7 Keys to Improving Your Profits
In some companies, management is unaware that its typical behavior limits profits. Many typical executives give most of their attention to the outside world, where many opportunities for increased business and profitable returns may be available. But asking the right questions and finding answers about the prosaic elements in plant performance is the only way to achieve true success.
In a global economy, there is no hiding from competitors. According to the New York Times writer, Thomas L. Friedman, a three-time Pulitzer Prize winner and author of a widely read new book on management practices, The World Is Flat, it is vital that American industry maintain its world lead by persistent self-examination of how to improve operations and boost productivity. Friedman cites no specific questions to raise; however, having a checklist can help any company pinpoint areas for improvement.
The first methodical approach to a checklist occurred in 1900, when Frederick Winslow Taylor was on contract to the Bethlehem Steel Company to study operations. Watching laborers load bars of pig iron onto freight cars, Taylor wondered how many bars a worker could load in a day if he really tried. He estimated that the men he watched loaded iron bars at the rate of 12½ tons per man per day. Taylor was curious to see how much pig iron they could load if they hustled. So as an experiment, he offered to double the workers’ wages in exchange for loading as much as they could. They loaded 16½ tons in something under 14 minutes.
Taylor did the math: Over a 10-hour day, this rate worked out to over 75 tons per man per day. But Taylor wanted a realistic figure of achievable number of tons per man per day, so he deducted time for breaks, bathroom time, etc. Accordingly, he adjusted the figure 40% downward, and concluded that every laborer could be expected to load 45 tons per day if they were paid incentive pay for reaching the target but received penalties for failing. Lured by a promise of a 60% increase in wages - from $1.15 to $1.85 a day - each worker loaded 45¾ tons per day.
Taylor trumpeted this as a victory, and it formed the basis of his influential study, “Principles of Scientific Management Checklist.” He used this method with other projects for other clients.
This idea soon blossomed into the creation of business schools. In 1908, Harvard University opened the first graduate school to offer a master’s degree in business and based its curriculum on Taylor’s scientific management. Taylor preached the gospel of efficiency across the country. Many variations of his checklist have been developed since then, and management science has flowered into many directions.
This brings us back to Thomas Friedman’s latest contribution in this field. A good number of manufacturers have efficient management, Friedman says. But more effective results are needed by more producers if they are to survive today’s onslaught of imports from China and India.
In some companies, management is unaware that its typical behavior limits profits. Many company presidents are usually bored by the non-glamorous aspect of internal plant operations. Such typical executives give most of their attention to the outside world, where many opportunities for increased business and profitable returns may be available. That is where the excitement exists, rather than dealing with the prosaic internal plant problems identified by the seven questions. But asking the right questions and finding answers about the prosaic elements in plant performance is the only way to achieve true success.
As Friedman said, inertia in management is responsible for more loss of market share, more loss of competitive position, and more loss of business growth than any other factor. Leadership is required to overcome these shortcomings. Leaders in business should determine a company’s goals and priorities, and give their achievement a sense of urgency.
One way to achieve a sense of urgency among management executives is with the seven questions checklist. The checklist can be used to review work processes and make them more effective, to teach managers the importance of focused effort, and to help managers relate their daily activities to long-term goals so that they can use their time most effectively. It can also be used to determine what changes are to be achieved and who will be responsible for achievement, and to tie compensation/motivation policies to overall company strategic objectives so that employee reward systems at all levels are congruent with reaching these objectives. Finally, the checklist can be used to decide what incentive systems to use as motivators to boost profits. By using this technique, many companies have doubled their profit margins on sales.
For more information about business improvement strategies, visit www.imbdef.com.
1. In order to compete against lower-priced imports, are you instituting incentive employee programs to boost productivity - thereby reducing unit costs and boosting profits?
2. Have you explored reducing your investment in inventory by shifting inventory responsibilities to suppliers?
3. If costly customer returns occur, what measures do you take to eliminate the production errors that may be responsible?
4. Since deliveries from foreign producers are often delayed due to transportation problems, and arrive only 50-60% on time, are you gaining a competitive edge by delivering your goods on time 90-100%?
5. Have your supervisors been given special training on how to improve production, particularly in managing Hispanic workers?
6. Since hourly employees are closest to the daily work, have you developed a method to obtain workplace information from them, such as suggestions on how operations performance can be improved?
7. Does management take the attitude that current bottom line profits are “good enough”? What measures are being considered to improve your profit margins?
In a global economy, there is no hiding from competitors. According to the New York Times writer, Thomas L. Friedman, a three-time Pulitzer Prize winner and author of a widely read new book on management practices, The World Is Flat, it is vital that American industry maintain its world lead by persistent self-examination of how to improve operations and boost productivity. Friedman cites no specific questions to raise; however, having a checklist can help any company pinpoint areas for improvement.
