Why should we put productivity at the top of our priority list?

Why should we put productivity at the top of our priority list?

If we run a business in the current economy we know that sales are hard to win by comparison to previous times.

In every corner of the economy budgets are being cut back. Funding is for essential projects and purchases. The cost of sales has increased and so better productivity is important as it represents the biggest opportunity to increase profit or surplus. Even not-for-profit organisations need to be productive as they need to cover their expenses to survive.

Marketing budgets are thin, infrastructure budgets are thin in the private sector and being discussed in the public sector, acquisitions are on the rise because buying more business is cheaper than building business through sales. Good businesses are cheap to buy because profits are thin and so business owners are working longer for lack of value in a sale.

Productivity gains are at the top of the priority list because a 10% improvement in productivity equates to more output for no extra cost or even the same output at reduced cost. So looking across the business at costs is a good place to start in seeking the best productivity gains. Let’s consider the top few cost areas of work space, staff and inventory.

We need to have a larger more expensive workspace if we have extra staff or extra inventory. So consider how we can reduce the cost of workplace and staff for a moment.

If we create business systems that allow us to increase our revenue significantly but only increase staff by a small percentage of that gain, we agree the cost of staff and the cost of workplace would not go up by as much as the revenue increase. So what would go up is our profit margins. Same goes for better managed inventory where less is carried but placing orders at the right time drives better stock turns and improved cash flow.

So what has this got to do with IT systems?

The answer is everything and the problem is that as business decision-makers we seem to have forgotten this. IT decisions should not be based on cost minimisation; they should be based on effort minimisation and return on investment. If faster computers will allow staff to do more or if cloud computing will free up floor space and reduce the head count in the IT department. If an inventory management application or ERP system can help reduce inventory the cost savings should be able to be calculated and used to justify the expense.

When I hear of a scientific organisation with 100 staff not having funds to update their technology from 2003 Windows Server, my mind goes to mathematics: 100 staff average salary $60,000 each is $6,000,000 each year. Servers running old hardware that can’t be secured risks the loss of IP stored on the servers. The cost of maintaining servers is significant; density of servers on virtualised platforms is limited at that age, so we can probably safely say they are spending $200,000 per annum maintaining the status quo plus more on power and replacement parts. So, in all, they are carrying significant risk of loss and a cost of $200,000 per annum and have staff losing 54 minutes per day due to slow performance of computers.

So if we can provide servers that are nine years newer or more that run 128 times faster (because the speed of computers doubles about every year and a half) the staff should each regain 54 minutes a day, or 5400 minutes 2.25 weeks of work gained per day, that’s over 10 years’ worth of work gained each year. Ballpark figure: $600,000 salary saving at the original $60K average salary. So if I can deliver a fraction of that benefit and cut the maintenance bill by 40% and offer financing at under 9% per annum so there is no capital expenditure. Could you now spend say $200,000 on replacement infrastructure for the next three to five years?

Of course, yes. So how could these sorts of numbers scale into your business to help you find the money you are already wasting to maintain out of date computer systems and help you spend less to achieve more?

Please find someone you can sit down and review the business case with to establish what you might invest in bringing your IT systems up to date so you can work more productively. Then we can talk about how the software can be used to work better in each area of your business, from the finance department to the warehouse to tracking service calls or designing buildings and managing projects. Australia needs to get more productive. Your business needs to get more productive.

David Markus is the founder of Combo – the IT services company that is known for solving business problems with IT. How can we help?

Follow SmartCompany on Facebook, LinkedIn and Twitter.


Notify of
Inline Feedbacks
View all comments