The ART Of Business

The Efficiency Delusion

As businesspeople, we are told that we can be increasingly "lean" and "efficient" and- at the same time- continuously deliver "customer value" to the marketplace.

On the production and operations side, Six Sigma, Lean, et. al. are undoubtedly critical components of efficiency that need to be part of a company's DNA.

But what about the customer side of things? Can't greater efficiencies be applied there as well?

This is where the delusion enters in.

Doesn't it make sense to outsource customer call centers to others who can do it more efficiently?

What about our sales and distribution network?

Isn't it much more efficient to deal with one or two major customers than with all of the problems, hassles, costs (READ: inefficiencies) that stem from an independent dealer network or sales force?

And what about customer relationships? By nature they are inherently inefficient and unpredictable. Can't we just have someone else handle those as well?

If, in the name of efficiency, the customer side of a company is outsourced to a third party, then the ability of that same company to deliver customer value is reduced and often lost.

Let's use Wal-Mart as an example.

They have around 125,000 suppliers. Because of Wal-Mart's size, the retailer is the largest customer for the vast majority of those producers.

In the lexicon of efficiency, its makes sense to deal with one customer like Wal-Mart.

Yet ask most of those suppliers how their profits stack up with Wal-Mart, year after year, and you'll likely hear anything but nice words.

Wal-Mart's inevitable price cuts force inefficiencies to be squeezed out, which often means leaving the U.S. and chasing cheaper labor costs around the world. Customer value evaporates.

It is very difficult to make a lasting compromise between efficiency and value, because the quest for greater efficiency is by far the more powerful force and continually encroaches on customer value through repeated compromises.

TAGS: Supply Chain
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