The first methodical approach to a checklist occurred in 1900, when Frederick Winslow Taylor was on contract to the Bethlehem Steel Company to study operations. Watching laborers load bars of pig iron onto freight cars, Taylor wondered how many bars a worker could load in a day if he really tried. He estimated that the men he watched loaded iron bars at the rate of 12½ tons per man per day. Taylor was curious to see how much pig iron they could load if they hustled. So as an experiment, he offered to double the workers’ wages in exchange for loading as much as they could. They loaded 16½ tons in something under 14 minutes.
Taylor did the math: Over a 10-hour day, this rate worked out to over 75 tons per man per day. But Taylor wanted a realistic figure of achievable number of tons per man per day, so he deducted time for breaks, bathroom time, etc. Accordingly, he adjusted the figure 40% downward, and concluded that every laborer could be expected to load 45 tons per day if they were paid incentive pay for reaching the target but received penalties for failing. Lured by a promise of a 60% increase in wages - from $1.15 to $1.85 a day - each worker loaded 45¾ tons per day.
Taylor trumpeted this as a victory, and it formed the basis of his influential study, “Principles of Scientific Management Checklist.” He used this method with other projects for other clients.
This idea soon blossomed into the creation of business schools. In 1908, Harvard University opened the first graduate school to offer a master’s degree in business and based its curriculum on Taylor’s scientific management. Taylor preached the gospel of efficiency across the country. Many variations of his checklist have been developed since then, and management science has flowered into many directions.
This brings us back to Thomas Friedman’s latest contribution in this field. A good number of manufacturers have efficient management, Friedman says. But more effective results are needed by more producers if they are to survive today’s onslaught of imports from China and India.
The Need for Leadership
The checklist shown in the sidebar below can help companies identify the changes that are needed to improve profitability. Asking the questions in the checklist is just the beginning; a persistent effort is required to overcome mediocre performance in any of the areas listed. Improving performance is much more than planning and talking. It requires the methodical acquisition and analysis of key operating statistics. Often, broad experience and professional help are needed to pinpoint those key answers, which vary by industry and operation.In some companies, management is unaware that its typical behavior limits profits. Many company presidents are usually bored by the non-glamorous aspect of internal plant operations. Such typical executives give most of their attention to the outside world, where many opportunities for increased business and profitable returns may be available. That is where the excitement exists, rather than dealing with the prosaic internal plant problems identified by the seven questions. But asking the right questions and finding answers about the prosaic elements in plant performance is the only way to achieve true success.
As Friedman said, inertia in management is responsible for more loss of market share, more loss of competitive position, and more loss of business growth than any other factor. Leadership is required to overcome these shortcomings. Leaders in business should determine a company’s goals and priorities, and give their achievement a sense of urgency.
One way to achieve a sense of urgency among management executives is with the seven questions checklist. The checklist can be used to review work processes and make them more effective, to teach managers the importance of focused effort, and to help managers relate their daily activities to long-term goals so that they can use their time most effectively. It can also be used to determine what changes are to be achieved and who will be responsible for achievement, and to tie compensation/motivation policies to overall company strategic objectives so that employee reward systems at all levels are congruent with reaching these objectives. Finally, the checklist can be used to decide what incentive systems to use as motivators to boost profits. By using this technique, many companies have doubled their profit margins on sales.
For more information about business improvement strategies, visit www.imbdef.com.
SIDEBAR: The Checklist
Asking the following seven critical questions can uncover the common shortcomings that inhibit and limit the growth and profitability of an organization. These powerful questions are particularly important for manufacturers with 100 to 1,200 employees - which collectively account for 71% of U. S. manufacturing employment.1. In order to compete against lower-priced imports, are you instituting incentive employee programs to boost productivity - thereby reducing unit costs and boosting profits?
2. Have you explored reducing your investment in inventory by shifting inventory responsibilities to suppliers?
3. If costly customer returns occur, what measures do you take to eliminate the production errors that may be responsible?
4. Since deliveries from foreign producers are often delayed due to transportation problems, and arrive only 50-60% on time, are you gaining a competitive edge by delivering your goods on time 90-100%?
5. Have your supervisors been given special training on how to improve production, particularly in managing Hispanic workers?
6. Since hourly employees are closest to the daily work, have you developed a method to obtain workplace information from them, such as suggestions on how operations performance can be improved?
7. Does management take the attitude that current bottom line profits are “good enough”? What measures are being considered to improve your profit margins?
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