Improving efficiency and reducing costs are important to remaining competitive. But most companies know how difficult it is to achieve a successful transformation. Sudarshan Sampathkumar, a partner in Bain's Performance Improvement practice, discusses levers that enable companies to achieve full potential at every stage in the value chain.
Read the transcript below.
SUDARSHAN SAMPATHKUMAR: Efficiency improvement and cost reduction is at the heart of competitiveness. Most companies know this. But they also know it's very difficult to achieve a successful transformation and performance improvement program.
Most of these programs are triggered by changes in the macro environment or competitive intensity changes. But sometimes companies just want to step back and ask themselves the question, am I operating at full potential across the entire value chain?
Bain's approach to actually designing a full-potential journey starts with looking at key performance improvement levers across the entire value chain, ranging from product design through to procurement, manufacturing and distribution. Every lever is analyzed. Every lever that can lead to value-increase is analyzed for the value-creation potential and ease of implementation, based on which program is created, based on the priority of value and the ease of implementation.
Take, for example, procurement or raw materials in an industrials company: 50% to 80% of the cost is typically in raw materials. We have strategic levers. For example, one can look at understanding the vendor or the supplier industry to understand the competitive dynamics, which can in turn lead to creating a clean-sheet cost, which in turn can actually drive effective negotiations.
You also have tactical levers. For example, simply doing a best-price vendor analysis can suggest changes in the vendor-mix that can actually deliver short-term benefits.
So whatever be the kind of levers that one uses and the priority that one assigns, it's not easy to actually get to full potential across this entire journey. The Bain research suggests that less than 12% of the companies get to full potential or beyond. And a staggering 38% don't even get to 50% of the targets that they set for themselves.
Therefore, it's really important, or, may I say, an imperative, that a good performance or a program management office, coupled with effective tools are in place to make sure that the full potential is achieved.
Read the Bain Brief: Operational Performance Improvement in Industrial Companies