A Business Secret – Your Employee Productivity Is Way Too Low

I have the advantage of talking to many small business owners all over the country. Since I frequently ask the same questions and often receive the same answers, I get to see a larger picture, a bigger problem that is more universal than particular to one business. I get to see the trends and have an opportunity to see what works as opposed to what doesn’t work.

Here is an issue that few business owners truly grasp but is very important for all of us to understand as we work to improve profitability,
employee productivity. How much actual productive work does your workforce provide you with? This is a brutally important question, as payroll is one of the largest costs for most businesses and increasing productivity has the effect of increasing profit without increasing costs, virtually a dream come true.

However, here is the nasty little secret I have discovered: After doing hundreds of productivity analyses for hundreds of businesses, I have learned that most owners believe they have a terrific workforce of dedicated, hard-working, loyal, committed, long-term employees who care. This may be true, but it does not mean that they are delivering the highest level of productivity. Most of the time, my productivity evaluation demonstrates that the workforce typically performs at a 30-40% productivity rate, sometimes a little better, sometimes a little worse, but most always this is the range of productivity in this region for small business, especially those businesses not achieving 10-15% profit margins at the end of the year.

Can you believe this? 30%-40% productivity rates? That means 60-70% of the time, your workforce is unproductive–not working, or doing something other than appropriate work effort while being paid. This is a staggering reality and it must be evaluated. Add overtime to this equation and the productivity plummets further and faster.

1. Does this mean your workforce is intentionally slacking off? Probably not. Your employees probably believe that they are working hard, dedicated to the goal and committed to quality output.

2. Does this mean you should fire the existing workers and get new ones? Probably not. Most employees are managed ineffectively and simply replacing workers will only result in the same results. It is your management system that is faulty, not the efforts of employees.

Then what is the problem?

It is really quite simple. As managers, we spend far too little time training our employees, failing to give them important information and feedback. We fail to let them know how they are doing and if they are meeting our expectations. Frequently, an employee or a group of employees working together have no guidelines as to what their productivity should be and are on their own to determine pace and rate of completion. They may be working hard, staying focused, wasting as little time as possible, but at a pace that may not be as productive as you want it to be.

Does that mean we need to get out the whip and beat them into greater productivity? No, that does not work either. Productivity must come from training and systems that are designed to elevate production. Remember, systems manage people and managers manage the systems. It’s not about micro-managing the employees to squeeze an extra widget per hour out of them, it’s about creating a system that provides understanding, information, accountability and rewards. If done correctly, the productivity rate can be increased dramatically and painlessly and everyone wins.

Additionally, once your workforce is held accountable for higher productivity, management will have an opportunity to learn a huge amount about the process and workforce as they will tell you what works and what doesn’t, but only if you create a forum for them to share the valuable info they have about your process and procedures. In the end, it is about effective management systems based on two-way communication with valuable input from both sides: training,  information, communication, accountability, and rewards. That’s what works.

Most small businesses occasionally pay their workers overtime for working more than 40 hours per week. They also frequently feel a quiet sense of pride about this as it appears they are really doing well since their workforce must work additional hours to put out the greater productivity that their customers require. Here’s something to really worry about. While understanding this is costing more, there is still a sense of satisfaction that employees are working more. It’s a “good” problem I am told, far better than hiring additional employees. Wow, talk about a misconception! If your workforce is working at a 30-40% productivity rate on regular time, paying them half again for overtime reduces the productivity another 50%, dropping it down to 20%. Can it get any worse? Yes, they do look busy and they are putting product out but the profit is going out the window, and frankly, such a system gives them incentive to slow down during the first 40 hours so overtime is accessible.

Overtime should be eliminated completely, at all costs, and should be replaced by a system that supports and rewards increased productivity and controlled costs, a system that includes: training, accountability, communication, information and rewards–not overtime–meaningful rewards that make sense and support increased productivity. That’s the cure. Can it be done? Absolutely. We do it every day, increasing productivity to 50%, 60%, even 70% and sometimes even higher. It’s not magic, it’s technique. It’s a system of effective management that works beautifully.

Call me, I will tell you how to evaluate your worker productivity. But, before you do, take an aspirin–it’s going to be an eye-opener resulting in a headache, but there is a cure.