WBMT? More for Less (or something for nothing)

Watching the recent news about P&O and media reports on 'cheap' replacement staff I can't help but reflect on a recent article on Industry 4.0, my time in oil and gas, and the recent answers to a question on a course I am running. In reverse order (why not)

?I pose a question on a maintenance fundamentals primer course on which is "why would you outsource?". The number of replies that simply state "to save costs" never ceases to amaze me. The reason is that the answer is more complex and boiled down should be about capacity and capability.

?First is capacity, businesses are highly dynamic and shrink and grow based on customer demand. It is simple logic that having a floating resource of self employed individuals or partners that act as suppliers or distributors of your services or products make sense. The big mistake here is that abdicating responsibility to these outsourced entities generates competitors.

?The second point is capability, as businesses either broaden or deepen additional support services are needed along with additional capability. Support services should be seen as exactly that they support core business (Safety, commercial, planning, HR, sales, marketing etc) they do not run it! Additional capability is about complimenting your core service either through vertical or horizontal integration. You can either partner, acquire it or grow it and may for example include country expansion through agents. Again, simply abdicating responsibility to outsourced entities generates completion.

?And?the cost question. Optimising cost is good, essentially you are eliminating waste from your business process and making your business effective and efficient, this of course takes time and not a small amount of effort and commitment from leadership. There is also the ability to adapt to current client demands and requirements to consider. This consideration should look at value added activity along with non-value added action. Non-value added activity is then divided into Essential and Waste. It is the WASTE that you are after not Non-Value added.

1. ?Time= Value added + Non-value added
2. Non-Value Added = Essential activity + WASTE

?The lazy mans route to short term gain is cost cutting (see my article on short term gain) which brings us back to P&O and the answer to my question.

?Cost cutting however you look at it reduces either the capacity or the capability of an organisation (AKA Resilience) and will, longer term restrict the ability of the organisation to deliver its core services. Cost cutting short term however does increase the amount of cash available to pay dividends and keep shareholders from withdrawing and share prices from crashing (for example). However this short term gain can result in long term pain.

?My reflection on my time in the Oil and Gas industry (AKA Energy) Since the 1980's I have seen the commoditisation of Engineering Services and the outsourcing of Maintenance and Operations both having serious impacts on the ability of clients staff to provide technical management of services. The outsourced targets (KPI's) were about reducing costs (obviously with HSE caveats) and meeting production quota's. The end result was increasing regulatory enforcements and reports on the state of infrastructure. As a senior member of a Technical Audit team and start-up, acquisitions and mergers capability I also watched with dismay perfectly 'good' profitable organisations being acquired and systematically burdened with bureaucratic waste and stripped of any capability. I have also started-up 'offshoring' capacity which rapidly converted into capability and then into competition, the costs actually increased and we ended up using cheaper home office engineering!

?Lastly my article on Industry 4.0 and I described the industrial revolutions and how the industrialised world moved to (1) mechanisation, then (2) mass production, (3) automation and now (4) connectivity. Through these revolutions the feature has been producing more for less. Mechanisation reducing human input, mass production matching supply and demand, automation stretching supply chains and now globalisation of those supply chains. The assumption being that value is directly related to cost and quality really does not matter.

?Why am I writing all this? I'm not having a rant I am just pointing out that if a business can't survive in the country of origin trying to do the same stuff and thinking you will get a different outcome is madness.

My challenge,?

Throughout the article you may have notice the theme is all about reducing cost? But hang on.

You can't produce something for nothing can you?

OR

Maybe look a bit harder at your business model and reshape your future. (have a look at my crystal ball!)