Achieving cost efficiency while protecting capacity

In the current challenging economic times it is perhaps not surprising that many charity leaders have focused their attention on raising funds or cutting services. However, there may be another option to secure the future of your organisation. So called ‘lean’ approaches can help eliminate wasted effort, time and costs while protecting core services.

This article introduces ‘process centred’ improvement approaches and compare them with traditional cost reduction and suggest ways for you to get started in your organisation.

The current economic challenges are putting enormous financial pressures on voluntary sector organisations. Furthermore, the pressures are not going away, in fact they are becoming the new norm for the sector.

How are leaders responding to these challenges?

Employee recruitment figures in the UK indicate that commercial and public sector opportunities fell during the early years of the recent downturn. In the voluntary sector, however, recruitment increased. Further analysis showed that recruitment within the sector targeted primarily fund raising opportunities. It would appear that many sector leaders believed that raising more funds was the solution to their problems. Unfortunately, as we now know, striving for a larger proportion of finite pot cannot satisfy every charity. A more balanced approach is required which includes a focus on reducing operating costs.

Cost reduction approaches can be considered broadly within two major categories which I will refer to as a) salami slicing and b) process centred cost reduction.

Salami slicing places the responsibility for reducing costs firmly on each head of department. It fits well with current lines of authority and control, enabling rapid deployment from the senior team. This approach can deliver success in the short term but is not sustainable in the longer term. Salami slicing will drive functional thinking and will often fail to realise major opportunities for improvement which lie between, not within, departments.

Process centred cost reduction is more difficult to implement. It requires different departments to work together towards a common goal and is unlikely to be the responsibility of a single manager. It starts with the customer or beneficiary and seeks to fully understand the way in which core services are delivered. A process centred approach will often identify opportunities for improvement that a departmental approach cannot.

Approaches to cost reduction

Over the past two years my colleagues and I have observed a growing interest in exploring process centred improvement including the use of so called ‘lean’ tools and approaches.

Lean thinking has its origins within the automotive sector but the five key principles are equally relevant and applicable to voluntary sector organisations:

1. Understand your customer: The value that you and your team deliver is defined through the eyes of your customer or beneficiary
2. Take a holistic approach: View service delivery as a continuous chain running through your organisation and not restricted by departmental boundaries. Your team will often have ‘internal customers’ as well as external customers/beneficiaries that they need to serve
3. Eliminate wasteful steps: Seek to eliminate stops; starts; checking or doing things more than once. Reducing time and effort will lead to reduced costs or the opportunity to redeploy resources to increase the capacity of front line services
4. Think ‘outward-in’: The timing and nature of delivered services is driven by the needs of your customers or beneficiaries.
5. Improve continuously: However good your organisation is today, it must be better tomorrow

Getting started

With any initiative for change there is a balance to be struck between the big bang and slow burn approaches. The big bang may have a rapid impact, but may also run the risk of lower long term engagement of employees and volunteers. The slow burn approach may not deliver such rapid results, but can often become more deeply rooted in people’s thinking and behaviour for the longer term benefit. No two organisations are the same, so it’s best to avoid off-the-shelf solutions. Instead, design an approach appropriate for your own culture, challenges and required timing.

A major lesson learned in the corporate sector has been to avoid ‘sheep dip training’; putting swathes of employees through standardised training courses in the hope that their new found skills will, in themselves, lead to improved organisational performance. Beware! Simply training in a given tool rarely achieves the desired benefits and, worse still, can lead to negative feelings if these tools are not implemented in a timely manner. Far better to focus training on those areas of greatest need, and on those employees or volunteers who will be able to use their new found skills immediately.

A particularly pragmatic way to get started is exemplified by a major disability charity that embarked upon a ‘proof of concept’ initiative in which an improvement team focused on a single cross-departmental process. This charity selected one of their support processes considered to be sufficiently representative of potential savings while not incurring high risks that a front line processes may incur. A team was tasked with sizing the prize from which an estimate of the potential savings across the organisation was evaluated. The work had five key steps:

1. Map the process
2. Identify areas of waste and opportunities for improvement
3. Quantify the benefits
4. Capture learning and estimate the potential for savings organisation wide
5. Create a phased roll-out plan to realise the wider benefits

For organisations where there is still some uncertainty about the benefits of a process centred approach, this gentler introduction can really help to win over hearts and minds thereby avoiding the often observed scenario of initial energy followed by the pit of despair and eventual abandonment of the change initiative.

When it comes to reducing operating costs a process centred approach will uncover opportunities that departmental approaches, or salami slicing, will not. Working across departments can be fraught with challenges and external facilitation is often a cost effective option at this point. A methodology with its origins in manufacturing can be successfully adapted to deliver lasting impact for the beneficiaries of your charity.