The key to productivity isn’t about cutting costs, it’s about seeking out every possible opportunity for improvement. So how can you get the best out of your business?
Lesson One: Improving productivity isn’t about cutting costs. The first thing many business owners do when faced with a productivity crisis is to look at the budget and get out the red pen without fully considering the ramifications of what they are about to do.
The difference can be compared to a crash diet versus a lifestyle change. How many diets work in the longterm? They are usually quite drastic; you cut loads of calories until you reach the number on the scales you were aiming for, then you go back to doing everything normally and the weight comes back. A lifestyle overhaul is much harder to achieve because it involves a multitude of smaller and yet more sustainable processes and an ongoing commitment. A successful outcome is much more likely if you take a gradual, holistic approach.
In a perfect world, productivity wouldn’t be an issue because every start-up would have an accurate, well-researched and comprehensive business model that takes into consideration the worst case scenario across everything from taxation management to getting an order so large that you need to hire people to fulfill it. Paranoia is an asset in this exercise.
Case in point: password security. A company gave its CEO the admin password to the server. When he was stood down, he proceeded to log in to the system and delete everything. Lucky for the company, he was caught out and stopped in the nick of time. The 00.1 percent risk that something like this could happen almost cost the business 100 percent of its operations.
Percentages are critical to building core productivity competency and the easiest way to apply this is to think like a really big business. Most businesses run at a ten percent profitability margin, meaning if you improve your productivity by 00.1 percent on a profitability margin of $100,000 you make $101,000. Multiply that by 100 and suddenly you’re talking about a profit increase of $100,000 instead of $1,000.
The difference between competitors is often something as miniscule as 00.1 percent and that’s what makes all the difference between being number one and being one of the others. Furthermore, that 00.1 percent is not that hard to find but many business owners disregard it because it seems inconsequential.
Imagine you’re standing at the checkout and you are offered a 5c discount. Most people wouldn’t bother. But what if you were offered this discount every time you went shopping? That 5c would make a huge amount of difference over a lifespan of transactions.
Still not convinced that small percentages make a big difference? Consider this; there is a four percent difference between a human’s brain and a monkey’s brain.
Based on this concept of small percentages, it follows that a lot of productivity gains are not going to jump out at you. It requires analytical thinking to identify where those small margins for improvement are. If analysis isn’t your strength, hire an expert. This is one of the basic foundations of true productivity. You are much better off spending $1,000 on a consultant who will get it right than trying to do it yourself and realising down the track that your business model is full of holes; holes that money is falling out of.
Once your business model is watertight, you have created flawless systems and hired the perfect workforce, the next step on the SME productivity journey is usually when the business hits the payroll tax ceiling of $100,000. Issues generally start to arise when staff numbers reach about 25-to-27. These organisational fissures tend to show up as a reduction in customer numbers and staff discontent. 96 percent of people don’t tell you when you’ve done the wrong thing so this is the perfect time to get the experts in to give your business a full service. Your staff may not talk to you but they won’t have a problem telling an independent third party.
The challenge in this situation is that many SME owners don’t treat their business like an investment; they treat it like a baby. The natural tendency is to protect a baby but the sole objective of investment is growth. If a consultant comes in and tells a business owner hard truths about what they must do to continue growing past the stage they’re at, the smart operator will act on the advice. The ‘parent’ will refuse to listen in order to maintain the status quo and retain complete control.
The key to productivity is to always look at the business objectively from as many perspectives as possible. To do this, you need to wear a lot of different hats but the most important one is that of analyst, always seeking out opportunities for improvement. The second most important is that of a multimillion-dollar business owner, because then every tiny improvement makes a significant contribution to the streamlining of the business. Remember that no productivity gain is too small over the life of the business.
THE PRODUCTIVITY BASICS
Get this right from the beginning by thinking about the worst case scenario for absolutely every component of the business. From the quality of the sticky tape you use to the amount of bathrooms that there are in the building, everything should be factored in. It will save you a lot of revision and hassle further down the track.
Build the systems first. Many businesses make the mistake of hiring staff to build the systems when, ideally, the systems should be in place before a single staff member is hired. Furthermore, things need to be done the same way every time. It’s like drinking a coffee; you add milk and sugar, you tilt the cup, you take a sip, you swallow. If everything is done the same way every time, you can reduce training times because you won’t have to account for a large number of contingencies.
Following on from the previous point, hire the staff that are best qualified to operate systems that you have created. There is no point having perfect systems if your staff don’t have the skills necessary to operate them.
Training and expert advice
The greatest danger for owners and managers of SMEs is that they stop learning and seeking advice. No one tells the CEO what to do, right? Wrong. The best CEOs out there understand that there is always someone smarter, better and more creative than them. They know that if they want to improve, they have pay someone what they’re worth to find out what they know.
–Nathan Aherne is the founder and managing director of Reddog Technology (www.reddog.com.au), a full service IT company.