One of the aspect we encountered in our retail projects was how to reduce the costs and at the same time to improve the quality by innovating. Due to the learning process we were able to work more efficiently and as a result to reduce the costs. Instead of enlarging our profit margin we used the cost reduction to improve the quality.
With a non-quantitive diagram we were able to illustrate possible developements to ourselves but also to the client. The diagram below shows the quality, revenue and cost versus time in the retail project that we are involved in.
In the beginning of the project,due to a learning process and improved efficiency, the costs are reduced. Given a constant revenue this leads to a growing profit margin. At a certain moment (t=1) the profit growth is used to innovate and improve the quality by initiating innovations. Off course not all innovations are in the end successful. As a matter of fact most of them are not. The way we worked we in our retail project we could afford that in certain cases we do not to succeed and therefore we felt confident to take risks in developing new products and services. This process repeats itself in a number of cycles. At the end of each cycle the quality is improved.
Concepts like Six Sigma usually focus on reducing the costs of existing projects and do not use these cost reductions to initiate innovations in new projects. They tend to kill potential innovations by taking les risks
According to an article in Business week Six Sigma almost killed the innovation at 3M. The way we worked in our retail project shows that cost reducing and improving the efficiency do not have to contradict innovation: on the contrary !
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