The cost of low productivity to US businesses amounts to $1.8 trillion annually. This staggering figure draws attention to the fact that most employers don’t know what their employees are doing a lot of the time and lack the knowledge and training to measure and improve productivity effectively. Employees are often guilty of stealing time from their employers. For example, the average incumbent spends five hours a week surfing the internet. This is not counting the legitimate time that is lost due to meetings and waiting for equipment, materials, or instructions. Here we take a closer look at the cost of low productivity.
There are two aspects to labor productivity. The first is how well that labor is managed and includes factors such as supervision, training, clear instructions, and motivation. The second is how efficient labor is at carrying out their tasks. The latter also encompasses taking advantage of top performers’ abilities with challenging tasks instead of repetitive work.
Every labor resource costs the company, and this must be factored into production costs. Calculations need to include all aspects of the compensation package and not only the base salary.
Profitability and Productivity
One study showed that 53% of employees only do the minimum work necessary and will leave a company for a higher salary elsewhere. Turnover, hiring, and training new employees are an additional cost to the business.
Often businesses are finding that the best way to turn productivity around is to hire a Dallas HR service provider such as G&A Partners, as managers consistently fail to address the issue. Valuable time is wasted by supervisors dealing with poor work performance instead of managing their sections productively.
Operational costs are increased by low productivity. A job done by an efficient four-man team takes another same-sized group of workers longer so that the final total of labor, materials, and equipment per job is higher. It may cost as much to produce each unit with the second team as the customer pays for the end product, meaning that no profit is made.
All this impacts the bottom line and profitability of a company.
Effects OF Low Productivity On Staff
Low productivity by an employee seldom goes unnoticed by other members of the team. When they see that this is permitted, it reduces their efforts. This will cause previously productive employees to disengage and lose initiative.
Low productivity spreads and results in more employees becoming demoralized and feeling that their efforts are in vain. Previously engaged staff members will experience a decline in performance and stop looking for solutions to problems. Team spirit plummets.
Statistics indicate that disengaged employees have 37% higher absenteeism rates, make 60% more mistakes, and are involved in 49% more work-related accidents. Another study reveals that this group of workers accounts for 70% of the labor force.
Firms that utilize their employees effectively and that have high morale contribute to customer satisfaction. Calls are returned, deadlines are honored, and quality products are sold.
Many firms fail to meet project deadlines because of poor productivity. The outcome is that they risk losing these customers to other businesses in the industry. The competition is always waiting to snap up customers and a business can gain a reputation of being unreliable, making inferior products, not providing a good backup service, or being unable to deliver.
Highly engaged employees lead to an 18% higher customer retention rate.
Low productivity is costly, but the phenomenon is poorly understood. Make sure you address the issue in your business, or it could adversely impact your bottom line.