Red Zebra Business Centre -Management Memos
July, 2009. Making Measurably More For Your Business Since 1985!

Good Efficiency Always Means Higher Profit!

Max Williams, Principal Consultant

The latest news on the state of the economy here and around the world is getting better by the minute. Good.

It still continues to be confusing! Not so good.

For instance, retail sales appear to be strongly increasing, but falling at the same time.

Translation? Sales for the June quarter have increased year on year, but for the month of June they are down year on year. So, is that good? Or bad?

As business managers, our task is to anticipate the best moves for our business, and plan and implement accordingly. In the face of today's uncertainty - even if the bias seems to be on positive improvement - what should we be doing right now?

One thing we can do is get on with building our business - making the best of what we do know. And what we know is that every saving we can make without hurting our planned business outcomes, is a step forward. No matter what happens in the broader economy, increasing efficiency yields permanent savings that go straight to the bottom line.

Another way of putting this is that some things we can do will always be the right thing to do - no matter what the external circumstances. What is worth remembering on this context, is the very human tendency to take two common points of view.

The first of these two very human points of view, is to think we have already exhausted all the possibilities for improvement - that we have done all we can. The experience of most consultants is that different players in the same industry will have very different performances in very similar circumstances. Clearly, not all of them are performing at the best industry standard - but it is very hard to have lower performers accept the possibility of improvement! Instead of finding out how to improve, just about every body seems to find a rationalisation for being less than the best.

If ever there was a time not to succumb to this temptation - if ever there were time to turn the whole world upside down to get even small improvements - this time must surely be it!

The second of these two human attitudes is to settle into a comfortable rut - and think of that as 'world's best practice'. Even when it's clear that others are doing better! Certainly it is not easy to blast yourself from your comfort zone and challenge every part of what you do. Easy doesn't come into it! Constantly improving profits don't come easily, so if it costs us a bit of discomfort, isn't it worth it?

In the end, we get the profit we can make by our skill and hard work. So, increasing efficiency is the kind of hard work that really pays off - over and over again. Right now is when we most need those efficiency gains.

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ncreasing productivity often means new factory plant and equipment, new technologies, and less human inputs. Specifically, it usually means more technology and less staff.  Now, everyone has to increase productivity, regardless of technology. Increasing productivity in offices, shops, and warehouses is the only way to be sure of new growth.

What are your chances of increasing productivity? That's a question we often ask. Increasing productivity in offices, shops, and warehouses is the only way to be sure of new growth.

There is one problem though. Just about everyone believes they are doing the best they can. That might be expected, of course, because if there is a better way, most people would be expected to  be taking it already. Wouldn't they?

On the other hand, it is a feature of our human frame that we get locked into the existing 'status quo'. Usually, we need a short, sharp shock to break us out of our comfort zone. Once we break free from that blinkered view of the present, all kinds of new opportunities open up! That kind of 'new view' keeps setting people free time and time again!

This is the time to take a new view of the productivity in all operating areas of your business - and make improvements. Right now!

What are you doing - that you don't need to do?
What does this mean? Here is an example. A company was using the older style thermal paper in their fax machine. This paper 'goes off' with time, so it became a practice to photocopy every incoming fax and file the copies. That way, there was always a permanent copy.

Problem is that the process requires double handling. Easily overcome, by using a plain paper photocopier. But then there is a problem - plain paper printing is much more expensive because the ink cartridges for the fax machine are so costly - however, while there is no photocopying labour - there is still the work of filing.

All that work was still time consuming, so there was still another step to take:

Receive all faxes on a computer. Then you can print any that need to be printed. No more filing - the computer files provide historical copies if needed. Use the existing fax machine as a back-up, in case there is computer failure. Everything is done as required, and there is a dramatic reduction in operating expenses and a significant labour saving.

This example has all the elements. A business need (record of all incoming faxes) that was being met but with something close to over servicing (photocopying all faxes), and a new process (computer faxing) that meets the need  - and still provides significant expense reductions in consumables, along with massive labour savings.
What can you do to reduce the cost of doing what does have to be done?
Whenever you try to reduce expenses, you find how terribly hard it is to achieve. For example, the use of so-called 'compatible' printer cartridges may save expense in some degree, but the extent of that savings is  questionable, and sometimes the quality is suspect as well. You need much more substantial - and demonstrable - cost reductions if there is to be any real and lasting improvement in productivity.

Perhaps it's possible to do away with the printer altogether - or at least make electronic means the standard way of doing things - leaving the printer only for relatiuvely few specific items. Once such a step is suggested, you'll find a thousand reasons why that can't work, won't work, or won't make any difference. The trick for all good managers is to see the one reason it will work  - and will make a difference.

You will almost certainly need new skills to make your new, cost saving, process work. If you have a policy and program for continuous improvement, these new skills will keep you moving ahead in a changing world.

Continuous Improvement? What's that?
'Continuous Improvement' - (CI) - if you are looking for a definition, is: 'a process in which delivery (customer valued) processes are constantly evaluated and improved in the light of their efficiency, effectiveness and flexibility.'

The purpose of 'CI' is the identification, reduction, and elimination of sub-optimal processes. In other words, the elimination of waste and the increasing of efficiency. Its emphasis is on making improvements in incremental, continuous steps, so avoiding quantum leaps.

This has been summed up much more succinctly by the simple expression - 'It's easier to improve a thousand things by 1%, than it is to improve one thing by a thousand percent'.

You can put it yet another way. Here is an emphasis on evolution, so that your business is always moving forward in small ways. What this requires, however, is that every staff member, every process, and every function is constantly refining what it does.

After all is said and done, it is helpful to remember that for many operators:
a 5% reduction in expenses yields an increase in profit of 50% to 100%.

Isn't it time you looked at your productivity? In all areas of your operation!

If you'd like to find out more about increasing your productivity, talk to us, or ask us a question here! Remember, there's no charge or obligation.

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McNicol Williams Management & Marketing Services is a Small Business Advisor listed with the Small Business Victoria, and has presented The Red Zebra program under its auspices. This listing requires that the first hour's consultation is always free. So when we say "No charge or obligation", we mean it!