Contributed by Nick Bettes
For most small businesses, attracting and keeping the right people is the biggest constraint on growth. This problem rears its head particularly at the systemization stage when the founder is ready to cede control to a management team charged with turning the company into a self-sustaining and scalable organization.
Too often business owners see themselves on the wrong side of the employment power equation. They worry about losing staff. They struggle to attract new employees because they’re not sure how to show the benefits of working at a small company. They also perceive government regulation as being weighted on the side of the employee.
Afraid of losing their team, they respond by accepting low productivity instead of actively managing their staff. They see the time, cost, and risk of hiring and retaining employees as an insurmountable barrier, and so they decide to stay small rather than endure more failed recruitment exercises.
Others continue to batter their heads against the problem, often compensating for poor hires and high attrition by working longer hours themselves.
The resulting low productivity is a problem for everyone. Business owners have worse returns and poorer health. Employees earn less than they could. Customers receive below-average service from disengaged staff.
The irony is that most small businesses have significant scope for growth without hiring any more staff at all. They just need to get more from their existing staff by improving productivity.
Table of Contents
This article will show you how to:
- Measure Employee Productivity
- Communicate About Productivity on a Regular Basis
- Design All Workflows for Your Lowest-Cost Resources
- Manage Quality
- Implement Targets with Each Process Owner
- Review Regularly to Learn and Improve
- Use Information Technology to Improve Processes
- Work with Subcontractors
- Consider Repositioning Within Your Value Chain
- Consider How You Would Redesign Processes
- Show Your Staff the Benefits They’ll Enjoy
1. Measure Employee Productivity
Increase productivity with leadership.
An alternative to hiring more people is to get more from the people you already have. This might mean investing in machinery, or systems, or training. On the other hand, it might just mean organizing things better and showing more leadership.
Productivity equals revenue divided by employment costs.
Whatever changes you envision, it needs to start with measurement. The measure I prefer is employee productivity (total revenue divided by total employment costs).
While not a perfect measure of overall productivity (for instance, it misinterprets the impact of outsourcing), for assessing directly employed staff, it works pretty well.
2. Communicate About Productivity on a Regular Basis
If you do nothing else, start by measuring and communicating employee productivity on a regular basis. Like most things in management, just letting people know that you are measuring something will lead to improvement.
Ask your team for input.
Don’t impose these changes on staff, and don’t pay someone in a suit from outside the business to decide what is required. Treat the change process as an exercise in communication and leadership. This means asking people what they think and listening to the answers.
3. Design All Workflows for Your Lowest-Cost Resources
Break processes into teachable steps.
Break complicated sequences into simple, teachable steps. This “deskills” the process and reduces your reliance on any one person.
Define desired outcomes for each process. (How many, how quickly, to what standard?) This enables you to measure the process and thus improve productivity. Deciding who owns the process and its results is an essential part of this.
Assign lowest cost resources to simple tasks.
After you deskill a process, applying your lowest-cost resource to the task while focusing your big-hitters on the activities where they are still needed. Your aim should be to design every activity so it can be carried out by the lowest-cost resource.
Designing solid processes in this way will improve your organization’s quality and consistency, thus improving experiences fo both your external and internal customers.
4. Manage Quality
Poor quality reduces productivity. It causes rework, delay, waste and reputational damage. It demotivates your staff.
Quality should be owned by the doer.
The person who runs the process must believe in the importance of what they do and take pride in doing things right. They should be involved in agreeing what good quality means for their output.
Quality should be documented.
This way, achievement or otherwise is not subject to debate. Whether you write software or make furniture, answer the phone or run the company website, the required standards can and should be defined in writing (or in some cases, images).
Handoffs should be quality checkpoints.
The recipient should be empowered to reject things that do not meet the agreed quality standard. Learning to do it right the first time increases productivity.
5. Implement Targets with Each Process Owner
Agree to targets and standards.
No measurement means no useful discussion, no understanding, and no improvement.
Great teams improve continuously, both while they are winning and while they are losing.
Talk with your process owner and agree to targets and standards for productivity from your newly-defined processes. Your targets can address quality, speed, cost, defects, and wastage — whatever suits the process concerned.
6. Review Regularly to Learn and Improve
User routine reviews to help employees improve.
Run routine reviews to discuss your staff’s performance against the targets you’ve set. Focus these reviews on learning and improvement, not on blame or excuses.
