We hear about productivity regularly on the business channels from business leaders, stock analysts, and economists among others. The benefits associated with improving productivity in a business range from improved profitability to psychological benefits of workers which is why business leaders and analysts are focused on it. Economists look at productivity improvement as a source of offsetting inflationary forces. Productivity improvements are not only prevalent in larger business but in smaller businesses where the impact translates not only in increased profitability and can result in a form of competitive advantage for a company.
Productivity and Competitive Advantage
Attaining a competitive advantage is very hard to accomplish and is highly desired by business leaders and owners. When a company reaches this milestone, it has developed a process or product that cannot be or is extremely difficult to replicate by its competitors or by a company that provides a substitute or alternative process or product.
That sounds like business nirvana and essentially it is business nirvana! Possessing a competitive advantage typically results in improved margins that are attributable to a lower cost per unit and/or pricing power (e.g. the low cost producer in a competitive market is the dominant price leader). Repeat business is pretty much assured so long as the advantage is sustained. The culture of the business tends to improve, potential employees are drawn to such a successful business, and innovation within the company has been known to improve. As such, a competitive advantage results in improved productivity.
How does one improve productivity? Improving productivity is a process that has the goal of getting more of your product offering from the same amount of input or effort it takes to produce the product offering. With that understanding, one tool you can use is setting targets for individuals that are specific to their work (called line-of-site targets). Targets are typically used with the sales teams responsible for increasing sales from the prior year. Targets can even focus on lowering delivered product costs. Another tool is to modernize the operation whether through employing new machinery in a manual process, replacing old machinery and/or employing new technologies (software and hardware). Productivity will even improve by employing a departmental bonus program that focuses on specific targets of improvement within that department.
It is challenging in a short article to point to a specific action for a company that will result in improved productivity without knowledge of the company’s method of operation. Each business is unique and conducts business in subtle ways that are different than its direct competitors. Finding the right targets and incentives for your business takes time to develop and needs to be tied into the mission and goals of the organization as well as owner(s) goals. CFO Spectrum is well equipped to provide insights into productivity improvements for your or your client’s business and we enjoy speaking with business leaders about their specific needs at no charge. Do not hesitate to talk with us by contacting us at cfospectrum.com.