Can Process Improvement Save you Money?
How much can your organization really save by using process improvement? Can you really achieve cost savings, reduce timelines and still achieve high quality services?
Can you still achieve savings or improvement if you are a big bank or a small community organization?
It turns out maybe, but it depends.
As an efficiency consultant, I work with public sector organizations every day that are trying to figure out how they can find cost savings or improve performance, or ideally, both at the same time (and without causing any operational impacts while doing so).
But I get frustrated when organizations tell me they have read that they can reduce costs by 40% to 50%. From my own experience implementing Lean Six Sigma and other process improvement and efficiency projects over the last 17 years, I have rarely found a case where these idealized pie-in-the sky numbers have been achieved.
I started to wonder: have there been any studies that can empirically confirm the benefits? How much can I really save by pursuing a process improvement project?
Why Is Process Improvement Important Anyway?
There are three main ways an organization can improve efficiency or effectiveness:
Improve your people – Education, training and improved hiring leads to improved qualifications and skills at key resource positions. In the end, this can improve the quality of your services, reduce costs (due to increase efficacy) and reduce time to deliver services.
Improve your technology – By investing in new technology, an organization can (over the long term) reduce system costs, improve service quality, reduce resource impacts, reduce service variability, and improve service efficiency.
Improve your processes – Improvements in process activities can lead to the same improvements mentioned in the technology point above, as well as achieve the same benefits mentioned.
Most organizations seek to start with process improvement projects over technology improvement projects, since there is a significantly less upfront cost, the benefits are generally achieved earlier, and the projects can be less complex.
A Dichotomy of Benefits
It doesn’t take long to find blogs and sales pitches that claim huge benefits:
Significant costs savings - This pamphlet from a large firm claims operating cost savings of 40% to 50%
Increased Service Levels – The same mentioned pamphlet above claims you can improve performance between 30% and 50%, while also reducing costs
All of the Above – And this white paper claims public sector organizations can boost effectiveness while cutting IT costs by up to 20% without reducing head count.
On the other hand, you can find cases where the opposite is true:
A 2011 study commissioned by a group of Canadian non-profit organizations to assess the potential for achieving savings through back office shared services found that after considerable research and analysis, such efforts had typically achieved many benefits – but almost no cost savings.
A 2012 review by the UK government of the performance of five back office shared services centers built between 2004 and 2011 found that they cost significantly more than anticipated, still had reported no savings, were overly complex, and provided less flexible services.
Closer to home, the Globe and Mail reported recently that the federal government’s efforts to introduce IT shared services was “unable to accurately demonstrate cost savings achieved through the transformation of government IT services”.
But It Is Possible
In pursuit of an answer to find out why, I have reviewed numerous empirical studies of process efficiency processes to assess whether savings can be found. I looked mostly for studies published in peer-reviewed journals but really, I was looking for some scientific rigor.
I will publish the findings in my next blog/post.