Four step productivity strategy

A well-defined strategy should align with actionable plans, ensuring every aspect of your business contributes to your overall efficiency.

4min

The word ‘productivity’ tends to be a catch-all phrase to describe anything in your business that can be done better, faster, cheaper, or smarter. It measures how efficiently a business converts labour, materials, and capital into goods and services which usually translates to lower operational costs, increased output, and enhanced profitability.

How much extra profit would your business make if you improved your gross profit by 1%?

What about 5%? How much would you be willing to spend to get that extra 5%? Half of the gain?

Calculating the improvement to your bottom line from being more productive, in any aspect of your business, should firm up your determination to invest time and money, even if the payback is a few years away.

You don’t need to boil the ocean either.

It could be as simple as changing how employees meet and communicate to save two hours a week (meeting software, efficient facilitation), to upgrading a production line or heavy equipment to build capacity and capability. Each will have its return on investment. It could cost almost nothing apart from your time to implement, to millions of dollars in capital infrastructure with decades of value.

Regardless of changing small parts of your business or significant upgrades, a well-defined strategy should align with actionable plans, ensuring every aspect of your business contributes to your overall efficiency.

Here are four steps to follow:

Step 1: Acknowledge change is needed.

It’s important to be aware when it’s time to invest in a productivity push.

Signs you may need to invest in capital productivity:

The most obvious is if your net profit is stagnating or declining, despite steady or even increasing sales. Somewhere inefficiencies have crept in without realising.
Rising operational overhead without a corresponding increase in output or quality suggests inefficiencies in the business process. Possibly your management structure top heavy.
Problems with inventory such as overstocking or frequent stock shortages imply problems with inventory management, poor or no software.
High wastage, scrap rates, rejected products from internal quality control and returns from customers hint at trouble in manufacturing process.
Quoting for contracts, then finding you are losing money on the work. Or worse, not knowing you’re making a loss due to gaps in your pricing and costing procedures, or inaccurate job tracking software.
Difficulty scaling up to meet a sudden increase demand.
Equipment sits idle and under-utilised in work yards, or you never have enough and there are delays getting work done on time.
You’re using manual systems to track and log work.
There are increasingly long lead times between an order and delivery, indicating problems in the supply chain.

Investing in capital productivity will help you address any of these inefficiencies in your business.

Track Key Performance Indicators (KPI’s)

To find out what’s wrong, measure your KPIs to detect any deteriorating trends, for example, output per labour hour, cost efficiency, quality metrics or specific product profit contributions.

KPIs for different industries will vary, for example, a manufacturing business may look at equipment run time, product throughput, capacity output per hour, and downtime.
A construction business might consider project completion time and delays, budget variance, health and safety incidences, machinery hours of use, labour hours costs and labour hours spent.
It’s important to identify metrics that are typical of the industry, so you can benchmark your data against similar businesses.

Process mapping and workflow analysis may enable you to identify bottlenecks and areas for process improvements. Time monitoring and project management software will help you track the time spent on various processes and projects, which enables you to identify areas where resources are misused.

Step 2: Complete a Productivity SWOT analysis

Audit which areas in your business you believe are most at risk of being unproductive.

Delegate to an internal team to determine where they see issues, as they’re the ones often working through bottlenecks and challenges day after day with a unique perspective on what needs to be improved.

SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis offers a structured approach to identifying and assessing productivity gaps. A healthcare business might find that its strengths are a strong reputation, and a robust electronic health records system. Its weaknesses might be outdated administrative processes, high employee turnover, and older medical equipment. Opportunities could include technological advancements, grants to help healthcare businesses invest in new software, and collaborations with tech companies. Threats could be regulatory changes, increased healthcare costs, and competitive pressure.

Use our SWOT Template to create your own assessment.

Following your SWOT analysis, highlight the highest priority areas for improvement. These should be the ones that align with your strategic goals.

Step 3: Assess solutions and costs

The ideal solutions are based on your business goals and productivity objectives. If you want to offer new product lines, it makes sense to purchase new equipment that enables you to produce two product lines at once. Solutions should also address the KPIs previously set when you analysed your productivity.

Potential solutions include:

Upgrading or replacing outdated equipment by investing in newer, more efficient technology.
Adopting automation, robotics and AI, which can optimise operations, reduce errors, and increase output.
Optimising asset layout and workflow, which may require either reorganising the space or upgrading.
Purchasing software to manage employees, projects, or client relations.

Once you’ve identified your potential solutions, determine the financial implications by measuring the costs against your expected benefits. An increase in productivity combined with long-term savings and the ability to scale might make a capital investment worthwhile.

Step 4: Embed the change with confidence

Any long-term change requires a strategic approach that embraces the new commitment and integrates new processes and technologies into the company. Engage employees in the process early and consider their insights when implementing the changes. Ensure all employees who will interact with the new capital assets are properly trained about and comfortable with the changes.

All policies and procedures must be updated to incorporate the new technologies or processes. Additionally, incentives, performance metrics, and KPIs must be aligned with the desired outcomes to ensure adoption by employees.

Finally, it’s important to track your progress to monitor the impact of the changes on your productivity and identify areas for further improvement. By viewing the embedding of change as an iterative process, you can foster a culture where improvements are a natural and expected part of the process.

Next steps

Identify your need to improve productivity and determine your main priorities.
Consult with your advisers, accountant or internal management to build a business case for any capital spend.
Document your productivity strategy steps including the timeframe.
Calculate the capital requirement to implement your strategy and where these funds will come from.
Forecast the improvement in gross or net profit and how long it will take before you see a return.