Cutback Management Versus Optimization

Monday, September 11, 2017

Optimizers look for opportunities, even as resources become more constrained. Rather than asking, “How can we reduce costs?” optimizers attack a business challenge by taking a long, hard look at each step of an operation and asking, “What is the best way of doing this? How can we add value by getting more from the assets that are available to us?” In other words, “How can we optimize?” Instead of looking to “take away” or impose limits, optimizers look for ways to open up infinite opportunities.

An excellent example of how this shift in mind-set works can be found in a company’s call center. When it comes to customer-service calls, the command from management is typically, “Cut call-center costs.” But an optimizer, looking at call-center operations, would suggest a very different mandate. To a quant, the objective becomes, “Optimize the way that customer-service calls are handled.”

Reducing call-center costs entails lowering the cost per call, which can be done either by employing lower-salaried reps or by reducing the time that reps spend on each call. But when you approach the challenge by looking for a way to optimize service calls, numerous alternatives suddenly become available, and chances are, these will not entail paying lower salaries or alienating customers. If instead you improve the speed and quality of solutions to customer problems, each of your existing reps can handle more calls. Cost per call is reduced, but the solution is optimal. Everyone wins: employees, customers, and the company.

Thus, having a different mind-set and asking different questions can result in a very different outcome. It can also send very different messages to stakeholders. The graphic below summarizes the differences in the messages sent to employees and customers by “cutback” managers and those sent by optimizers. Which company would you choose to work for or do business with?

In tough economic times, leanness is often a virtue. The question is, do you have to get lean by being mean? Over time, cutback management decreases employee morale, compromises product quality and innovation, diminishes customer satisfaction and loyalty, and casts a shadow over your brand. If cost-cutting is your mission, then your actions project a sense of scarcity and survival. But if your mission is to be the best, your actions should connote, “We are the best and we can do better.”

This post is excerpted from The Optimization Edge: Reinventing Decision Making to Maximize All Your Company's Assets (McGraw Hill) by Steve Sashihara,