Value-to-Cost Communication Management
by Jim Shaffer, Jim Shaffer Group
As internal communication functions increasingly focus on improving operating and financial performance, the value-to-cost ratio has become the most widely used measurement of success.
This represents a major shift from the days when internal communication was viewed as a cost center that couldn't demonstrate that it was much more than a nice-to-have news bureau chewing up more value than it created.
We, customers all, forced the change. In the past few years, especially during the economic slowdown, customers made it clear that they would only pay for what they valued. We, as business leaders, responded by weeding out any costs the customer wasn't willing to pay for. If a process or function wasn't able to measurably demonstrate its worth to the enterprise, it was re-engineered to do so or eliminated.
This series of events served as a wakeup call to the profession. Sentimentality isn't good enough. Results that exceed the investment are.
Hence, numerous internal communication functions are shifting from the traditional role of distributing information to the more results-oriented role of improving performance.
The traditional role focuses on process-distribution. Performance measures are process-focused.
While results-oriented functions continue to distribute information, distribution represents a means to a larger goal-to create performance lift. So, the relevant measures are more closely aligned with business-improvements in quality, service, volume, cycle time, costs and productivity, to name a few.
But measuring improvement isn't enough. A function also must know the cost to create the improvement. If I have to spend $200,000 to reduce the cost of turnover by $100,000, I've drained value, not added to it. This is why the value-to-cost ratio is achieving prominence.
Organizations adopting this results-oriented approach believe the following to be true:
- Communication is a system to be managed just as sourcing, manufacturing, engineering, development sales and marketing are systems. Because the communication system lubricates all other systems, it's the equivalent of the human body's central nervous system. That is, it's pretty important.
- Many but not all performance failures-or reasons for under performance-are caused by defects in the communication system. Defects include: mixed messages that confuse people and diffuse productivity; lack of information that cause people to guess wrong; inaccurate information that creates mistakes that require re-work or waste; and or slow moving information that bogs the organization down and misses opportunities and markets.
- The role of performance-based communication management is to discover and remove the defects that are causing the organization to under perform.
- The cost of removing the defect, over the long term, should be less than what is spent to remove the defect. Value-to-cost!
FedEx and Owens Corning offer the best examples of companies that are making the transition.
FedEx has historically been recognized for its superior communication management. Yet a communication assessment last year of FedEx Express, the company's largest and oldest operating company, uncovered opportunities for the internal communication function to more aggressively move to a results-focused approach, adopting value-to-cost as its primary measurement.
Increasing U.S. export volume represents a huge opportunity to improve profitability at FedEx Express. An airplane is an asset. When one of those assets is flying from the West Coast to China half-full, it's not as profitable as when it's completely full. Today, there's still some room in the cargo holds of those planes.
The internal communication people addressed the issue. Where, they asked, are the best opportunities to improve U.S. export volume by better managing communication, information and knowledge? What is the size of the opportunity? What will it cost to go get it?
A five-month project addressing these questions in one of the company's districts in the Los Angeles area resulted in a 37 percent increase in sales over 2004. The value to cost: 10:1.
Terry Simpson, the FedEx Express communication manager who led the effort noted: "While we hit some impressive targets and at an acceptable cost, a side benefit was that we were able to re-engage many employees in this region."
FedEx Express leaders have asked Simpson to take the performance-based communication process to each of the company's regions this summer. In doing so, Express will be adopting the new measurement companywide and they'll be building the company's communication capability overall.
Owens Corning, the building materials and composites company, has embraced the results-focus for about four years, increasing productivity significantly in each of the six plants where it's been implemented. In one plant, accidents were reduced 82 percent.
Value-to-cost has averaged in the neighborhood of 10:1 there as well.
"Our entire effort has been grounded in wide-open, carefully managed communication to build trust and to improve operating and financial performance," says David Rabuano, vice president of the company's commercial and industrial business.
As with FedEx, Owens Corning is adopting the approach company-wide. It has taken best practices from the work so far, blended it with other communication best practices and built a core communication system that's being introduced to the entire company. By a given date, all plant leaders will be required to have the system up and running in their operating areas. Leaders' incentive compensation will be based in part on how well they drive performance through the communication system
"We firmly believe from our experience that we have developed a communication system that can cause huge performance lifts," says Kristin Kelley, director of corporate communication for Owens Corning. "Our plant leaders have seen it produce results six times in six very different environments. They want it as soon as they can get it. To them, it's a pocketbook issue-for the company, their plants and for them personally."
Using value-to-cost as a measurement covers both the investment and the return side of the equation. It encourages a good communication manager to reduce spending as much as possible while trying to create the highest return possible. What seems to happen is that as returns escalate, the demand for communication counsel inside the organization also increases, which has the effect of substantially increasing overall spending on internal communication…but with a consistently high rate of return.
Where the traditional cost center approach tends to drain value, the results-oriented value-to-cost focus tends to create value. The best practitioners are moving to the latter approach for obvious reasons. Those refusing to embrace the obvious seem to be doing so while praying they won't get caught.
Jim Shaffer is a renowned thought leader, consultant and author, helping businesses engage their people in achieving ultra-high levels of organizational performance. He leads the Jim Shaffer Group, a consultancy devoted to creating compelling places to work-where people are actively engaged in building and sustaining winning organizations. Prior to launching the Jim Shaffer Group in 2000, he was a principal, senior consultant and leader of Towers Perrin's business performance communication center of excellence. Prior to joining Towers Perrin, Jim served as press secretary and speechwriter to Kansas Governor Robert B. Docking. He headed public relations and advertising in two Chicago-based businesses and he's served as a marketing product line manager.
