Productivity Matters – Here’s Why

Productivity is a term associated with strong economies, robust businesses and the efficiency gains of clever staff. If only businesses were efficient, then we would have fewer of them failing, more employment and better incomes for owners and workers alike.

In New Zealand, according to The Xero Small Business Insights Special Report, Small Business Productivity: Industry and Regional Trends 2023, Kiwi business productivity fell by 6.1% in 2023.

Unfortunately, not all businesses get to the heady heights of maximum productivity. Not for lack of will, it’s hard to take a step back from the day-to-day pressures of running a business to look objectively at what can be done better. Or as the common saying says… “When you are up to your a** in alligators it’s difficult to remember that your initial objective was to drain the swamp”.

So, what actually is productivity?

Productivity measures how efficiently a business turns inputs into outputs. The more productive you are, the better you are at turning resources like labour, capital or materials into products (or services) you can sell.

Three general areas of productivity:

1. People productivity

This is how much work it takes to deliver products or services to customers. And, it’s commonly expressed as hours worked/dollars earned.

2. Financial productivity

This is how good a business is at monetizing its investments in assets such as machinery. It will often be measured as the return on capital invested.

3. Materials productivity

This takes into account how much a business spends on materials to generate sales. Materials can include things like inventory or energy.

Why productivity matters?

Put simply, businesses with increased productivity get more from less. As a result, they have more potential to turn a profit, deal with inflation or slowdowns, and absorb price competition. After decades of continuous improvements, productivity gains are getting harder to come by. Small businesses have typically been thought to lag behind big businesses in productivity, but with the advent of many digital tools – access to productivity insights, tools and processes are now also available to smaller businesses.

How you can increase your productivity

There are four commonly accepted ways to become more productive:

• Better tools
• Smarter methods
• Skilled workers
• Entrepreneurship mindset

1. Better work tools (capital)

Tools are made specifically to amplify the efforts of their users. So find the tools that’ll amplify your work.

Sometimes it might be as simple as a piece of software that cuts down the double-handling of information, like a booking system that schedules a job straight into your calendar or software that integrates with payment systems or point of sale.

Professor Marc Cowling of Oxford Brookes University has investigated why small business owners don’t (or can’t) make that investment. Here are his top five reasons:

1. Businesses aren’t sure how to prioritize: Small businesses have about six capital investment opportunities in mind at any one time, but they can’t back them all and don’t know how to choose.
2. It’s hard for them to see the value: Relatively few small businesses run a financial analysis to estimate the return on investment, so they struggle to justify making moves.
3. They’re risk averse: Most small businesses will only consider a capital investment if they guesstimate it’ll pay for itself within a couple of years. As a result, they tend to shy away from bigger projects that might have bigger impacts.
4. They can’t get loans: Cowling found that roughly a quarter of businesses have been denied a loan application. After receiving a knockback, it takes them up to four years to bother applying again. They need help building confident financial cases for investments.
5. Technology feels hard: Many business owners assume new equipment will be hard to learn, will chew up training budgets, and will clash with existing systems. They don’t have a solid ROI number in their head to counter these perceived hurdles.

2. Smarter methods (innovation)

Lots of businesses develop a certain way of doing things and then never really think about it again. In the meantime, plenty of other things change and the original processes and procedures become less and less effective (if they were effective in the first place). It’s a good idea to review and revamp the way you work.

Here’s how:

• Check your work actually matters: Check you’re focusing effort on things that customers actually care about. You don’t want to invest time and energy into things that simply don’t move the dial for your business. Try out some surveys or even just some good old-fashioned conversations with your customers. If aspects of your offerings aren’t resonating, consider investing less into them.
• Write down your processes: Record the steps you follow to complete jobs. Put a little time aside each week and get staff to help as their perspective will be hugely valuable. Use templated documents to ensure you’re capturing the same information for all the jobs. This will help everyone understand what to do, when to do it, and how. Plus the simple act of writing it down will begin to highlight inefficiencies and missing information.
• Redesign your workflow: Step through your list of inefficiencies and work out the kinks. You can often make big steps simply by clearing up roles and responsibilities, resequencing jobs, and improving communication between certain functions. Also, make sure people know where to find the information they need to perform tasks or deal with customers. Look for opportunities to outsource jobs that you’re just not very good at, or excited by. An external resource will charge fees, of course, but it may be money well spent if it makes your business more focused, efficient, and happy.
• Consider digital adoption: Software can be a massive boost to business efficiency. It can be used to request and track jobs, centralize information, speed up communication, and automate unloved tasks. Yes, you have to go through a learning curve but on the other side of it you’re free to focus on the things you do best. There’s software for all sorts of things from invoicing to paying bills, managing inventory to managing staff, and bookkeeping to reporting. For example Asana, for tracking tasks and projects, or Zapier to Automates repetitive tasks.

3. Skilled workers (capabilities)

Big businesses can afford to hire specialists who are super-efficient at specific jobs. Small businesses tend to hire generalists and give them multiple hats to wear. But you can still set them up to succeed.

Onboarding and Training

Properly training and resourcing your people is a critical step to increasing productivity. Make sure each employee has a job description with clear roles and responsibilities. Explain how the job should be done and provide supporting documents that reinforce the in-person instruction. Give your employees careful training so they know how to use all the tools (including software) they need to. If they can’t use those tools, then the capital investment is wasted. And regularly share the values and priorities of the business. When people understand the big picture, they’re better equipped to make the right decisions for the business.

Giving and Receiving Feedback

Feedback is vitally important to productivity, and it’s a two-way street. When something’s not done quite right, take the time to explain the problem and the solution. Otherwise, you’ll get stuck in a habit of redoing work and you don’t want that. You want to delegate with confidence. Similarly, listen to what your employees say. They’ll have a different perspective and expertise that can really help you optimise the way work gets done.

Use these steps for getting and giving feedback:

• Ask employees what they did well, how, and why.
• Add to the positives by telling them what went well, with examples.
• Ask for their ideas on how to speed up or refine the work.
• Workshop those ideas with them and, if appropriate, set new goals.

4. Entrepreneurship mindset (optimisation)

Entrepreneurship is not just the act of launching a successful business, it’s the process of optimising it. Entrepreneurs unlock productivity by better combining the resources at hand. It generally involves a bit of risk-taking but the rewards can be great.

• Scale up: Increasing output often lowers the marginal cost of each product or service you produce.
• Acquire another business: Buying or merging with another business can deliver scale or efficiencies, such as complementary workflows, consolidated operations, or logistics.
• Specialisation: Doubling down on a narrower niche can drive speed, expertise and quality to improve productivity. So think about cutting out services that don’t earn much money.
• Rethink supply chains: You could increase productivity by switching to suppliers that supply superior goods, or provide complementary services. Hire and empower entrepreneurial people: Foster a culture of innovation in your business.

Boosting productivity is an attitude

Small businesses have huge potential to improve productivity. Make it part of your mindset by continually examining and refining your processes, improving your work tools, and watching for inefficiencies that creep in. You’ll need to invest in your team and technologies but when done smartly, the benefits add up. As a bonus, efficient businesses are less likely to suffer delays, confusion, breakdowns in communication, distractions and waste. And that means there’s a good chance increased productivity will go hand in hand with increased satisfaction and profit.

Get in Touch

Whether you want to streamline processes, enhance financial performance, or cultivate a culture of innovation, our team of experienced business advisors can provide the insights and guidance you need. Get in touch with us today!