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SMEs Chat: Highest productivity essential for sme survival in tough times

“Productivity is never an accident. It is always the result of a commitment to excellence, intelligent planning, and focused effort.” —Paul J. Meyer

PHILLIP CHICHONI

A few weeks ago, BP, one of the world’s major oil companies announced that it was laying off 10 000 workers. It was also suspending new oil explorations and closing some operations.

SMEs must find ways to deliver the same quantity and quality of goods and services at lower costs
SMEs must find ways to deliver the same quantity and quality of goods and services at lower costs

Oil companies really have no choice, what with global oil prices fast approaching historically low levels. Last year alone, more than 250 000 jobs were lost in the global oil industry. A glut in supplies and reserves, as well as low demand due to the general recession has pushed oil prices below $30 for the first time in 45 years. Oil companies are, therefore, finding their costs exceeding revenues and running into loss positions. This is an unsustainable situation.

Small to mid-sized businesses have not been spared from the carnage either. The effects of economic decline reverberate downwards and affect all businesses. We are seeing SMEs choking under high debt, unsustainable rentals and wages, aggressive competition from foreign suppliers and low demand from big companies. To get a picture of the real situation on the ground, just look at the empty factories and offices, both in the industrial areas as well as in the city centre. It is no longer surprising to find an enterprise that was open on Friday closed and empty on Monday morning.
Big companies like BP have large cash reserves built from previous years of high profits. They can therefore afford to scale down and wait for the economy to improve. You and I cannot do that because we need to make money today to cover today’s costs.

The reality is that every business is subject to the laws of economics. The ultimate goal of business is to make profits, an excess of income over costs. In tough markets, the low cost leader has a clear advantage over its competitors. We have recently seen some major companies going the low cost, low price route recently, like TM/Pick n Pay opening Mega Mart low price supermarkets, and OK following with its own Value shops. These are survival strategies.

The major ailment I have noticed affecting SME sustainability is low productivity. What is productivity?

Productivity is a measure of the efficiency of a person, machine, factory or system in converting inputs into useful outputs.

Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period. Productivity is a critical determinant of cost efficiency.

In simple terms, the key to higher levels of productivity from your resources is to do more with less, to continuously find ways to deliver the same quantity and quality of goods and services at lower costs. In tough times, with tight markets and aggressive competitors, success and failure depend on your ability to cut costs. BP and other companies noticed future trends in advance and came up with plans to cut costs before they were bogged down. You should also take time to plan survival strategies to counter negative trends which we can all see when we carefully scrutinise our markets and the environment. Stay on your toes and keep your eyes open all the time, it is war out there.

Get more from your people
Generally, the average person works at below 50% of their potential. A survey conducted secretly at some firm discovered that most employees waste up to four hours in a day by coming in late, surfing the internet or socialising on Facebook, reading and sending personal emails, reading newspapers online, walking around and chatting to colleagues. I personally spent 30 minutes just a few weeks ago in one public office where the officer was pretending to be looking for some information on the computer and asking me silly questions, until I noticed a reflection through his spectacles of the screen of his computer. He was reading the NewsDay online. Clearly, he was not motivated at his job.

The greatest improvements in productivity will come from unlocking and unleashing the sleeping potential of your people. You need to create an environment where motivation happens naturally. Have a high trust environment where people feel good about themselves and are not in constant fear of being criticised, disapproved, ridiculed or embarrassed. Eliminate criticism of all kinds from your vocabulary and assume the best intentions from people. Allow honest mistakes. Do not react or overreact when things go wrong. Build your people’s self-esteem all the time with regular recognition, rewards and approval. Celebrate the small wins and you will build a winning team that is highly productive and will help you grow your business.
Until next time, keep on accelerating your growth.

Phillip Chichoni is a consultant who helps SMEs and entrepreneurs build sustainable businesses. You may contact him by email, chichonip@gmail.com. You can also visit www.admiralbiz.wordpress.com, or phone +263-4-70812. 

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