Whether you are an individual, a professional services firm that sells their time, a manufacturing firm, construction company, processing plant, or virtually any other kind of business that I can think of, you need some way to measure your efficiency. Recently, I’ve been spending a lot of time with clients focused on efficiency issues. To some extent, this is driven by the relatively tight labor market, the robust economy (although not in all sectors), shifting workplace demographics and the use of technology which in some cases drives efficiency and in others seems to be a distraction.
Either as individuals or organizations there are times when it feels as though we are working hard but we’re really just spinning our wheels. There can be a lot of energy input into the system with very little output. That’s low efficiency. Efficiency metrics (however defined) are the measure of output vs. input.
Every business should have one or more metrics that it uses to assess efficiency. Here are a few examples: Direct labor (hours that go into making a product or serving a customer) vs. total labor hours, revenue or gross profit generated per labor hour, hours to generate some fixed level of revenue or profit (the inverse of the prior metric – some people just like this ratio better), hours written off (not billed to a project, for example) divided by total hours, transaction or processing speed (the amount of time to perform a particular task), or scrap ratios. Of course, there are countless more. My most successful clients focus on a few metrics that are widely understood by their employees rather than trying to generate numerous metrics which tend to be redundant and lead to confusion.
But metrics are just a starting point. They need to be combined with an operational understanding of what is driving performance and what actions can be taken to garner improvement in the metrics and at what cost. Ultimately, it’s about increasing profitability and cash flow, not driving a metric simply for the sake of driving it up (or down).
I have also found efficiency to be a trait that is part of a company’s DNA. In a company with an efficiency DNA, meetings start and end on time. There is an agenda and people clip through the issues. If there is an opportunity to end early, people are anxious to break and get back to other business. In fact, I just ended a scheduled one hour conference call 15 minutes early and am using that time to work on this newsletter.
On the other hand, I’ve seen companies where meetings don’t necessarily start on time, meander through various topics without much relevance to the agenda (if one exists) and almost always take longer than planned. On the rare occasion that they are finished with the business at hand early, people linger until the official end time. You can tell a lot about the efficiency culture by the way meetings are conducted.
How efficient are you? What are your metrics? Do you have a culture of efficiency?
If your business could benefit from fractional CFO services, I would welcome the chance to speak with you. Please give me a call at (314) 863-6637 or send an email to [email protected]
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