Productivity and profitability are correlated such that an organization's success largely depends on how productive its employees are. Productivity can refer to the efficiency in which an individual or business performs their assigned work. To take a look at productivity practically, it is important to understand why the concept of "productivity" is especially important for small business owners. Generally, the higher the level of productivity in a company, the greater its profitability. In other words, companies that are productive generate a profit from many perspectives.
This guide explains how to evaluate the profitability of your business, determine the growth potential of your company, and develop a strategy plan to manage the required changes.
The Relationship between Productivity and Profitability
Productivity refers to a company’s production capability and efficiency in producing a product, as assessed in terms of output per unit of input. Meanwhile, profitability is determined by how much money is left over after the product is manufactured and what costs are paid.
Understanding the importance of productivity and profitability is the key to your company's success. It is difficult to have one without the other. In a work environment, employees are encouraged and trained to be productive, to feel interested in the company's success, and produce better results than those employees who are not as motivated and comfortable in their roles.
The correlation between employee engagement and profitability is undeniable. They make up a vital part of not just ensuring generated income, but also ensuring you stay in good shape to make those profits. If you don't feel valued, you don't feel the need to do more. You tend to give in to distractions if you are not inspired to share innovative ideas. All these factors reduce the desire to contribute to profitability. A work environment with little or no employee commitment does not support profitability because employees are not very concerned about the company’s overall performance.
Management plays an important role in maintaining profitable results and high quality production, but simply making a profit does not necessarily mean that the company is productive.This article will explain why more engaged and productive workers help companies increase profits more than decoupled workers. It will also provide insights into how to increase productivity or profitability through employee retention strategies.
Why Is Employee Engagement Important?
The answer to this question is: if profits are right; profitability is sustainable. Employees who have a vested interest in the company they work for will not jeopardize their work. Research shows that the most successful work environments are those that maintain a high level of employee engagement. You want to feel comfortable, share innovative ideas with your employees and build important, trusting relationships with them. If the profit is right and money comes through the door, you will need committed employees to help you continually grow.. Positive organizational psychology shows that employees respond better to an environment in which they feel valued, supported and safe. Employees who feel valued as partners in the company tend to engage with it in a meaningful way. Of course, this type of personality is best suited to a company that is mutually committed to its employees.
Employee engagement influences how everyone in your organization performs and what value they have for their work. This approach also places a high emphasis on how employees perceive the company and the extent to which they share a commitment to its goals and values. The following behaviors are the best ways to achieve optimal employee engagement, in turn leading to improved business results.
How to Engage Employees
Companies rely heavily on their employees to carry out their business goals. These goals mostly revolve around maximizing and increasing profits. Having productive, motivated employees is the key for business success as their performance helps drive growth and prove new capabilities that open up new opportunities for the business.
1. Transparency and Visibility
Transparency and visibility are key qualities that managers must introduce to promote an open and accessible workplace. Transparency helps create fluidity in business operations and ensures everything is running efficiently. Emphasize that there is not too much or too little information in the workplace to make your employees feel comfortable and aware, so they know how to take part in solving issues as a team. Offer help to those who are struggling with something without belittling them by involving other members and tackling hurdles as a group.
Let them know the benefits they will be getting and offer them support whenever they stumble across a rough patch. Be clear with your instructions and let them work accordingly. Give them a sense of passion that allows them to pitch their own ideas and make their own decisions. Guiding them throughout the day while encouraging autonomy will help your employees to produce quality work.
Staying connected with your employees through regular interactions and meetings to promote visibility goes hand in hand with good communication. Now that many of your employees work from home, due to the recent global challenges, it has become harder than ever to work remotely. Employees could easily feel disconnected from the company, increasing the chances of making them feel left out and unmotivated. Keeping them in the loop with constant updates will help avoid these potential troubles.
Employees often need the reassurance of the company’s goals and purpose so they can keep theirs aligned with it. It is essential to take advantage of tools and platforms that help maximize our online visibility so that we can better manage expectations and keep employees motivated and driven. Another important note that goes with good communication is providing feedback. Managers and other members of the organization can vastly benefit from this because it encourages continuous improvement and allows better management and communication. Feedback must be given objectively with intentions aligned with the company’s values and business goals.
2. Employee Involvement
Employers can increase their chances of long-term success by involving their employees in large image discussions and asking for input on a regular basis. Now that we have found that worker involvement is a key factor in increasing productivity, it is also a good idea to engage employees in the office by organizing office activities or team building activities. As more and more companies act virtually and employ people at home or in personal offices, this is less common. Remote working is wonderful to reduce the effort and give employees the flexibility they need and want. In many cases, a company's competitiveness depends on its ability to continuously improve productivity. Companies that are able to serve their employees and customers will win.
