A Year of Cost Control: Wrongheaded Business Analysis

            A commentary by an executive of consulting firm Accenture about the wireless telephone service industry embodies a lot of things that are wrong with the way some people view business.

            Stephen Gardiner, an Accenture senior executive, has a piece posted on the company’s Web site that notes the rapid growth of the telco industry is slowing. He observes that

 

            Our research in this area has discovered that global wireless operators with an average annual Operating Expenditure) of $24 billion will need to save 4% in total operating expenses, or a staggering $700 million per year, in order to recover their cost of capital.

 

            Gardiner suggests that 2007 may be “the year of cost control.”

 

            I find that disturbing. It seems to be based on the idea that industries go through cycles. Rapid growth occurs early on, and when that slows, businesses finally get around to managing properly so that they can be profitable in bad times as well as good.

            Gardiner adds,

 

Is 2007 the year of cost control? My answer is not a simple yes or no…

The Telco industry is maturing at different paces. Northern Europe is already thinking about cost reduction and I think the U.S. will be next. Asia has had success in growing new products and services so their focus will remain on delivery for the time being while Southern Europe is still very much in a growth phase.

Cost savings will continue to be a hot topic for Telecom Operators for some time to come. You only have to look at other more mature industries for insights on how big an issue it will be.

 

            Would a lean company think that way? Do you believe that, at any time during the past 50 years, executives at Toyota ever declared a particular year to be a year of cost control? I doubt it.

 

            I’m also amused by Gardiner’s description of how Accenture advises clients to control costs:

Reducing costs should be viewed in a holistic manner, considering the entire enterprise as opposed to just one function. We conceived our framework for cost analysis and modeling after our research suggested that combining top-down targeting with bottom-up transformational diagnostics can help to lead to sustainable cost leadership. I'd also recommend looking at less traditional areas, such as channel optimization and routing, product and offer simplification, and business intelligence.

 

            While I’m all in favor of viewing costs (and all other business issues) in a “holistic manner,” this paragraph sounds to me like business mumbo-jumbo. More importantly, it treats cost control as something to be undertaken at a particular time, rather than something that should be embedded into a company’s DNA – as one part of a lean strategy.

 

            By the way, Accenture does have a few articles on their site specifically about lean and six sigma. But my impression is they don’t really get it.

 

            Accenture is large, successful consulting firm. It’s a shame they are stuck in old ways of viewing business.