Leaderboard

For most Investors, the purpose of the business/ initiative is to harvest more money from the money invested, which is a fair objective. The top three business matrices that is on top of mind is self sufficient Cash Flow, ROI and Profitability- ideally in the mentioned order. Hence, it is common to see that profit & ROI responsibility is delegated down the line. In many organizations, where the investor has maximum say/power, ROI has become the system of management control. Simultaneously, the top management is also keen about operational excellence, revenue generation and brand building. Continuous improvement across all processes is a core necessity. Kaizen is a proven approach that brings about continuous improvement and contributes towards profits for the organization. It is but common knowledge that the Kaizen methodology has to be implemented as a culture within the organization – a culture of continuous improvement by; - Encouraging commitment throughout the organization- Involvement. - Making kaizen a part of the routine - Binding it back to everyone’s job, through Improvement targets and attached incentives. - Departmental KPI /KRA which are allied with KPI /KRA of other departments - Measuring and announcing results - Communicating – across the organization - Being Deliberate and patient - Repeating/ replicate/ scale up what worked well, wherever applicable. Both Individual initiative and Team effort is required at all levels, across the organization to build a culture conducive to Kaizen approach. Cross functional collaboration is essential for overall efficiency and a smooth value chain. On the other hand, Return On Investment (ROI) is calculated by taking the difference of the income and cost of an activity / project – The profit generated. This is then divided by the cost. ROI = (Net Profit/Total Cost) The Base is thus cost and the ROI is best when the cost is lowest. If the costs are higher than the immediate estimate of sales, there is a risk of negative ROI, which means that the investment lost money, so you have less than what you would have had if you had simply done nothing!! The above mentioned mathematical thinking may actually inhibit initiative levels. The fundamental idea of kaizen approach is defeated and will undermine the value of empowering people to identify opportunities for improvement and make small changes if required For Example, if ROI is given too much importance, say in a food production unit; The urge for improvement in quality / taste will be taken over by the necessity to reduce cost of production. This can lead to compromise in QA which will impact the overall customer satisfaction and resultantly less revenue and profitability for the organization. Thus, though the ROI may be improved in the production process, it is at the cost of company profits. Another point is that overemphasis of ROI on improvement initiatives may not anyways give a correct picture of the ROI, immediately, in many cases. For Example, an improvement in the quality of a product or a new product that has been developed will affect performance significantly only in the future, over a period of time. Similarly, any changes of small improvements, in various levels of the organization will collectively affect the future performance of the organization. Such changes or improvements will not reflect in current profitability or ROI. The best example I can think of, which most of us will relate to is, a sales improvement programme in an organization will take improvement steps in marketing campaigns as well, along with other initiatives. But focusing on immediate ROI of these activities can hurt the brand and the long term goals and vision. I believe, Immediate results can be strong indicators of how potentially successful your initiative is, but a proper follow up and continuous improvement will only ensure that the immediate returns do not disappear as quickly as it came. Thus, as mentioned above, it might not be possible to evaluate performance / impact of improvement initiatives on the basis of the objective of ROI. It is best to get away from blindly emphasizing on ROI from the minor improvement initiatives and develop procedures that best suit the requirements of each organization/ process. The ideal method would be to develop a proper Kaizen culture across the organization and keep the ROI calculation at the organizational P&L level. Periodic reviewing of the improvement initiative(s) at departmental levels which are intended to contribute to improvement in the organization’s performance, is a must!!