The concept harks back to the breakthroughs of the Industrial Revolution — think steam engines, cotton gins and assembly lines — and ever since, we’ve all been deputized for vigilance against wasted effort. The television remote control, designed to eliminate unnecessary trips to the television set, now gives way to voice control. Refrigerators can now tell you when you’re running out of milk. And so on, and so forth.
For business practices in general, the same efficiency/labor correlation rings true. But for the local industry in particular, with sales teams out in the street and operations teams handling fulfillment tasks, efficiency gets a bad reputation because it often represents a reduction in workforce.
Too often, efficiency is seen as a tool of the cold and calculating — measured as effective only insofar as it reduces labor counts. This narrow-minded viewpoint concludes that if revenue minus labor equals profit, the easiest way to increase profit is to reduce labor.
But given the fact that our economy is now off of life support, why aren’t more businesses involved with local turning their focus to the more positive aspects of efficiency — enlarging revenue as a way to increase profits?
The short-answer is that there are too few companies working on revenue-minded efficiency solutions, while there are too many working on labor-minded efficiency solutions.
A quick definition: labor-minded efficiency aims to cut staff through automation, while revenue-minded efficiency aims to make your current staff more productive. The differences may seem subtle, but the impacts are immense.
Take, for example, a hypothetical mid-sized media company. Let’s say they employ a sales force of 100 that brings in $5 million of yearly revenue. They need to increase profit margins (because, of course they do), and are looking into software platforms to increase the efficiency of their sales team.
Option One is an online interface for customers to direct-purchase marketing products, allowing the company’s sales team to move from the field to the office and pitch customers over the phone. Because a salesperson can make twice as many calls as they can drop-ins, the interface would allow the company to cut their sales force in half while maintaining the same level of productivity.
Option Two is a streamlining platform that automates the sales fulfillment, analysis and proposal processes. The sales team stays at 100, but because the platform drastically simplifies the team’s functions, they would no longer be bogged down with the processing that currently takes up almost half of their day. The increases in efficiency would make the sales team twice as productive, allowing the company to double revenue.
What you have here are two efficiency solutions with drastically different consequences. Option One is an example of labor-minded efficiency, while Option Two is an example of revenue-minded efficiency.
Businesses with efficiency dilemmas need to ask themselves which path is more compatible to long-term growth. For our fictitious media company, Option One does offer savings through labor cuts, but at what cost to their competitiveness? A salesperson will never be as effective over the phone as they are in-person, so while their bottom line would see immediate benefits from the labor reduction, the downgrade in face-to-face customer interaction could have far-reaching repercussions.
Thus reveals the short-sightedness of labor-minded efficiency and the problems of addition by subtraction.
With the economy on the uptick, businesses in local should have more wiggle-room in how they choose to increase efficiency. Whereas fear may have motivated them to move towards labor cuts in the past, now they should feel the freedom to invest in long-term solutions.
Help is on its way in the form of revenue-minded efficiency companies that have stepped up to fill the void.
Andy Vogel is Chief Operating Officer at Colony Logic. Prior to Colony Logic, Andy was Senior VP of Digital & Mobile for Tribune Company, including the Los Angeles Times and Chicago Tribune, and 39 broadcast television stations, including WGN America on national cable and KTLA.