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i want to welcome reinhard mesenbach he's a partner and managing director at
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the boston consulting group also known as pcg and he's an expert in cost and efficiency
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and he's going to talk to us today about that and especially about getting cost more costs removed and
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efficiencies in the support function of of organizations uh thank you for joining us today thanks
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for coming to philadelphia it's a pleasure to be with you steve you're also a co-author of a piece of
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bcg research a recent piece that's called beyond cost cutting and uh i want to ask you about that the
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cost and efficiency uh it's been the focus for many companies in in this long
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downturn and yet it seems like some of them still haven't gotten it right so could you talk
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generally about that that there's still a lot that companies haven't learned yet
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yeah i think when we when we look at uh cost issues for companies what we typically find is that there is
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reasons and and scope well beyond cost that need to be addressed so what do i mean by that when when we
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think of cost uh it's basically a resource people or anything you procure and you put it to some sort of use so
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beyond making sure you get it at a right cost level you also need to make sure you use it to
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the appropriate sense that you want to achieve and what we often find especially in
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support functions and that's the focus of this paper is that this this letter question what
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do you get from your support function is a terrible difficult one because people do not see anything
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really being produced by these support functions and hence you can look at the cost of
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them and often you find these efforts which we call a cut and cope so you reduce
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and then somehow hope people will do something sensible afterwards but very often you find that people
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don't spend much time and thinking around what do these people and what should
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they be doing and therefore give the support functions a different kind of role within an enterprise it's interesting
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because support function by definition the word support suggests it's not central to the company right it's a
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support function and yet your your study and a lot of your work is is based around the idea that that's
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you're really missing something if you think of it that way um so could you talk about why
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the support functions are in your opinion far more important than most people give it credit for so
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the reasons why we think our support functions are critical and and that's also what evidence shows us
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is they're first and foremost they're close to the decision makers so board members typically
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exercise power over the organization via support functions and that being hr finance
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controlling procurement so why are running for example a budgeting process with controlling
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you exercise power over all your production facilities or your monthly reporting
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so there are the support functions in that sense they're basically brain and
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nervous system of an organization and help you to steer it and hence they're not just a cost bucket
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and albeit often a small one compared to uh procuring large machinery or raw materials
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but they are they're elemental for both the culture you have in an organization
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and also the way the whole organization is run you mentioned what some of the support
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functions are it might be good to define what define the functions yeah so well and they're a you know it's
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a it's a difficult uh term to define because support means different things in
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different industries just maybe picking one uh in the banking industry a risk function
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monitoring credit risk and and is is really closely embedded in the business or at least it should be
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while uh the same applies in an oil producing company but if you are if you for example you're
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you're selling uh paper then risk doesn't really come that close enter and
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then it becomes more of a support function than a core business function so we have i think the the typical
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functions that we always see is hr finance controlling legal strategy business development
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and then there's some more let's say special ones like compliance or risk investment
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procurement which have a have a bit of a business speciality to them depending on
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the industry you're in and then within them we find different different roles they actually do so for
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example let's say in hr you have something which is quite strategic like setting the leadership training
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program or recruiting the right leaders and developing them and then you have some
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very transactional activities and roles like payroll for example so again these support functions then have
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to live these double lives of being on the one hand a driver of the business and the business agenda of the senior
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management while on the other hand doing some transactional things cheap and to high quality standards
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you mentioned finance as being a support function some might think that finance was a core
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function so maybe we could drill down into that idea of what a support function is a little bit more
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okay let me uh give you another way of defining this when we are when we define support
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functions what we are typically including there is anything that doesn't have direct
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client interaction so finance interacts with other departments be it sales or procurement but it typically
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doesn't interact with the real customers of a company and these parts of a company that basically
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lie within the company and help to run it that's what we call support functions
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what key issues do you tend to see around your clients when it comes to support functions on
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a strategic level what we often see is sir that there's a difference between what
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the what the enterprise actually tries to achieve the company and what these support functions are
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delivering so one of the core question is what role should a support function actually exercise should it be for
