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Increase Profitability – Labor Efficiency

Jul 16Jeff Matthews

All firms have employees whose efficiency can directly impact the bottom line.  One only needs to watch a construction project with workers standing around to understand efficiency.  (In defense of my contractor friends, those guys will often be needed for another phase and having them ready to work is more efficient then stopping the project waiting for them to arrive.)

Having a team of people whose skills are properly matched with the work is the key to labor efficiency but that isn’t always possible.  Smart firms employ people of varying skills and develop those less experienced as part of the work process.  This builds succession capability and allows some more mundane work to be billed at lower more competitive rates.

Obviously you can’t know whether your labor is efficient if you don’t measure it.  In production situations this means establishing standards for the time it takes to complete a job and measuring performance against that standard.   Time management experts can help with this work, but often a practical solution is to have a variety of strong people do a job and establishing targets based upon their performance.

Properly compensating your employees is very important.  In a manufacturing organization, you can build a manageable compensation program that rewards efficiency and low scrap rates.   When employees are compensated for volume and quality, they are motivated to work efficiently.   Your plan should be understandable and easily administered.   Highly skilled manufacturing shops in my area have employees bid for the more complicated work, pay based upon the job and penalize employees for high scrap rates.

Morale can greatly impact labor efficiency.   If workers believe there is plenty of work for them and their positions are fairly secure, they are more likely to work efficiently.   When there is a lot of concern and noise in a work place, workers may waste time comparing notes rather than producing products.  The same logic applies to service organizations.  The old adage, “the work expands to fill the time allowed,” is based on experience.  Management’s focus needs to be to properly schedule employee time and also to keep the staff busy on productive work.

Labor efficiency is also dramatically impacted by the employee’s attitudes.  Employee attitude can be infectious, both good and bad.  A good attitude should be encouraged and rewarded.  A bad attitude must be addressed quickly to avoid infecting the rest of the team.  Don’t wish it away.  Confront it and if necessary, trim out the infection to preserve the greater body.  That sounds harsh but the alternative is a team that wastes time, is disillusioned and does not produce.

You deserve a bright and eager team who understand your goals, buy into your plans and will enthusiastically help you build the company.

B2B CFO® has over 200 experienced chief financial officers have deep knowledge that can be tapped to help grow your business.  A B2B CFO® can help you understand your financial picture and offer independent insight to improve your business’ profits.

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