Strategic Advisory Services
Re-balancing efficiency and flexibility
May 1, 2020

A laser-focus on efficiency and increasing profitability has driven most companies over the last couple of decades.  Whether that means taking cost out of the product (and hoping customers don’t care), outsourcing production to cheaper locales or stock buy-backs to improve profitability per share, the result is a highly efficient system that has almost no flexibility.

Unfortunately, when a crisis hits like the Covid 19 pandemic or even an ordinary recession, the unquantified risk of this focus becomes painfully clear.  With lines running at maximum efficiency, there’s limited upside production capabilities even for goods with rising demand like personal protection equipment (3M Company is an outlier in purchasing extra N95 mask production equipment for just this possibility).  Relying on production in other countries reduces control and responsiveness.  Using cash on stock buy-backs can leave companies without sufficient cash to survive without slashing employees or government aid.

A more holistic view of business is needed:  how do we operate efficiently AND have the ability to quickly respond to marketplace changes?  Quantifying the actual costs and benefits of efficiency investments needs to be balanced with the estimated value of flexibility.