7. Use Information Technology to Improve Processes
Relevant research is hard to find but my personal experience as a business consultant and former IT professional is that the application of IT in most small businesses is woeful.
This situation is thrown into a starker light by the abundance of low-cost but enormously powerful cloud applications that could be driving real business advantage.
As ever, benefits from technology stem not from having a new system but from changing the business with it. Paying the monthly subscription is the easy bit.
Get the most out of your company’s software.
Examine the capabilities of the software you already have to identify how you can exploit it to improve productivity:
- Automate repetitive tasks such as marketing, invoicing, renewal reminders and statements.
- Eliminate re-keying and errors by linking systems together and sharing a single copy of data.
- Redesign processes that involve high levels of paperwork, delays or mistakes.
- Improve customer service by speeding up any processes that impact your efficiency when helping customers.
Identify the parts of your business that are not supported by technology and look for systems that can help.
Focus on meaningful data points.
Large companies will enter data once then exploit it many times to understand and improve their processes and customer experience. Small companies by contrast often enter the same data repeatedly and never look at it again.
Use data to measure and improve efficiency by identifying quick wins and then focusing your employees on these.
Draw your staff’s attention to data points that can make a quick and meaningful difference on your bottom line if altered.
- Customers whose spend is dropping
- Customers whose contracts are renewing
- Customers who only buy one of your products and should be buying more
- Customers who consume a disproportionate amount of support time
- Differences in performance across branches, individuals, product lines, days of the week
- Defects and their causes
8. Work with Subcontractors
You could reduce staff in favor of subcontractors.
Subcontracting is a well-established way to reduce your payroll while making your business more responsive to changing demand. Subcontracting work at fixed prices can also reduce slippage, increase productivity, and and improve your profit margins.
It is perfectly possible to follow a strategy based on having few staff and becoming an expert at managing subcontractors — most oil business, for instance, works this way.
Like many things in business, being half-hearted about sub-contracting will probably end in tears. Make sure you don’t just outsource the problem. (This will result in higher costs and lower quality.) Instead, always make sure that you also address the management framework.
Optimize how you manage subcontractors.
To manage subcontractors effectively, make sure you follow these guidelines.
- Keep subcontractors sufficiently well-occupied so that they are there when you need them.
- Develop a pool of subcontractors so that you don’t become over-reliant on them and can keep pricing under control.
- Provide unambiguous specifications for them to price the work and for you to make sure you get what you want.
- Establish rigorous quality control and actively supervise the work your subcontractors perform.
9. Consider Repositioning Within Your Value Chain
You don’t have to stay in the same place in the value chain.
As well as the above tactics to improve productivity you can step back and look at more strategic changes that will result in a business that needs fewer people.
A business carries out a sequence of activities to produce its service or product. Each business sits within a chain of other businesses (suppliers and their suppliers, or customers and their customers).
This chain of activities is known as the value chain. Each link moves something closer to the final product (and takes a margin for doing so). You can picture this in terms of a mining company shipping a load of ore, the smelter shipping a load of aluminum rolls, the factory shipping a load of finished cars and the car salesman counting the used fivers as you drive off in your new Rolls Royce. Everyone down the line has ended up with a proportion of the money you paid for the finished product.
The point is that individual companies don’t have to stay in the same place in this value chain, and many don’t. Different stages offer a different return based on the different levels of risk and investment required. Some stages are just more hassle and so pay a better margin.
Weigh the hassle against your margin.
If you are a manufacturer then you might develop designs, engage with certifying bodies, procure materials, manufacture the product, build the brand, manage field and channel sales, run installation projects and provide spares, service and support. The hassle/margin model could certainly be applied in this case.
It is also difficult to see how any one small organization can be good at all these different things. In the context of the employment and productivity challenge you might:
- Compare the employment headache versus the margin retained in each activity. For instance, in the above example, divesting yourself of (or outsourcing) everything but design and certification might allow you to keep 80% of the margin for only 20% of the headcount.
- Identify barrier assets. Which of the activities you do rely on things you own or things you know that prevent others from entering the market? Barriers protect your margins. If the above business relies on a unique manufacturing technique but can use any competent designer then it might make sense to focus on manufacturing only.
