Last month we defined six key dimensions within which business value can be created: financial, customer, internal, competitive, creative, and environmental. Our assertion was that identifying such value dimensions and subsequently directing resources into them are strategic imperatives for business success.
With this in mind, now consider the definition of waste; to “use or expend carelessly, extravagantly, or to no purpose”. Waste is a failure to make good use of resources, such as energy, goods, money, time or opportunities. So by definition, waste provides no value and serves only to detract from value creation.
This places value and waste in direct correlation; the more waste that exists, the less value creation can occur. A business’s ratio of waste to value is therefore a key indicator of business health and performance. It follows then that if value creation is a key business objective, so too should be the process of proactively minimising waste.
Know value, know waste
As discussed last month, value can be created across multiple different dimensions, and it is sometimes hard to identify. Value could be tangible and obvious but also intangible and illusive. Knowing value is therefore a combination of process and judgement; process to measure performance and track tangible returns, and judgement to understand the hidden value something offers.
Once you begin to know value you can more effectively divert resources onto the right areas, and as a consequence, away from more wasteful activities.
In addition to this natural process, an appreciation of value allows you to pro-actively pick out areas where value is absent. Such areas can then be meticulously managed in order to minimise waste.
Clever cost cutting
Cost cutting has negative connotations because often businesses do it at the expense of business value. For example, in recessions businesses often cut marketing budgets only to lose market share to more visible competitors.
Waste reduction is an intelligent form of cost cutting. Because it connects with value, and thus seeks only to cut costs where value is lacking, it represents a more effective and prudent approach.
Waste reduction activities could be undertaken broadly, across areas deemed the most wasteful, or pursued line-by-line across every individual budget area. Every individual cost has its own waste to value ratio, and so each could be analysed in this way. Such a ‘waste audit’ could be run once to identify candidates for cost cutting, or run regularly to track and manage waste over time.
Such cost cutting activity should free up valuable resources without impacting value. Freed up resources then become opportunities to expend resource on more valuable activities. Seeing cost cutting in this way makes the endeavour about creating new opportunities – as opposed to simply cutting costs – and therefore may also help foster a more positive cultural attitude towards the task.
A cultural change
Nobody likes a scrooge, which is why cost cutting initiatives often have negative effects on company culture. The difference with a waste reduction approach is that cost cutting is not the only priority; the process also aims to increase spending on value creation. It is essentially about scrimping when value is absent, so that you can spend when value is apparent.
This distinction provides an opportunity to foster a positive waste reduction culture within an organisation. If employees understand the relationship between value and waste, they may be more inclined to both waste less and proactively define areas where resource could be re-positioned to create more value.
One good example of where such a culture exists is Google. The entire company is near-obsessive about identifying and cutting points of waste throughout their business and supply chains. But Google has fostered a culture in which waste minimisation is not solely about being frugal with money. Despite its meticulous focus on minimising waste, the company finds resource to do seemingly frivolous things like offer free breakfast, lunch and dinner to its employees; at first sight wasteful but in fact a valued staff benefit which nourishes and motivates employees, and likely boosts their productivity too. Had it not been for their ‘waste not’ culture, the company may never have been able to offer such valuable benefits.
When presented with a choice between creating value or waste, most people would choose the former. So culturally, the challenge is simply about providing the intelligence to make such informed choices.
Waste not, want not
The adage “waste not, want not” has been a favourite through two world wars, the world’s current environmental crisis, and countless other periods of difficulty where prudence over extravagance offers a solution for survival. Today we are facing two such crises, both environmental and financial.
These crises are two good reasons to think deeply about minimising waste in all of its forms – from the waste of our planet’s natural resources, to the money and time we inject into our businesses.
Looking beyond crises, the phrase also reminds us that waste just makes us want for more. Whatever the environmental or financial climate, the eradication of waste should be a priority, because ultimately: waste not equals win win.
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