Saving Money vs Making Money

Recently, I have had many discussions with colleagues about whether or not the primary purpose of Lean is to eliminate waste or to increase value.  I’m a proponent of the latter, where Lean is to increase value with respect for people.  Yes, in order to increase value, waste must be removed from the system, to which, my colleague says, “See, it comes down to eliminating waste.  Besides, that’s easier to understand.”

It was the last statement that really hit home for me – easier to understand.  He’s right, it is easier to understand eliminating waste/cutting costs than increasing value.  Most organizations are designed as cost centers, so eliminating waste / cutting costs is easy – both to measure and understand.  But just because it’s easier doesn’t mean it’s the right approach.  Too often, we simply want to take the easy way out – not have to think, not have to challenge ourselves, and just want the answer.  And I think that’s the problem with approaching Lean as its purpose is to eliminate waste.

Organizations do this way too often.  They approach improvement activities as ways to reduce / cut / eliminate.  Very few ever approach improvement actions (be they Lean, Six Sigma, or Lean Six Sigma) as a way to increase or grow.  They approach they always take is to Save Money.  The approach they should take is to Make Money.  But, you see, to take that approach is much harder.  Saving money, on the other hand, is much easier.  And, as every cost accountant knows, if I save money, then I increase profits.  So, you see, by saving money, we make more money – simple (and easy); anyone should be able to see that!   And while this may be true for the short term, it doesn’t support any longer term growth.

But, why is taking an approach to Make Money harder?  Well, first of all, in order to do this, you need to understand how you make money.  What are the systems, processes and interdependencies that allow you to make money?  To understand this, you need to take a holistic view and understand how your system generates revenue.  Then you need to figure out what is the limiting factor (or constraint), and how do you go about breaking it so you can increase your ability to make money (think throughput).  This thought process is very simple, and uses basic logic.  However, it is not easy.  It requires a tremendous amount of focus and discipline.  And, if your organization is divided into many silos, in can be even harder.  Focus on the areas that are holding you back.  Don’t just haphazardly apply improvement methodologies.

To get the right long term results, the approach matters.  It is not simply semantics.  By taking an approach to make money / increase value, versus save money / eliminate waste, a company is better positioned to grow and enhance stakeholder value now and in the future.

So, what do you want to do?  Do you want to save money or make money?

Let me know your thoughts!

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