Look for the Signs

Greater productivity is high on the agenda of many home care providers because it is the best method of protecting — or improving — profitability. It is also a management strategy that is new to many providers and, therefore, has less refined techniques than other management activities.

I recently met with one of the largest and most forward-thinking independent providers in the country to address some of the issues involving productivity. Whether you own or manage a small or large company, independent or not, pursuing productivity improvement effectively requires management to be able to anticipate an adverse change in momentum and deal with it.

But what tips off a company manager that productivity may weaken? There are at least six signs to look for.

1. Divergent margins This is a good way for a consultant to say that general and administrative costs are rising more quickly than cost of goods, which means the trend lines of the gross profit margin and operating margin are diverging. Both of the values are expressed as a percent of sales. The implication of this condition is that the manager must calculate productivity, plot it from current and prior periods, and determine if the trend is beginning to flatten or fall. The cause may be the result of costs unrelated to productivity. However, the condition indicates the manager must consider that declining productivity may be the culprit.
2. Increasing salaries as percent of sales This is not a conclusive sign, but rather a warning for the manager to compare current productivity to previous productivity. The manager may determine that the cause of the increase is more expensive labor. So, this may not be a sign that productivity has weakness, but it could be a sign that the company needs to increase productivity more rapidly.
3. Increasing mistakes/failures Since people are required to fix the mistakes a company makes, they require the expenditure of more labor. More labor without more sales is counter-productive. Mistakes and failures are often an indicator that customers (external or internal) are being promised more than is being delivered, that processes are inappropriate and need to be re-engineered and that staff and/or management are under-trained relative to the needs of the company. Attentive management that is using good controls should easily spot the problem and take corrective action.
4. Falling morale Employees who are not engaged by their work often fail to perform as well as employees who feel their work is worthy of them. When a manager detects falling morale, it should be assumed that a measurable decline in productivity is likely to occur in the near future and warrants a preemptive action.
5. Increased employee turnover Increasing turnover exposes a company’s processes to less knowledgeable employees. These employees are more likely to produce lower throughput and lower quality. The situation is, of course, not likely permanent. Nevertheless, it will reduce productivity and, thereby, profitability. As soon as management experiences an increased turnover, steps should be taken to protect productivity.
6. Declining sales Productivity is a relationship of sales to employment. In most companies, a decline in sales occurs more quickly than a decline in employment. The result is a certain decline in productivity.

The manager must determine as accurately as possible the likely duration and extent of the declining sales as well as the company’s ability to finance the cost of lower productivity. With this information, the manager can decide if employment should be reduced.

It would be nice if all HME companies had continuous improvement in productivity, but the reality of business is that productivity may ebb and flow. This reality mandates that while home care company managers are continually trying to guide greater productivity, they must also be looking forward, anticipating and pre-empting adverse situations.

Wallace Weeks is founder and president of Weeks Group Inc., a Melbourne, Fla.-based strategy consulting firm. He can be reached at 321/752-4514 or by e-mail at [email protected].