This may appear unnecessary as you would think most companies clearly know what the value is they deliver to their customers. Oddly it is often not defined. Value is essentially the service or product your customers need or pay for and nothing more. Actions the company do that do not contribute to product delivery are waste and can be eliminated or at the least streamlined. By defining value you can define waste and identify opportunities for cost elimination.

Example –
We worked with an oil and gas producer and asked them to define what the company did. Their answer they gave was to draw the life cycle of the well. The company had rationalized itself as a well management company responsible for drilling, operating and closing wells. Delivery of gas and oil to the customer was not prioritized and therefore the company was not aligned to value creation.

Cost cutting is a tactical tool that can only be used so many times before it starts to increase costs. Without understanding what activity the customer values and how the company really goes about delivering value most companies ‘guess’ how they can cut costs. The result is that roles and processes are cut without understanding the effect on customer value delivery or how the company will now deliver customer value. When the focus swaps to Value delivery and in turn Waste elimination the company has an effective repetitive method to reduce costs or increase capability.

The popular idea that all you need to do to get improvement ideas happening is to do some training and let people get on with it is wrong. This approach commonly yields a few ideas and those tackled usually only address local issues. The fact is companies have limited resources of people, time and money to spend on improvement work. Therefore leadership need to be strategic in where it identifies waste in its business to gain the biggest benefit from its available resources. The more clearly the leadership can define the themes that need to be worked the more easily departments and individuals can align effort and implement change. If the challenge is to reduce the use of external contractors or improve resource productivity it is now clearer what is expected and who is contributing and who is not.