3 Steps to Creating Efficiency, in Good Times and Bad
When you’re in a period of hypergrowth, you get to say “yes” to everything. Can I hire new people? Yes. Can we buy some cool new tech? Yes. Can we throw a party for our employees? Yes! But with all the excitement of rapid growth, efficiency often takes a back seat. Most companies focus almost exclusively on revenue growth and market share and overlook the importance of operational excellence. When the good times come to an end those companies are left reworking their costs and searching for efficiency, sometimes for the first time.
The Texas oil industry is currently tackling this challenge. From about 2005 until 2014, upstream producers in the U.S. battled in a land grab: If they didn’t acquire assets, they could be shut out. And if they didn’t secure these assets by drilling and producing, they could either lose them or pay substantial prices to keep them. Money flowed freely, and efficiency was not a concern.
But in the past year, 65,000 Texas oil and gas workers have been let go. The World Bank projects that, even at $60 per barrel, two-thirds of future oil reserves could be uneconomical. In February, the price per barrel fell below $27. While the rest of the country celebrates lower prices at the pump, the oil industry needs more sustainable practices to thrive.
Creating efficiency often requires investment, and it’s hard to get any expense approved when cash is at a premium. People are typically first or second in terms of cost, so businesses regrettably turn to layoffs. Those cuts are by numbers, such as 10 percent of each department, or five people from each area. However, sometimes the workers with greater knowledge of your operations are let go, which can have an inefficient effect on your business.
The good news is efficiency doesn’t have to wait until the other shoe drops. The following three strategies can streamline your financial and operational processes to increase return on investment, without trimming your workforce.
Invest in Efficiency Early
If your company is doing well, start investing. This will prepare you for growth and unexpected downturns. My team spoke recently to a company that’s in growth mode but in a market that is in a bit of turmoil. The company’s management team and board are assessing the business, and while its infrastructure has no significant issues, executives know they can’t scale the business without continuing to hire people. The managers are looking at investing now to create an infrastructure that will allow them to grow efficiently when the market creates new opportunities.
Another company we’ve worked with revamped its systems infrastructure just before the oil price collapse. The business struggles significantly, but its transaction volumes and operational support remain constant. Although it now operates with one-third of its original workforce, the company continues to run because of efficiencies gained from the system revamp.
Train Your Workforce
Efficiency takes into account people, processes, and technology. You need all three to improve operations. New tech appears every day, and some companies simply throw technology at a problem in their excitement. But if you don’t prepare your people to use it, the solution won’t be used fully, or will fail completely.
Pay Attention to Process and Productivity
Sometimes companies implement new technology while holding on to old processes. The point of new tools is to change the way a team works. You need to understand how productivity and processes work in your team to make your cost-cutting efforts successful. Find the correct metrics to measure productivity for your business. If you can measure it, you can start to change it, and if you change productivity, you will reduce costs.
As you study productivity, look for critical business processes that use Excel. It’s probably the most prolific business tool in the world, but overuse of Excel usually indicates serious problems in systems support. Pinpoint where this is happening, why, and how to fix it to reduce inefficiencies, errors, and risks in your business.
A sudden drop in profits can happen in any industry or company. If your business is thriving, take some time out from celebrating your profits and think about efficiencies as you grow. If you’re in crisis, find ways to apply these strategies.
You may be able to change the course of your business and save those jobs on the line.