Operating productivity is how you turn your business scale into business profit. This article outlines out to improve operating productivity.
It is defined as the outputs produced by a business divided by the inputs used in its production process.
The input being the capital expenditure and people, and the output being outcomes such as revenue or customer satisfaction. Typically the outcome used in the calculation is revenue.
Understanding operating productivity is crucial for business owners, because if you don’t get it right, no amount of business growth will lead to more cash in your hands at the end of the day.
If you have a business you probably have a plan and a vision for your business – at least you should. For most business owners that vision includes growth.
Contrary to what we hope for, business growth can actually be the beginning of the end for many businesses. Often, it is the poor operating productivity of a business that leads it into the red when it expands ‘too fast’.
But how to improve operating productivity?
Processes and systems
Business processes and systems are critical for the efficient productive output of your business.
When things are done in a systematised way, they become more efficient.
That efficiency will decrease the input side of your operating productivity, leading to an improved outcome.
Read more about how to improve your business systems here.
Your business should be built on systems, and the people in your business should run those systems.
That leads us to people. If you want an efficient business, you need the right team.
One of our core values is Fun and it is true that enjoying your work leads you to be more productive. That means your culture is extremely important.
No one enjoys working in a toxic environment, and conversely, people are happy to work in an environment with a culture they enjoy.
The people you hire into your business determine your company culture.
That means getting your team right and creating a company culture that is enjoyable will increase the operating productivity of your business.
Good financial management is the key to running a successful business, and this includes your operating productivity.
Your financial management includes your bookkeeping and getting all the numbers right in your business.
Your operating productivity is a calculation based on your expenditure during the production process versus your revenue. Because these are both numbers, you need to ensure the numbers are correct in the first place. That means having good financial management.
Technology is a key driver of business efficiency. This has always been the case, but it is increasingly so.
We have seen entire industries go out of business because of technological adaptation in the last 20 years. But what also happens is that within industries, businesses who don’t adapt technology go under.
That is because technology improves operating productivity.
Technology can do make improvements to both sides of the operating productivity equation.
Technology can increase your output by creating a better product or service for your customer – for example, when phones started also having cameras.
Or technology can decrease your input by making your processes and systems more efficient – for example, when offices digitalised instead of everything being done on paper.
It’s important that you are aware of the technologies which are changing your industry, and adapt them if you think they will improve your business.I’m interested in business help