- Consider the dangers of entryism. Would exiting part of the chain give the competition a route into the bits you’d like to retain? Sometimes the employment headache is the barrier to others entering.
10. Consider How You Would Redesign Processes
Ask how you would operate with fewer employees.
Businesses that have been established for some years may well have adapted perfectly as their market and business environment evolved — but perhaps not. Often, they will have evolved into something baroque and inefficient simply by resolving each challenge as it came up.
This presents another approach to designing a low-employment business. Ask yourself the question, “Given a blank sheet of paper how would we design a business to serve our customers well with the fewest number of employees?”
Get inspiration from outside your organization.
If you need to prime the mental pump, start by asking “Who is out there today doing this better than us? How are they doing that?”
The answer probably won’t look like your current organization. This gives you an opportunity to consider how you might move towards a new model. Sometimes this line of thought leads business owners to implement their new and repositioned model using an entirely new and separate business, rather than trying to change the business they already have.
11. Show Your Staff the Benefits They’ll Enjoy
Lead people through change.
We need to talk about the elephant in the room. Unless you have found a way to deliver service to customers with no employees at all, you will have to lead people.
If you want to increase productivity, you will have to lead people through a change that most of them won’t be too keen on. You can document all the processes and set all the targets you want, but if your employees want you to fail, then you will fail.
Your employees will find it difficult to see what they get out of greater productivity except more work.
What you can do is start to paint a picture of a better place, make some simple but impactful changes that lend it credibility, and work to inspire their desire to reach this better place.
Rally your employees around a shared purpose.
Why do your staff bother coming to work? If the answer is “for a pay-check,” then you have some work to do.
The thing that draws people to an organization and gets them to commit heart and soul is a sense of shared and worthwhile purpose. This doesn’t have to be “cure cancer.” In fact, “Become known as the best plumbers in town” can be enough. The desire to achieve this is what drives change, improvement, co-operation – and productivity.
As a leader who wants to increase productivity, a critical part of your role is to help everyone in the organization imagine, articulate and start to believe in this shared purpose. This requires two-way communication sustained for as long as you run the business.
Communicate continuously and effectively.
Effective communication is two-way communication. When I hear employees complain that communication from management is poor, they don’t mean that they don’t get told stuff. They mean that they are not listened to.
The most powerful words you can use as a leader are: “What do you think?” To engage your people in your vision you must allow them to influence it so that it becomes their vision.
Effective communication uses stories. Humans understand, relate to, and remember stories. In business, stories are about the big win, the terrible project, the customers who say they love us, what we are great at, what things will look like next year…. Each story reinforces some element of the values, strategy, vision or secret formula so that these things become woven into day-to-day activities; “the kind of people we are” and “the way we do things”.
Every interaction with an employee, formal or informal, is a chance to discuss and reinforce your shared purpose.
Delegate work and develop your team’s leaders.
Productivity improvement and the associated changes must be driven by the employees concerned. Trying to do it by controlling what people do is exhausting and futile.
Your staff must want to improve and they must be held accountable for their own results.
Accountability starts with you demonstrating you are willing to let go and accept that you don’t have all the answers and are not the best at everything. As your team defines processes, outcomes and measurements, you effectively create a framework for delegation.
Successful delegation is not abdication. It’s a careful, planned process of coaching designed to help an employee learn, grow and succeed. The result is an employee who is empowered and more capable.
A critical part of your role is to develop employees who can do and decide independently without requiring your input.
Share the rewards.
People want fairness and to have their efforts and abilities recognized. A wise leader understands this and will devise ways to share some of the company’s gains realized from a more accountable and productive staff. After all, you will have saved all that time and money you used to spend on recruiting people.
Most small businesses find their growth constrained not by the market for their product but by their inability to hire staff. Improving productivity allows businesses to grow without hiring by getting more out of their existing workforce. This results in a more profitable business that is more enjoyable to own.
Employee productivity (total revenue divided by total employment costs) is the most useful way to measure productivity in this context. The act of measuring this and discussing it with staff will start the improvement process.
To improve productivity, you can make tactical changes to processes, quality standards and systems. You can also reposition your business so that fewer employees are required.
Both of these approaches involve change for your employees, which will require strong leadership.
One final thought. As you lead your team and as you create a proactive, fulfilled workforce, you likely won’t run into so many problems recruiting and retaining employees.
They’ll come to you.
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