You will probably be familiar with the adage:
Productivity = Potential – Interference.
Many of us are battling daily with interference of one sort or another, both external and internal.
Potential is not always something that is easy to quantify, or to realise. Growing a business, finding a market, and bringing in orders takes time and effort, and often a bit of luck. It’s also likely to take some time, so those frustrating interferences are the key focus if you want fast results.
Productivity is critical
Superficial measures do not always show the bigger picture – if two businesses are paying different wages, you cannot assume that the lower payer makes cheaper goods, without knowing their productivity.
Obviously, if the higher-paying business is more productive than the lower payer, their output might still be cheaper.
Higher productivity gives you the opportunity to take better control of your prices and margins, allowing you to undercut competitors without undue pain, or to increase the profitability of the business. It gives you some headroom.
So it isn’t simply about keeping costs down, but about recognising where to invest and spend, and how to maintain high levels of productivity.
Training
It won’t be a surprise that staff are a critical part of any business, and keeping them properly trained, and accountable, is key. You tend to get more positive response by giving people ownership of activities, as opposed to just issuing directives.
Motivated employees will bring higher productivity, so increasing engagement and loyalty will almost certainly pay dividends.
The right equipment
Unsuitable, old, or damaged machinery is a major contributing factor to low staff morale, and lack of motivation. The same applies to all those little exceptions, workarounds, and little sidesteps that have grown up over the years to overcome some impediment or other.
Cost-benefit is a key calculation when thinking about buying new plant or equipment. It’s not just about cost, because you need to consider the improvements in productivity, margin, customer service and staff morale that such investments might bring about.
It’s relatively easy to measure machine output compared to the productivity of people in some cases, so the cost benefit of investing in plant ought to be fairly easy to calculate. Perhaps it’s a false economy to keep that old machine chugging on for another year or two!
Quality
Gone are the days when the foreman would stand at the end of the production line making sure everyone was pulling their weight! Today, we are more likely to be talking about “quality circles” which are groups of staff from all parts of the business who meet regularly with the specific aim of discussing and improving quality in the business.
The brief for such a circle is to highlight issues and, crucially, to come up with solutions. To keep the support of the circle, and to get value from it, though, the business owner must listen and be prepared to act – otherwise the team will be demotivated.
Waste reduction
Time is of course money, and in terms of productivity, it is a key area to watch for waste. Processes need constant review and measuring to ensure that they are as effective as they can be.
Data management can be a big drain on time. Look for retyping of details, or processes that involve a manual transfer of information between different systems of departments. Ideally any specific bit of information should only be created once, as early as possible in the process, and then reused throughout the workflow whenever it’s needed.
Productivity is often about little “wins”, and depends on the specific business of course, but shaving a minute off each of 100 orders going through a warehouse each day is more than an hour and a half of time, which not only reduces the direct costs of processing an order, but increases the opportunity for doing something else with the available time.
As business owners, people are often looking at the detail – whether it’s “this is costing too much”, or “that is taking too long” – and sometimes losing sight of the bigger picture. Overall improvements in productivity may cost more in pure cash terms, but if those expenses are essentially revenue-generating, then don’t be afraid of them.
We’re happy to help provide that overview, and implement the systems and processes to support the improvements that you need to make. The object of the exercise is that it should produce more revenue than the outlay, so it is entirely a self-funding exercise.
Contact us on david.hardstaff@hcbusinessadvisors.co.uk. to find out more, or to discuss some case studies.