Planning: It’s Not Cost Cutting vs. Building New Services

Written by:
Howard Fenton
Senior Technology Consultant
NAPL
As the end of the year approaches, a common question we are asked is how should we plan for next year? Should we offer new services with greater value that have a high cost of entry or focus on improving our workflow that will save us a little money but will not cost much to implement? Unfortunately these are the wrong questions based on inaccurate assumptions. Let’s start with the assumptions. One assumption is that building a new service will require a large capital investment and will pay off big. The other assumption is that cutting costs will not cost much and result in small but steady savings. Both assumptions are wrong and neither focuses on the most important thing which is minimizing risks and maximizing rewards.
Different people have different opinions about risks and rewards. Psychologists measure this using games such as the ring toss game to measure a person’s risk-reward threshold. Called the Atkinson’s Risk Taking Model of Achievement Motivation, it evaluates how far away you are willing to stand when tossing rings with higher points earned for farther successful tosses. The further away the attempt the greater the risk but higher the possible score, the closer the target the less the risk but the lower the reward. I like this game when coaching management teams because it lets everyone see each others attitudes about risks and rewards.
The problem with the assumptions described above is that they are fundamentally flawed. Offering a new service does not always mean large investments and does not always result in big payoffs. A good example is large format printing which does not cost a lot but may take years to build a large enough customer base. In addition, offering a new service can be accomplished by partnering with another company who specializes in that work and minimizes the risk until enough demand is generated.
This is not a new idea. Printing companies have been outsourcing specialized finishing such as foil stamping as well as fulfillment for years. But the real question is how you partner today with companies offering the new value-added digital services. The days of investing in mailing and fulfillment services have passed for most companies who are now focusing on adding cross channel communication or marketing services. As a result, we are seeing companies willing to outsource portions of this new digital production including their web-to-print services, as well as their database and data analytics for cross channel and marketing services.
Also, investing in cost-cutting production strategies is not always free and does not only result in small savings. Cost cutting by working to improve your procedures may be free, but increasing productivity and reducing costs through automation requires investments in hardware and software. As a result, investing in new MIS systems or new finishing equipment could cost a lot but could also result in big payoffs.
But again the real question is how you minimize risks and maximize rewards. You could focus on procedures and processes which is free or you could identify investments with a fast ROI or return on investment. For example, what if a $15K investment in workflow software allowed you to reduce production staff or what if a $12K investment in a web-to-print solution allowed you to break into markets you could never sell to.
If you’re planning for next year and considering either increasing your productivity or bringing a new product to market, it’s not an either/or game. With a good team you could do either or both. But start with the correct assumptions. Either or both can be low or high cost and either or both can return low or high rewards. The right way to approach this is to analyze the risks and the rewards and then create a plan that minimizes risks and maximizes rewards.
What are your plans for next year? Are you cost-cutting or building new services?
Howard Fenton is a Senior Technology Consultant at NAPL. Howie advises commercial printers, in-plants, and manufacturers on workflow management, operations, digital services, and customer research. He is a paid contributor to this blog.