Employees at Industrial Company Cooperate and Conquer

By getting workers to understand that they depend on one another for success, a large industrial company tackled complexity and stopped a decline in product quality.

An industrial company facing declining quality in its products set out to increase investment in research and development. Consequently, it had to cut costs in other areas.

The company ordered the purchasing department to reduce costs by 20% without eroding supply quality. The purchasing unit consisted of two roles: “category strategists,” who figured out how to buy goods, and “buying units,” who executed the strategy. The attempted cost-cutting strategies failed, and finger-pointing ensued. The company needed assistance drilling down to the source of the trouble.

A FOUR-STEP APPROACH FOR SMART SIMPLICITY

The company called in BCG to help it address the problems. BCG applied the four-step Smart Simplicity approach.

  1. Smart Start: What are the problems caused by complicatedness that must be solved? Interviews with senior management and other stakeholders were conducted to align on key performance issues. Conversations with the various parties involved in the problem yielded some very telling results. The category strategists said the buying units didn’t implement the strategies properly. The buying units complained that the strategists cared only about the strategy and not what the buying units really needed. Meanwhile, operating units bypassed the purchasing department altogether and did their own buying. That hindered purchasing’s ability to negotiate for better prices.
  2. Diagnosis: What are the root causes of complicatedness? Deep-dive interviews focused on stakeholders and their relevant behaviors in hopes of understanding why people behaved as they did given their goals, resources, and constraints. The real problem, these first two steps revealed, was that the three “players”—the strategists and the buying units within purchasing, and the operating units doing their own buying—were isolated from one another. They didn’t share objectives, and therefore they weren’t cooperating effectively.
  3. Solution Design: What are the targeted interventions to reduce complicatedness and address the root causes of the performance issues? The solution design took the form of a three-step process. First, clarify objectives for each unit: The strategists were to develop innovative buying strategies. The purchasing units were to develop the skills of team members. Second, create “overlap objectives.” Third, cut the purchasing budgets of the operating units.
  4. Implementation: How do you implement the solution, make it sustainable, and ensure constant improvement? When the individual roles were laid out, the strategists had to be practical, and the buyers had to follow the pricing strategies. The overlap objectives forced the strategists and the buyers to cooperate, and they formed a “community of practice” that enhanced everyone’s skills. Finally, cutting the purchasing budgets of the operating units meant that they lacked the resources to do their own buying. They were compelled to cooperate with the purchasing department. Ultimately, all the players were forced to work together. The result: the purchasing department met its targets for cost reduction, and supply quality did not decline.

An industrial company’s purchasing department achieved a 20% reduction in costs while maintaining quality levels.

Three Steps to Create Reciprocity

  • Eliminate internal monopolies on information or processes. These kill cooperation because monopolies don’t need to take into account the needs and constraints of others.
  • Remove resources. If you take away the extra TVs in a household, for example, people will have to cooperate to decide what to watch on the one remaining TV.
  • Create “multiplexity,” or networks of interaction. Put people in situations (such as communities of practice) in which they have to address mutual performance requirements.
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Organization Strategy