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Growing through Productivity Increases

Productivity is an economic concept that is discussed in the press quite often.  Increases in productivity occur when the quantity of inputs declines, to produce a measure of output.  The sub-set that is referred to quite often is labor productivity, i.e. the amount of labor required to produce a measure of output.  The importance of the statistic is based on its relationship to growth.  If productivity increases, so does economic growth, to some extent.

When an individual states that they are going to become more productive, it usually relates to a desire to increase their organizational habits and improve their time management.  Essentially they are looking to increase their efficiency (inputs), to do a better job (output).  The result is usually a benefit associated with time saved.

At the company level, when productivity improves, fewer resources are being used to produce the output.  Fewer resources equates to lower production costs, which translate to excess funds in the form of profits, for investment in the business or distribution to investors.  Following are strategies companies employ to increase productivity.

Automation - For a manufacturer this relates to purchasing a machine to make better widgets faster.  However for a service this improvement relates to the efficient storage of information that can be shared and accessed by any department in the organization.  This information will be used for order fulfillment or reporting.  This approach can be costly and time consuming.

Process Improvement – Most processes work best when there is consistency.  Variations in activities and manual processes create a higher probability of error and expose the organization to unnecessary risks and time wasting.  The task of mapping out processes and documenting policies and procedures makes you critically look at the process and identify how things may be accomplished more efficiently, i.e. understand bottlenecks, remove inefficiencies, remove bureaucracy.

Business Management – As the business grows, so does the complexity of the business. More decisions require more analysis. There are increasing fixed and variable cost considerations and cash flow becomes more important to understand and manage.  Success begins with Strategy and Planning; and subsequently ongoing measuring and reporting.  When Accounting Management, Financial Management; and Risk Management are all optimized and running efficiently; business development can be performed without reservation.

The previously mentioned strategies of Automation, Process Improvement and Business Management have historically been the drivers of productivity increases.  But I predict that in the next five years, two additional strategies will emerge as drivers of productivity increases.

Labor Support and Development – High labor turnover is wasteful to any business.  Filling an open position is costly - posting a job; interviewing candidates; hiring an individual; and training the individual.  Once you obtain the right employee, a business should do as much as possible to keep the employee.  A business should invest in an employee, as long as the value received from the employee exceeds the investment by the company in that employee.  Some ways organizations invest in their employees include – provide financial support for job related training; consider non-standard work arrangements; ensure compensation is at the market rate; support retirement and health care benefits.  From the time the Great Recession began in December 2007, until it officially ended in June 2009, if they found themselves employed continually during this time, they lost benefits including training and retirement benefits.  Companies that return to pre-recession benefits will experience a jump in morale.    For an example of how to utilize this strategy, please review “The Value Embedded in Tele-Commuting.”

Data Management – The ability to read data, i.e. Big Data, to understand how to best allocate company resources efficiently, should be a large driver of productivity in the future.  The firm combines price, product, place and promotion in the hope of finding the appropriate relationship to appeal to the target market.  The degree at which these variables are manipulated is based on available data, i.e. geographic assumptions and customer qualities within the geography.   As reported in Game changers: Five opportunities for US growth and renewal a McKinsey Global Institute study (July 2013), “Amazon has taken cross-selling to a new level with sophisticated predictive algorithms that prompt customers with recommendations for related products, services, bundled promotions, and even dynamic pricing; its recommendation engine reportedly drives 30 percent of sales.  But most retailers are still in the earliest stages of implementing these technologies and have achieved best-in-class performance only in narrow functions, such as merchandising or promotions.” (page 75)

In conclusion, firms focused on improving productivity should consider implementing Automation, Process Improvement and Business Management enhancements, as these are proven strategies; as well as additionally incorporating opportunities in the areas of Labor Support and Development, as well as Data Management techniques.

Comments

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

in this blog, I predicted Support and Development for Labor will be a major factor to drive productivity in the future. Following is an example of a new policy that will benefit this employer - WSJ 04.23.2015, "Private-equity firm Blackstone Group LP said it wants to become a better place for working mothers. The world’s largest private-equity company by assets said Wednesday that it is extending its maternity-leave benefits from 12 weeks at full pay to 16 weeks. The move, announced in a memo to employees, is designed in part to help the company compete for talented Wall Street women."

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Interesting that they said "Women only" and not an extension of the FMLA.

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