These are great times for companies operating in the United States. We’re poised to enter the second longest period of economic expansion in US history. Stock valuations are extraordinary and interest rates remain low. Let’s hope this economic party will end no time soon but, in the long run, that will not be a winning business strategy. During these boom times companies tend to focus on revenue and growth. They measure profitability but there is little effort to truly optimize it since rapidly rising sales are serving to enhance the bottom line. Inefficiencies and waste creep in that will be challenging to root out later. Left unchecked, employee entitlement and relaxed spending can become part of the core corporate culture. Here are a few questions to assess whether your company has efficient operations and is reaching its true profit potential:
Are you properly managing your spending?
Companies operate on the belief that their executives and managers are smart buyers of goods and services. Budgets are provided and, if the budget is adhered to, all is well. Unfortunately, it is common for employees at all levels to be good at their particular function yet not effective at spending money. Purchases are done with minimal planning, without competitive bids, supported by weak contracts, and even occasionally steered to vendors with internal personal relationships. The issue goes well beyond overpaying for the actual good or service. The highest costs stem from when products are poorly evaluated and don’t fully serve their intended purpose. Services, when not combined with clear timelines, deliverables, and price, result in delays and costly change orders.
Are you properly managing the cost of your workforce?
Employee related expenses are always a company’s top tier cost. Companies often carefully evaluate salary surveys, use benefit advisors, and budget their headcount to manage these costs. However, these tools do not allow them to determine whether their workforce is operating efficiently. Outside the sales department, where compensation is generally directly linked to measurable performance, employee accountability drops off fast. There may be broad department and production goals but they are often poorly tracked, especially at the individual level. Broad benchmarks can be used but those are often akin to comparing tomatoes to a salad bar. The more a company creates accountability all the way down to the individual, and even ties compensation thereto, the more efficiently it will operate. It is important for management to understand that efficiency and complacency are both highly contagious within an organization’s culture.
Are you properly managing your office space?
One of the most difficult costs to manage is office space. It is not uncommon to see leases signed for 8 – 10 years and substantial investments made to customize the space. Yet it is extremely difficult to accurately anticipate headcount for such a long period of time. If the space becomes overcrowded or is underutilized, almost all the options for exiting the premises will result in a significant economic hit. There are many strategies to manage office space but the best ones require potential exit planning before leases are even signed.
Are you properly managing your technology?
Company technology departments are filled with talented staff that are often enamored with just about every new and exciting technology. The potential is to overeating at the technology smorgasbord and risk the company suffering from “tech bloat” — a common condition when a company has too many poorly integrated technologies doing too many similar things. The cost of the initial technology begins to pale in comparison to the cost of implementation, maintenance, and continued staff support. Beyond the costs, the teetering number of technologies can’t realistically be properly managed. Failures and outages begin to increase and, ironically, yet even more new technologies are demanded to fix those.
Efficiency maximizes growth potential
These are just a few of the many possible questions needed to determine whether your company is operating efficiently and maximizing profitability. I’ll conclude by dispelling the myth that focusing on efficiency, costs, and profitability somehow lowers potential growth and revenue. Those elements are not mutually exclusive and, in fact, are positively correlated. Companies that run lean, grow faster than companies laden with waste and inefficiency.
Author information
Duane R. Deason is the President of The Efficacy Group, a company specializing in helping clients increase efficiency and improve profitability.