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example be the driver of the business or should it provide numbers to stay with the
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finance example and depending on that role that you give your finance department you have a very different
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setup and you have probably different distribution of resources between the finance function and the
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actual production facilities and you have a completely different governance so if you have a
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center function in finance that is driving the business you might have a finance committee
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that's chaired by finance well if you have a very strong production areas who are actually using finance as
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a provider of numbers you might not have such a committee and that sort of governance so
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it's crucial to organize based on what you try to achieve so that you have clear understanding of the role
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and the mandate of a support function what do you typically find companies are missing when they look at
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these functions from the strategic level what we often find is that these support functions they evolve and
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develop over time so after several years and maybe after some changes in the environment you find
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that the role that the support function is actually exercising doesn't fit what the company really
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needs so you might have an hr function that is trying to exercise some sort of process control
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in the various businesses while these businesses do not want that and uh what happens so you then
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start to replicate functions so the uh let's say the the recruiting guys from the hr center
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function they try to uh to recruit for the business but the business doesn't want
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them to recruit for them so they build their own people and their then hr tries to put a layer
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on this and for example creates a recruitment board so then the business needs to uh employ
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people the business line to actually provide data for that recruitment board and and support it and over time
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you actually create complex structures which all come from not discussing what the real role of hr
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should be should they provide that sort of support or should they not and if you do not align this you create
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inefficiencies this uh special thing about the support functions is that you do not see these
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inefficiencies or we might call it waste in lean you don't see this lying around on the shop floor so after
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some time you just people find themselves complaining about complex processes long time to decision endless amounts of
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alignment which they've all created themselves but they don't remember what actually
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led to that sort of situation and that's what they find themselves in and in order to overcome it
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they typically build another layer on top of it another governance another committee another person who handles and
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provides more data and that usually escalates the problem rather than solve it that's at the more strategic level what
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about at a tactical level what kinds of mistakes do you see going on okay well we are let's assume the
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the actual mission of our support function and uh the leadership's idea of what they
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should do that's aligned and then the next step is to operate in the right structures and processes
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and so we have to first of all look at typically we look at structures and structures we mean two things one is
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the organizational the org chart how many layers do you have and and thereby how fast does information flow
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up and down in the organization and how distributed is it across boxes what do you lump together so to ensure
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a flow of information the other part that's also important is what's your your actual relation to the
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businesses give you an example uh we worked with a client where we found that the businesses were very self
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mandating so they were doing basically all hr work in the hr department themselves
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so they had their own hr people they did people development training recruiting and so on
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so after discussing this they decided that it would make much more sense to do some very
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operational things like shift planning at the place where it really needs to happen in the sites but to
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bundle uh the more general things like training via the hr department but have the
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people still sit where they were originally sitting so getting the governance and the location
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of the people right so that you both have effects of bundling things but at the same time you are close to the business
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where you need to be close to the business as a second step processes and service
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levels need to be aligned what do we mean by that it's important to have a discussion around
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how often do you need something how big does it have to be how deep and how well
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explained so a typical thing where this where this happens is and goes overboard our reports we we
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tend to find many many reports none of them are made with bad intentions but they typically
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after some time the reason why you create a report and the fact that you create a report
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they don't match anymore so for example we are a few years back we are we helped an energy company in in
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germany and that was in the 2000s and they were still producing a report for the allied
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forces which have left many years back yeah and it's not that they didn't know history
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it was basically they were produced at the report someone found it useful and it became
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it got a life of its own and after her time it was still existing so looking at for example the list of
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reports understanding who does really need it how often do you need it how deep does it have to be
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you can cut it down and thereby also install interaction between those who are provide a service and those who actually
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use it and thereby have a discussion which you often find doesn't exist you also write about in
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the study and and talk about elsewhere the idea of complex historically grown structures
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that that just grow up and keep going similar to the report example that you use
