Efficiency is not Effectiveness: Balancing Soft Cost Reduction and Value Creation

efficiency and effectiveness

Australia boasts solar installations on at least 1.2 million homes and has the highest amount of installed solar per-capita in the world. Part of what has driven success in Australia, aside from streamlined, though severely threatened, policies and incentives, has been economies of scale backed by software business tools and labor specialization.

“Margins here so low that [driving] volume is the only way to make any money. Administrative and logistics burdens are so huge, these sort of [logistics management] tools are critical to making a more streamlined business,” said Jeremy Tranter, a professional engineer with Australian design-build firm Solari Energy.

“You’ve got to have logistics correct, processes in place, racking systems pre-fabbed as much as possible and proper planning so that everyone knows what they’re doing,” Jeremy continued. “It's very much about driving efficiencies."

In the US solar market, driving efficiencies will not be enough. While many may be tempted to cut costs through downward wage pressures, cutting corners on design and installation quality, or sales scams, these tactics will only backfire. They erode customer value, destroy consumer confidence in the solar industry, and as shown in Australia will only lead to additional regulation or government oversight on top of punitive measures for the worst offenders.

Efficiency vs. Effectiveness

Efficiency is about doing things right. Effectiveness is about doing the right things. Don’t be fooled by the numbers: your operation can be efficient while being completely ineffective.

So should your organization to pursue efficiency or effectiveness? If aggressive growth is your goal and you are well resourced, optimizing effectiveness might be the right path. However, smaller companies generally have very limited resources and might be more interested in pursuing efficient operations, instead choosing to maximize on current capabilities and not stretch themselves thin.

The ultimate goal is that ideal spot between efficiency and effectiveness.

Focus Overall on Effectiveness

Installers should look at their business holistically as they plan improvements. Myopic focus on driving out costs in a singular area- design, for example- may cause incurring of more costs  during installation as field engineering may occur. Therefore, installers exploring cost reductions should always consider first how a change would impact customer value.

Choosing the right Key Predictive Indicators (KPIs) will also ensure that your managers and employees (and you!) stay focused on the doing the right things right. A Key Predictive Indicator is a metric used to measure individual or group progress against a goal. KPIs should be aligned to support the ultimate creation of customer value.

Focusing on service and streamlining delivery in order to provide excellent customer experience will also empower small installers to get out of the race to the bottom on pricing which has captivated the solar industry. While lowering soft costs is crucial, it shouldn’t come at any cost. Field labor should still have a safe working environment, designers should still create code compliant systems, and friendly and knowledgeable staff should support customers and intervene to move the project forward when obstacles arise.

Any software tools, process changes, new equipment, or other potential soft cost reductions should always be framed within the scope of customer value. Will this new innovation result in an improved product that a prospective customer would value? Will it reduce internal project delivery friction, thus freeing up more resources for value-added activity that the customer values?

Photo:  Renato Ganoza "As A Man Thinketh" - licensed under CC BY 2.0

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Posted on January 7, 2015 and filed under operations.