To paraphrase – everybody talks about productivity, but nobody does anything about it. This is certainly true for the majority of small business owners. Most routinely mistake their employees’ busyness for productivity, usually to the business’s detriment.
The distinction between busyness and productivity is important; it’s not just a matter of semantics. Understanding the difference between productive and busy can be (and has been in thousands of businesses) the difference between success and failure.
Most small business owners have a flawed understanding of productivity, and because they don’t understand it they aren’t good at monitoring it, nor do they make it a priority. They don’t know how to manage for it, don’t track it, or expect it out of their employees.
At its simplest, productivity is the amount of value (money) produced divided by the amount of costs (i.e. time, supplies, personnel) required to do so. It’s computed by dividing the output during a specific time by the total cost incurred to produce it. It can measure the yield of many things: individuals, machines, products, crews, etc.
So, what does that actually mean? Let’s look at a fictional example.
Stan has a moderately successful roofing company with 2 foremen, Joe and Mike, who run 2 crews apiece. Stan wants to go to the next level, but is having a hard time getting there. He is stuck with flat earnings, and even though he increased his prices recently, he can’t seem to get ahead.
Stan doesn’t see where more money could have been gained through their work. He believes that all 4 crews were equally productive because they were “always busy”. When an outside professional, Frank, pointed out that this wasn’t the case, Stan was skeptical.
Using the formula for productivity Frank was able to document that Mike’s crews saw more customers, used fewer materials, took less time to do a job, and had a smaller amount of rework than Joe’s crews. Mike’s crews were more productive, therefore more profitable, than Joe’s – even though they worked the same hours.
In order to improve productivity an owner should have a working understanding of the concept in general and how it shapes his business in particular. He must be able to recognize which work creates the value. Often, this requires learning a different way of thinking and behaving than he has done in the past.
Fortunately, for the average person it’s not difficult to learn; although it can be challenging to put into practice. Replacing busy work with productive work can take time and diligence, but it’s often the catalyst towards developing happier employees, a higher profit and personal satisfaction for the owner.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:
