By Sean Moorfield
Managing a business is a stressful job, and one that only increases in complexity as the business landscape changes. Constantly thinking about how your business operates, and trying to maintain the efficiencies that led you to succeed, can keep you awake at night.
One thing I often see is that as revenue grows, margin doesn’t always grow along with it. Why is that? Rarely is one cause the sole answer; often it’s a dozen small things that add up to a large impact – and profit leak. One way to continue your business’s positive trajectory is to adopt the $100-a-minute mentality.
With this simple, pragmatic approach, you imagine that you are paying your employees $100 per minute. If you were to observe an employee or a process for an entire day, week, or year through this lens, how much of that time would you be willing to pay for? This simple process challenges you to think of how your team is operating every minute of the day. And it can lead you to uncover avoidable repetitive tasks that cost you time. Many owners struggle because they see the negative impacts of inefficiencies, but not the subtleties creating those issues. The causes may seem small at first.
This simple process challenges you to think of how your team is operating every minute of the day.
To get started, we’ll look at three areas through the $100-a-minute lens: planning and scheduling, inventory management, and creating expectations.
Planning and scheduling
Consider the example of a Formula 1 race team. You could have the best driver in the world and a top-tier vehicle, but that alone doesn’t guarantee success. If you and your team haven’t communicated about when you’re scheduling a pit stop, and if your crew doesn’t understand exactly what to do and when to do it, you’ll break down before the finish line.
Put simply, scheduling is king. But scheduling is also difficult for two core reasons.
The first problem is that companies struggle to match the amount of work to the amount of labour, because doing so isn’t always intuitive. This is extremely common in the construction industry – for example, we recently worked on a hotel project observing a crew that was responsible for hanging drywall for several rooms in the hotel.
The foreman on the project scheduled two drywallers per day, however the project owner only budgeted for eight hours of labour per day. If both drywallers worked a full eight hour day, that meant twice the labour cost was going into each day than was budgeted for. This may seem intuitive, but the foreman’s efforts to increase efficiencies by adding labour resulted in unexpected costs for the owner, as there wasn’t a process in place for matching labour to workload. Multiply this example over several weeks and a dozen crews and you can see how quickly costs get out of hand without a systematic process.
The other core scheduling issue is that people don’t plan beyond the immediate future. In our example, do the drywallers know what they need to do next when they are finished a room, or do they need to find their supervisor and ask? In most cases, it’s the latter. People focus on what’s in front of them, but struggle to see what comes next. The result: workers spend time trying to find out what to do next instead of starting the next project right away. If you were paying $100 a minute, would you want to find a solution to this problem?
Inventory management and pre-staging
A second common area for improvement within manufacturing and construction is inventory management and pre-staging. We recently completed a project with an organization that specializes in maintenance for transit buses. The owners knew that technicians occasionally ran out of parts and didn’t pre-stage all their tools before starting a new job. However, the owners considered the lost productivity negligible because the parts department was located close to the shop floor.
After careful observation, we discovered that the entire department spent 55% of their time on unproductive tasks that the owners were not willing to pay for. A crew of two technicians was observed leaving their station 31 times over the course of an 8-hour day, moving to and from the parts department and looking for tools in other areas of the shop. That’s almost two trips per hour.
Using the $100-a-minute lens, it’s easy to see how small, seemingly insignificant tasks are in fact extremely significant when compounded over the course of a day, week, month, or year.
How do people know when they’ve done a good job? When they’ve met or exceeded valid expectations. But many workplaces struggle to develop clear expectations for staff and do not communicate what it means to do a good job.
A simple exercise to assess the efficiency of any organization is to ask frontline employees what is required of them to succeed. More often than not, they cannot provide a clear answer. Let’s use an example from a manufacturing facility that produces glassware and dishware. When a frontline employee was asked what they needed to do to have a successful day (i.e., how many plates they had to make), they laughed and admitted they were unsure.
This is a problem for several reasons. The first is that individuals want to succeed. If we do not tell them what is needed to be successful, their behaviour will not change. They will continue down their current path regardless of whether it meets organizational objectives.
The second problem this presents is that organizations are unable to determine whether they are on track to succeed or fail. One of the most common sets of directions in the construction industry, for example, is to complete a project on time and on budget. However, those giving the direction do not always understand in detail how long a project will take and do not measure individual components of finishing the project. The lack of details makes it difficult to assess whether the project is on track midstream, and even harder to do a project post-mortem. Without standards to measure against, improvement is impossible.
With the $100-a-minute mentality, establishing clear expectations ensures that organizations are spending time doing tasks effectively and have a mechanism for improving.
Small changes can mean a big impact
If yours is a growing business, understand that these problems typically only grow larger with increased size. It’s critical to address them early because the problems become harder to manage as workflow grows and habits become more established. A situation that may be costing you $100 a minute with 3 employees isn’t going to change when you have 10 employees.
When you are finished improving processes in your business you will probably look back and think the areas that needed to change should have been more obvious than they were at the time. Making a change may seem difficult, but it is possible. Take a step back and be critical in evaluating how you’re currently operating – you will quickly see how much potential your business really has.
First published in the March 2020 edition of The Business Advisor.