3. Effective Communication
The most important tool for good management is effective communication. Clear communication within the company helps build honest rapport with your employees. Establishing good relationships through communication helps employees remain confident in what they are doing and how they are contributing. Good communication also encourages new ideas, allows brainstorming, and finds new solutions the company needs. The benefits of good communication take employee engagement to its core with endless benefits, leading to the overall improvement of the organization.
4. Regular Training
Regular training helps keep employee skill and knowledge up to date to cope with necessary business transitions and developments. Equipping employees with better skills boosts productivity and employee engagement as it also becomes essential for their personal development and growth, making training programs for career growth mutually beneficial. This increases employees’ job satisfaction and influences them to believe in the future of the company and desire to do more to contribute to its growth as well as their own.
5. Managers as Sufficient Enablers
Boosting employee productivity doesn’t require active and constant involvement in employees’ projects and tasks if managers are sufficient enablers. Businesses have to set clear goals as a guide for everybody in the organization so that they know what they are working towards. Managing talent and encouraging autonomy will be made easier through proper goal setting. A clear outline of the business’s goals and how each person can contribute to the company’s success and vision can help build trust and influence an ideal work culture. Another way to encourage autonomy is by offering flexible work options to provide employees a better work-life balance.
The recent WFH transition proved that it increases employee productivity and performance while saving businesses money on office rentals, travel costs, thereby increasing business profits as a result. The best way to keep all efforts up is to recognize success and milestones. Giving employees credit and recognizing their accomplishments can improve job satisfaction and may even boost their performance even more. It creates a feeling of belongingness and sets a reminder that they make up an essential part of its achievements. Improving employee engagement, boosting productivity, and increasing profits can be achieved when you have highly engaged and high-performing employees. They are likely to continue feeling driven and seek more ways for the company to stay profitable if they wish to grow with it.
How to Increase Productivity
A company can improve its profitability through a variety of ways, such as the use of new technologies, new business models, or a combination of both. They can also develop new products and services and expand into new markets and sectors..
By using the Lean Six Sigma philosophy and toolbox in combination with an employee-centric approach, you can increase your team's productivity by 25% to 100%.
For most companies, increasing profitability means gradually implementing a number of small improvements, but sometimes a single factor can significantly increase profitability.
There are four key areas that can help you increase your profitability, and each of them leads to significant productivity gains and higher profits for the company as a whole.
1. Cost Management
Identifying areas where you spend the most and what you spend it on will help you better manage costs.
This initial analysis may take some time, but the use of activity-based calculations is a useful tool for determining the actual cost of a given business activity. It shows how much it costs to perform a particular business function by allocating certain activities.
Strict cost control can increase profitability, but it is important not to reduce costs at the expense of the quality of products and services. Most companies can find waste by reducing the amount of investment equipment, reviewing workflows, identifying bottlenecks and eliminating efficiencies.
Check if you can adapt your production process to make it more efficient and evaluate current resources and labor costs. Assess whether you can reduce waste through adjustments in material, labor, or other operating costs.
Changes in the market can mean that prices can be raised without risking sale. However, it is wise to test price increases before they become permanent. It is a good idea to check prices regularly and check exactly what you are offering and what you are selling at what price and whether improvements are possible.
Also, the type of customer and what you sell can make a big difference. Price directly affects profitability in many ways.Most business tycoons apply the Pareto principle to their business to ensure that their products and profits align. The rules to get 80% of profits from 20% sale..
If you are careful about your profitability, focusing on your most profitable customers, even if that means letting the less profitable ones go, can be very beneficial for your company. You may also be able to sell more to your best customers than you can sell to all your good customers at the same time, or even at a lower price. In other words, if you sell more to the most profitable customer, you might as well do it now, right?
Get the best deal from your suppliers. One of the most obvious ways to increase your profitability is to buy more effectively. It makes sense to check the supplier base regularly and see where you can get the cheapest price for your materials.. However, try to maintain quality at the same time and buy from the best suppliers, not the least profitable ones. Decide if you can do better business by consolidating your supplier base and whether you need to change suppliers. Can you negotiate better terms and get the best deal for your goods and services from your suppliers? Do you need to buy to use your working capital more effectively, and if so, by how much?
Build a Profitable Business
Understanding the importance of productivity and profitability is the key to your company's success. Whether you need a structured plan or a dedicated partner to help you achieve your goals, Universal Creative Solutions is honored to work towards better solutions together. We assist companies in implementing their business strategies by going in depth with the factors that drive up their employees’ potential. Our services provide growth through development of new and insightful ways for companies to structure their goals, organization, and workflows. Universal Creative Solutions (UCS) is a strategy consulting and operations consulting firm that assists companies in employing their senior staff with high performing individual agendas. Companies that have engaged Universal Creative Solutions’ services are surging towards success as they are placing their staffing and operations processes onto strategic action plans.