Simplification: the next step in the evolution of productivity

By Fiona Czerniawska

“We’ve got a new approach to cost-cutting,” I’ll always remember one bank telling us back at the start of the financial crisis.  “We used to cut budgets for travel, biscuits in meetings and consulting in that order, but now we cut consulting first.”

One of the key stories in consulting over the last five years has been a growing reluctance among clients turn to consultants to help them cut costs.  Organisations have, after all, accumulated plenty of experience in this field and rarely need advice about how to do it better.  Instead consulting has been viewed as one of the costs to be cut – something we still see in the less well performing economies such as France and Spain.   That’s been less of a problem than it could have been for consulting firms because, while they’ve lost in one area (cost-cutting), they’ve gained in another (productivity).  Indeed, among the executives we speak to, working on productivity issues is almost a badge of honour, whereas to say they’re still focused on cutting costs is virtually an admission of failure, implying they’re still mired in their own personal financial crisis.  Productivity, moreover, is linked to growth: companies are trying to do more with less, rather than simply less: “Most of our investment and energy is going to be focused on productivity in 2014,” remarked one typical CIO we spoke to, “although we’re also looking at the overall direction of the market and new opportunities for growth.”

But there’s another buzzword emerging here: simplification. “It’s a huge theme,” said a utilities executive, “the simplification of tariffs, of billing, of customer communication.  Complexity is inherent in some parts of this business – we can’t simplify processes around power generation, for example – but it builds up in other areas where it’s not essential.  We have to rationalise.”

Our recent report on simplification suggests that, while this is a small market at the moment (we estimate that it’s worth around $1.8bn globally, compared to the $4.6bn and $5.6bn being spent respectively on cost-cutting and productivity consulting) it’s likely to grow quickly – upwards of 10% a year, though in some geographies more than others.

This is good news for consulting firms: our research also suggests that clients who are primarily focused on cost-cutting will spend less on consulting overall, those focused on productivity and, especially simplification will spend more.  Simplification, in other words, tends to go hand in hand with other, perhaps more growth related work; cost-cutting is a bit of a consulting cul-de-sac.

Of course, every new opportunity poses new challenges: the consulting firms which have made money from cost-cutting in recent years may not be those best positioned to win simplification work.  Success in the latter will depend less on expert individuals and familiar methodologies, and more on new ideas, data analytics and the ability to capture and share best practice, benchmarking data and so on.  It will also require focus – after all, consulting firms wanting to do well in the simplification market will have to demonstrate they’re capable of simplifying their own approach and organisation.