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The opinion of one successful practitioner is worth more than the comprehensive works of ten career academics. I love to read the short candid antidotes of Jack Welch in order to curb my enthusiasm for business theory. In business today, it is so easy to get caught up in financial models and metrics, and ultimately forget about the importance of identifying a sustainable competitive advantage.
“If you don’t have a competitive advantage, don’t compete.” – Jack Welch former CEO of GE
A competitive advantage is “whatever” you do better than everyone else in the market. A company can either have a cost or a differentiation advantage. A cost advantage is one’s ability to offer a product or service cheaper than anyone else in the market. A cost advantage is secured through superior logistics, lower cost of goods sold, economies of scale, or automation via technology, just to name a few. A company with a competitive cost advantage must continue to develop in those areas that allow it to be the low-cost leader in the market.
A differentiation advantage is a quality that a company can provide, for which the market is willing to pay a premium. People will pay a premium for design (Apple), fashion (Louis Vuitton), organic/eco-friendly (Whole Foods), convenience (Rite-Aid), taste (Coca-Cola), speed (Verizon FIOS) etc.
The goal of every company should be to identify an opportunity for competitive advantage, and then, to work strategically in efforts to make it sustainable. The sustainability of a competitive advantage can lessen due to external factors such as changes in consumer preferences, regulations, and technological advancements. Such external factors cannot be remedied. Nevertheless, there are areas within the company realm of control that can lead to advantage sustainability, such as research and development, marketing, and perhaps most importantly, productivity.
Productivity is at the epicenter of all sustainable competitive advantages. Every manager should strive to increase productivity at the workplace (but in order to increase something, you must first attempt to quantify it). There are several measures of productivity; you can email me at email@example.com for an industry specific productivity metric, but for the sake of this blog post I’ll use a direct billable hours model:
Productivity = Benefit / Cost
Suppose you paid this employee $45,000 per year. On a per hourly basis, this employee would cost the company:
cost/hour = salary/direct hours per year = 45000/1920= $23.44
Most companies take their hourly cost for each employee and gross it up by a factor of 2.5 or 3. So you’d take $23.44 * 2.5 = $58.59, and you’d charge the client accordingly. The gross up factor covers overhead and the company’s profit. The gross-up factor you choose must be linked to your competitive advantage. Therefore, a low cost leader needs to reduce overhead as low as possible so that they could have the lowest gross-up factor in the market. If your company has a differentiation advantage, let’s say convenience for example, you should use a higher gross-up factor and invest in those areas that make your product or service to be even more convenient for your customers.
A productive employee is one that earns you the projected return. If our hypothetical employee earns us $112,492.80 ($58.59 * 1920 hrs. worked), then he is productive. The goal is to use a productivity metric that helps you further develop your competitive advantage into sustainable ones.
Now, let’s go over a few ways to increase productivity.
1. Hire passionate people
When people are passionate about something, they are self-motivated to do great work. I have a friend that works for Clear Channel Radio as a sales associate. She’s a hip-hop aficionado! She designed an entire program for Power99 radio station called, The Movement which follows Philly’s underground hip-hop artist. She also self-published a book called, “Pack-Light,” a love story with hip-hop overtones (neither of these accomplishments were required sales related duties).
2. Training and Professional Development
Knowledge professionals like lawyers and accountants need to take Continuing Professional Education credits (CPE) to keep their licenses current, but most professions don’t have a regulatory body that enforces CPE. Your company should place a high value on training programs that increase workplace productivity by teaching your employees new skills. Let’s take your receptionists for example. In addition to fielding phone calls; do they know enough about your company’s objectives to effectively represent your brand on Facebook? Can they use twitter to interact with your followers? Can they use SnapEngage to engage people browsing around your company’s website? If no, there are training programs out there for you.
3. Objective Appraisals
Jack Welch used to sit down with his employees at the end of every quarter and tell them exactly what he liked that they were doing and also what they needed to do to improve. Every employee knew exactly where they stood with the company. Employees that consistently excelled where rewarded, while those that didn’t improve where helped out….. I mean literally, helped OUT of the company.
4. Outsource or Automate
Some jobs are just too expensive to handle in-house. Payroll processing is an example of a function that is almost always cheaper to outsource. Each one of your employees should have a list of objectives (this also facilitates appraisals) to complete. You should be looking to outsource, or automate, any non-value added activities in your workflow.
5. Manage Effectively
A manager’s job is to remove obstacles preventing workers from getting their work done, and to find ways/tools to help them do it better. Upper management is not the brain-trust. Upper management is overhead. Enforcing rules that have nothing to do with accomplishing the job-at-hand is counter-productive. Do dress-codes, clean desk, and your strict punch-clock policy really increase productivity? Mix things up a little bit. Often times policy-makers should consider giving way to production. Try flexible work hours. Try work from home or from a satellite office via virtual private network, VPN.
Get wisdom and get understanding!