The Founder still directs the work, but soon realises they can’t do it all or the business will just grind to a halt! As increasing amounts of work don’t get done, customers expectations aren’t met and they stop buying the product or service and go to the competition! Sound familiar?
Usually, growing companies recruit more staff, but after 4 – 6 employees, it’s necessary for the Founder to start delegating some of the actual Management of the business to someone else. Most Founders have a tendency to delegate it to either the oldest person (very 20th Century!) or the most capable staff. So, a member of staff is promoted to be a Manager.
The first thing any promotion like this does is reduce the productivity of the whole company, as promoting the most capable or experienced person away from their current job reduces the output of the whole company and everyone else is then working harder to maintain the existing sales or production. The Founder now has an extra person to help them manage the company but the new manager is no longer on the “Front Line” selling, or making things or servicing customers.
So, often, in the Short Term a promotion may induce sales or output to fall !
The Founder no longer feels like they are working 24/7 as they have delegated some of their work to the new manager, but everyone else doesn’t feel better, as they are working harder to make up for the promoted manager’s contribution to sales or production etc. I always recommend at this stage that the new Manager is trained, prior to being promoted on how to actually manage staff, as it is not a natural gift many people have!
The new manger may now be managing a budget, or they may now be working across several areas of the business which they are not used to (e.g. Stock Control, Purchasing or Company Administration) -previously the Founder’s job – but until they have “found their feet” and learnt the new job, they are effectively being ‘carried’ by everyone else.
What few Founders realise initially, is that not only is the most productive or experienced person no longer contributing to making or delivering the company’s products and services, but the Founder is implicitly asking everyone else to maintain the company’s output with one less person and so everyone has to learn how become more productive.
This may seem counter-intuitive, but that’s how it often works in practice; promoting someone from the “Shop floor” to become a manager immediately reduces the company’s productive capacity to sell or make services or products as efficiently – so the first objective of the new manager is always teaching his colleagues how to compensate for his loss!
One of the most common benefits of promoting the most capable member of staff like this, is that it gives the new manager time to show and train other members of staff how to be as productive as he was and explain some of the skills and shortcuts they learned over time and practiced – the skills which made them so productive and which led to their promotion in the first place…
They may even be able to train up their replacement as they learn the new management skills required, but in this intervening time, the productivity of the company will reduce, as the two members of staff take time to learn their new roles. It will recover or most likely actually be higher than it was, as the new manager starts to become more competent at the new management role.
Thus, the new manager can start to compensate for his lost contribution and the company’s productive capacity, by training colleagues and/or replacements on how to be more productive – but until they learn to manage staff and all the other elements of the new job, taking more and more management work off the Founder in the process, they will remain a drag on the company’s overall productivity and efficiency.
Of course, unless this small business is actually measuring productivity, the Founder may not link this downturn in output (and profits) with the promotion of the new manager. Many small businesses measure their finances well but only progressive companies can measure and therefore manage and support their own staffs productivity!
Most small businesses do not develop adequate management systems to objectively manage productivity well, but even purchasing off-the-shelf software packages does help enormously. They also don’t develop appropriate KPI’s, so they cannot track / measure productivity and they certainly cannot improve their productivity if they cannot measure it and convey the importance to staff.
WHY PRODUCTIVITY ACTUALLY MATTERS
Productivity is being able to deliver more services, produce more widgets, or pay staff less wages per unit of production and so increase profits, often quite substantially.
If your company is not measuring and managing your productivity, you probably find you have to pay more in wages to produce and sell higher volumes, adding more cost per unit, thereby reducing your own profitability. And with the National Living Wage increasing over 6% in 2020 to £8.72/hour, added to the extra cost of Auto-Enrolment pension cntributions, productivity becomes essential, not just nice to have, for many small companies to sustain their profits, which regulations are eating in to.
In order to Kick-Start your productivity back to a rising trend, make sure your ‘Management Reporting Systems’ are designed with appropriate and relevant financial and operational or non-financial KPIs – then use them consistently on a regular basis to analyse, review and continually improve your operations and communicate these targets to your staff.
Increased Profits are bound to follow, really!
If you would to understand more about how to measure and improve your business productivity and where the quick productivity gains are to be had, please contact me John Mather at EMC Associates. I offer a FREE initial consultation to understand more about your business and your productivity pain points!