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later and then there's no feedback loop with customers to to get things aligned and on track could
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you talk about that whole idea now we i think first of all it's important to mention
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no one creates inefficiencies on purpose so these things grow over time and what we find is that one of the typical
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mechanisms if something happens we we add things so that's also one of the reasons why it's so difficult to
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overcome it when you discuss with with the head of risk whether he needs another person to
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fulfill some sort of bank of england's new regulation kind of report you can't win because obviously this
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report is required otherwise the bank will close so having a discussion around priorities of all the other
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things that you're actually doing in your department and then finding out could we leave something out could we do
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something more efficient is a different way of tackling these things and historically what we find is that people
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usually don't have these sort of discussions you don't have a discussion between someone
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who's doing something and their internal customers in a structured way you are you have discussions when a need
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comes up that someone raises their hand and say i need more resource another person another building another
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machinery whatever because there's something and then you have a very small tight area in which you discuss
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and in which you always tend to lose if you try to win it a customer of mine said it's easier to
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send a camel through a small hole in a needle than to get a forklift out of the budget
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in one of our factories and that's because once you discuss the forklift people will come to you and say
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everything will break down if we don't have the forklift and we can't deliver
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to china anymore and so on and so forth but you don't have a discussion about
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priorities and would there be something else we could do and decommission and thereby actually fund the forklift
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so this what can we do instead what are our total priorities how do we use our all of our resource best that's
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a discussion we often find is missing and that enables a lean but also a focused center
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and support function that do things that their customers actually desire and want them to do you
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bring up this specific point of not having a proper feedback loop around this issue could
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you talk about that what's often difficult for support functions is that they don't have someone who is
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giving them orders or who demands things from them so they are they tend to self-mandate
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themselves so all of a sudden you find in your inbox an email from someone who says
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we have now delivered and developed a new training manual for something or a new training course
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or a new procurement process and so on you and people ask themselves where is this
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coming from who asked for it and why is it useful so these questions tend not to be raised and the the actual
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support function is self-mandating and and thereby creating in in all honesty they're trying to do the best for the
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company but they might often so best intention is often the worst action and and therefore
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what's really critical is to have a feedback loop between those who are create a service like a new
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procurement process and those who are on the receiving end and who actually have to live with it
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so there are decisions taken whether the the whole element to which you do this the whole
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complexity is actually serving a purpose or not and then in worst case you can escalate this
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to your board members for them to decide whether you want to have more clarity and crisper procurement process
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to stay in this example or you want to have leaner smoother more flexible ways of procuring things
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and you can take that decision and based on a discussion rather than the opinion of one unit
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which is basically creating their own work one obvious question is why don't
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companies fix this they they don't see it what's what's the problem sounds like there's a there's a lot of
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issues that's they should be seeing some of them one would think i think that takes us to
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some sort of uh specialities or of human behavior i think after living in a complex process for a
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while people tend to live with it and manage within a process rather than stepping out of it and trying to fix it
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so what we find if we often find is that uh if something doesn't work people tend to put extra resource on top
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of it or another governance layer in order to to fix it so if you're if you're
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budgeting process creates strange numbers people basically extend the whole process and put maybe
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some extra checkpoints into it and a budgeting governance body in order to run it rather than step back
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and say something doesn't work here we need to do it differently but we still need to stay
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lean so you you often find that there's extra control if something doesn't work rather than
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fixing the original problem and again this is not because people are stupid but because they come out of an
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environment they are used to and so their solutions are typically fitting the environment they find
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themselves in and one of the one of the core elements to uh to overcome this especially in
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companies and you mentioned it at the beginning some have gone through one two rounds of cost reduction or cost
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optimization is really to change uh the uh the whole setting in which such discussions happen
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you need to help people to find a reason why now it's possible to do things differently
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so think differently about the whole way of how we run things think differently about the whole amount of services we
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provide the service levels we provide the way we interact and that is often the difficult thing
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how do you really break this up so you have a discussion which is free of historical other
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discussions that have happened in the past and thereby allow to really radically
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transform the support functions and thereby then also indirectly the rest of the
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organization you