Productivity and efficiency is not the same thing, says Richard Harris from Okappy. and he asks 'how do the best companies increase productivity?'
Productivity Vs Efficiency?
When you talk about productivity and efficiency most people think this relates to the same thing, cutting costs. However, for the best companies there is a subtle distinction and it does mean a lot more than just taking costs out of the business.
So first off, what is efficiency?
What Is Efficiency?
The term efficiency can be used in many different contexts and can mean several different things to many different people. The dictionary definition of efficiency is to produce something or do something without wasting materials, energy and time.
In terms of business efficiency and whether you define a business as being 'efficient' or 'inefficient', the term implies that a company, for example an electrical contractor can provide their services with a minimum amount of workers, time or materials. Ignoring any issues of quality or regulations (which might require 2 people working at a remote location) a more efficient business would benefit from maintaining the same amount of work but being able to generate more profit.
And this is where the subtle difference comes in. If you are a large company with a large share of the market, then it makes sense to concentrate on ‘sweating your assets”. It is easier to reduce costs and increase efficiency than increase demand. This is even truer when you consider the bureaucracy and waste that easily finds its way into larger companies.
However, for a small to medium sized business, the aim should always be to expand and grow. They are already likely to be pretty efficient so taking on more business and doing more work is what is important. And this is where the term productivity comes in.
What Is Productivity?
The term productivity can be described simply as how much more work can be done, when using the same amount of resources.
Going back to the electrical contracting example, the productivity of the company could be computed by dividing the average output per period (i.e., number of jobs done or revenue billed) divided by the total costs incurred or resources used (capital, energy, materials or personal) in that period.
At first glance, this is very similar to efficiency. However, the subtle difference, and where the best companies differentiate is where they focus their energy. For a small to medium sized business in particular, focusing on getting more done with the same amount of resources (increasing productivity) is more important than getting the same amount done with less resources, increasing efficiency.
In most western economies the vast majority of companies are small to medium sized. Therefore for them, being able to do more, being able to grow the business and being able to take on more work without necessarily taking on more resources is what differentiates the best companies from the average.
How do the best companies increase productivity?
From my own work speaking to lots of different customers and prospects, one thing I have notice is that it’s the culture, which is key to how productive, or efficient a company is. Does management always complain or scrimp and save or are they ambitious, keen to take on more work and grow their business.
That is the first step then in promoting productivity; setting the culture of the company and that comes down from the top. The directors and owners of the business need to be ambitious and want to grow the business even if it means some waste does get in.
Once the right culture is in place, then the next step is to look at your systems and processes and make sure they can cope with you taking on more work.
Having good job management processes is important to ensure that capacity can be increased. This doesn’t necessarily mean having to buy expensive software, having a process that works for you is what is important. However, in our own research with customers and prospects, we found that moving from paper work to electronic job sheets can increase the capacity of a business by an average of 10% just by cutting out form filling and the keying and re-keying of information between different applications.
So you have the culture, you have the systems and processes in place to ensure you can cope with more work. How do you actually take on more work?
Sales and marketing is obviously key and will depend on your particular business and budget. Whether you’re an electrical contractor or other business, here are 5 ways to boost your business or for more information on increasing your online presence – check out this article.
Having a growth mindset rather than a cut costs mindsets should also help you and your employees spot new business opportunities. If you have just done a job for a customer, is there other work you could do or other services you could offer? Perhaps it is just a case of scheduling a follow up in 6 months time.
Other benefits from focusing on productivity
Improving productivity within your business can increase profits, but it can also have other benefits. We often see an increase in team morale as employees start to feel more valued.
Before Okappy, I used to work for large Investment Banks. After 15 years working for large companies I often found the work demoralising. Their focus was always on reducing cost so everything you did was seen as a potential drain on resources. Any new projects were questioned and you had to get approval from numerous people before any new project could start.
In this scenario, it’s easy to see your work as having little value to the company and if it is so much effort to initiate projects then you soon stop trying. Working for my own start-up and seeing other small to medium sized business, its much easier to initiate projects and it feels much better to get behind a company that wants to grow and be the best in its field.
In my experience, those companies that are ambitious and have a growth mindset also tend to have happier workers. Happiness is contagious. This makes everyone else happier including your customers, which in turn leads to better customer relationships
For more tips on increasing productivity, see 7 tips for improving productivity. Obviously efficiency is still important, check out the top 5 ways to make your business more efficiency and Saving time and costs.