removed from the processes to save on costs is, in reality, the competitive advantage that the company needs to build longevity into the business and satisfy shareholder expectations. In this manner, competitive advantage has become an incredibly fast depleting resource for businesses that try to build it out of physical assets.
Economies of scale can be duplicated, supply chains can be replicated, technology can be copied, and business models can be disrupted. It’s only the company’s value chain that can give it a moat in the market.
For many organisations – advertising agencies included – the value chain comprises of the company’s human capital, the creativity of this human capital in solving the day-to-day business problems, and the culture of the organisation.
A lean, efficient and effective value chain will outperform its opposite every single time. This is because the maximum value is being extracted from the process and injected into the output. Also, it raises employee engagement, customer satisfaction, the perceived value of the product and the profitability of the company.
In other words, the output is a direct reflection of the input. This is how Toyota can produce cars that seem to go on forever. How Apple can create products that seem more like works of art than technology. And, how Jeff Bezos and Elon Musk can disrupt so many established industries and incumbents.
This is also the reason why advertising today is so bland and intrusive.
In conclusion, many established businesses today are having to extend working hours, cut margins and meet impossible turnaround times to just survive. In most cases, an assessment of the value chain would detail internal processes that are in disarray and bleeding value.
Instead of trying to push up sales targets and increase the pressure on an already overloaded and failing internal process, rather focus on eliminating the waste, stress and inefficiencies in the process.
Value doesn’t cost more; it saves more. So, inject more value into the process, and you’ll extract more value from the market.
