This article is a follow up on my previous one re productivity. We all hear about productivity, but do we as business owners/mangers really know what it means?
If we do, we would be adopting measurable KPIs across all operational, financial and asset management. If we are not doing this, then we are not fully implementing a productivity-based improvement process, and consequently, not focusing on profit maximisation. We need a baseline to define improvement.
We can sometimes be caught up in operational matters and miss some of the important productivity drivers. We also tend to forget that to utilise the efficient use of all business resources to achieve productivity, then we need to recognise that efficiency delivers a quality product, not just one that is least cost. To bring this in perspective, productivity means doing more work during the same time frame, and efficiency means doing the same amount of work in less time. They basically mean the same thing; however, in a supply and demand situation where the market is at equilibrium (supply=demand), efficiency is more important than productivity.
In the current economic situation, where our economy is slowing, businesses need to consider both productivity and efficiency.
The important thing a business needs to establish is the current business performance KPI’s, and do they measure productivity and efficiency. If not, then they need to be established to determine a business’s competitiveness. If the business is not competitive, then it will be scheduled for an early exit form the economy (going into receivership).
From a business analyst perspective, the first, and easiest KPI’s to define are financial. There are a range of opportunities to determine financial benchmarks against peers, such as financial benchmarking software, (we offer a free financial benchmark on out website Business Benchmarking & Consultancy Services – CtoC Solutions) IbisWorld, and the ATO. Each of these sites will allow your business to be benchmarked against your peers. This will establish financial performance KPI’s that will drive the business to best practice financially.
The other way to establish productivity/efficiency KPI’s is to look at inputs as a ratio of outputs. This is harder to establish but can be accomplished through measuring inputs to outputs. Examples include:
- Number of Kwh of energy to complete a specific unit of output
- Number of labour hours to complete a specific unit of output
- Material input units to unit output (material waste)
Measuring these KPI’s either as a benchmark with peers using frontier analysis or over time will assist a business define performance KPI’s that will improve productivity.
There are a number of consultants out in the marketplace that will assist the business in lean methodologies, performance analysis using DEA analysis or regression analysis to highlight performance gaps, business systems, asset management etc.
If you are interested in having a discussion on productivity or efficiency, I can be contacted via info@ctocsolutions.com.au
Have a great week
