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Fred's Story:
On Maximinzing Productivity (Or Not)

By Mark W. Sheffert
February 2001

Once there was a supervisor overseeing a construction crew. Two piles of brick were sitting by the curb that had been delivered that morning. The workers, Fred and Tony, were carrying the bricks over to the bricklayer, who was starting on a wall. The supervisor checked his list of jobs that had to be completed that day. Since the bricklaying seemed to be going as planned, he went to check on the others.

After a while, the supervisor saw that one brick pile was still quite high but the other pile was almost completely depleted. What the heck was going on? He watched Fred and Tony for a few minutes and realized that Fred was carrying his bricks one at a time over to the bricklayer, while Tony was carrying four or five at a time. They would never meet their deadline at this pace!

"Fred! You lazy +@**&!" he yelled, employing a construction supervisor’s flowery language. "Why are you carrying one brick at a time? Look at Tony. He’s carrying four or five at a time. What the heck is going on with you?"

"Well boss," Fred chuckled. "Tony is just too lazy to make more trips."

Can you relate to this supervisor? Managing and measuring productivity in a small business is not a simple task. It takes careful monitoring, measuring and managing of many key resources. For the purposes of this article, I’ve defined the key resources of a business as capital, equipment, people, space, information and time.

Capital

When talking about productivity, most managers will first think about their people or equipment, so maximizing the productivity of capital can be easily overlooked. However, it should be one of the most important areas of focus because it supports your other resources.

Spend the most effort on managing your cash. There are primarily three motives for carefully watching cash: to cover transactions associated with the normal course of doing business; to cover the unpredictability of business; and to enable you to accept profit-making opportunities that may arise.

It’s a good idea to do what you can to expedite the billing process because so much time is lost in the mailing and banking systems. Be sure to create your bills quickly and mail them with the most efficient services. If you have a lot of customers located out of state, consider creating a "lock box" system by having bills sent to a post office box located near your customers. Then, have the checks deposited in a special checking account in that city.

By the same token, hold on to your cash as long as possible by slowing disbursements. Do what you can to legitimately lengthen the time you take to pay your bills. Some business also take advantage of the "float" between the time checks are written and when the banks receive them.

Be sure to understand the overall cost of your capital to ensure you are using the various types of available capital wisely. It’s easy to get caught into the trap of building up a high debt ratio. For example, let’s say that in your first year you use up your debt capacity at 8 percent interest to finance projects that yield a 9 percent return. But then in your second year, projects become available that could yield 11 percent (well above
the previous year’s return) but can only be capitalized through the use of equity at 12 percent. To avoid this problem, view yourself as an ongoing concern with the cost of capital computed as a weighted average of the various types of funds you use: debt, preferred stock and common equity.

Equipment

I recently heard about a manufacturer of industrial packaging equipment who had built its competitive advantage by being on the edge of technology. They had the biggest and best mainframes and automated machines run by armies of programmers, engineers and consultants that kept their plant up and running.

But they eventually lost their patent. Then, new competitors came into the market, prices fell and business was going down the toilet. They were forced to evaluate themselves and soon realized their high-tech equipment was actually the biggest hindrance to productivity.

Today, workers at this company use drill presses and hand tools instead of automatic assembly machines. They follow diagrams on whiteboards instead of a complicated software system managing work orders, and simple cue cards and strips of tape are used to maintain process control. As a result, productivity is up almost 100
percent. Completed orders are ready to be shipped in 12 hours instead of five weeks and production defects have been cut in half.

Now, I’m not against high tech equipment by any means, but I am against being high-tech if output is lower than with more manual methods, as in this company’s example. The bottom line is to understand the output you’re getting from your equipment. Do you know your equipment’s maximum capacity and where you are
relative to it? Can the investment into a new machine really be rationalized by an increase in productivity?

Or is there a better way?

People

I could write an entire magazine (and maybe someday I will) about maximizing the productivity of employees, but since this is the Money Talk column, I’ll stay away from that warm and fuzzy human resources stuff. In a nutshell though, the best way to improve the productivity of your people is to make sure you have well-understood goals
and objectives, that everyone’s work plan supports those goals and objectives and that they are measured against the achievement of them.

From a financial standpoint, group your employees into static and variable costs and then figure out what you can do to increase revenue from the variable costs. For example, your administrative staff may be a static cost, but marketing staff is a variable that could be increased to impact revenue. Then, measure the productivity of your labor by revenue per employee (RPE). If your RPE doesn’t grow over time, you may have too much expense in your fixed cost staff and not enough in your variable staff.

Space

After you signed your lease or mortgage, you may not have given a second thought to the productivity of your space. But have you considered, for example, the productivity of that file cabinet sitting next to your desk? If you are paying $20 per square foot and your file cabinet takes up 8 square feet, that means you are paying $160 per year for it to sit there. If your company is using 30 file cabinets, that adds up to almost $5,000 per year. Could you be using more electronic files instead? Or archive files in a cheaper space?

Manufacturing companies in particular need to be in tune with the productivity of their space. Make sure your manufacturing floor mirrors your work flow and business system, from receiving at one end all the way to shipping at the other end.

Information

Today’s most innovative technologies are being developed in the area of communications, allowing vast quantities of data to be sent to the desktops of anyone with a connection to the Internet. And technological improvements to Enterprise Resource Planning (ERP) systems allow every efficient IT manager to create more reports than anyone has time to read. Indeed, the flow of data has become so immense that it can overwhelm the ability of most managers to make sense of it.

Bust information for information’s sake is just wasteful; it’s not information unless you can make some decision from it. Focus on the content of the data to make sure it is providing information from which you can make a decision. Examine the reports your managers give you and consider whether they help you make decisions that
impact performance. If not, you don’t need them.

Time

Managing productivity would be easy if priorities stayed just as you wrote them on your to-do list. For most managers, however, priorities are constantly shifting. Your success depends on your ability to adapt. For this reason, your time is a valuable resource that can be used or misused to maximize productivity.

One way to maximize time is to learn how to free up more time. Learn how to say "no" more often to things that will cost time and energy. Be better at delegating and letting go. Limit your availability to certain times of day, and accept and return phone calls only at certain times of the day.

Another way is to get better at planning your available time. Choose the daily planning system that works best for you, whether it is a Palm Pilot or an old-fashioned paper calendar. Then, create a master plan for the workweek ahead with a list of what you want to accomplish for each day with one major goal for each day. Periodically go
back to your mission statement and business plan to ensure your hour-to-hour activities contribute to them in some way. And, be sure to allocate blocks of time for important activities such as strategic planning.

The task of improving productivity is like eating an elephant. It’s impossible to do it all at once, but you can do it one bite at a time over a period of time. It’s a function of establishing your key resource areas, setting up goals, implementing metrics and measurements, and then mentoring and expecting results.

Right, Fred…Fred? Are you listening? Oh there he is…taking a nap!


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