Does Productivity Influence Profit? –Dickeson
Q. What happens if I don’t increase sales or release people?
A. You will suffer from costly excess capacity and endanger your business survival.
This is the stark, naked truth about increased productivity. In 1811 the Luddites of Great Britain learned of this inevitable result and tried to destroy new automation in the knitting mills. Thus, it should really come as no surprise 200 years later. We want productivity to increase. We want more output per labor hour.
When we get it we have to pay the price by eliminating people, painful as that always is, or subsidizing excess capacity by depleted earnings. We can’t join the latter day Luddites or put the genie back in the bottle. Recall the dismal fate of 10,000 hand manuscript monks after Gutenberg’s achievement.
Hourly job costs have been the great productivity deceiver in printing for many companies. Increased productivity apparently reduces job costs because it reduces the hours charged against jobs. We forget that hourly job costs aren’t real—they’re expedient fictions. Reducing hourly job costs by lesser job chargeable hours doesn’t decrease out-of-pocket cash expenses a penny.
There’s no way lower job costs alone can increase profits of a printing business. Increasing productivity is but the first step. If we don’t take the second step we wind up with a burden of unused capacity. And that’s where we are today, isn’t it? We’re an industry with chronic overcapacity because we’re constantly increasing our productivity! We have to continuously improve output per labor hour because we must—but it’s also a painful penalty.
The trouble is, when we go to the trade shows, association meetings and listen blindly to equipment salespeople, profit sugar plum fairies dance in our heads. This or that new gizmo will reduce our costs by X percent! Why? Because it will increase our productivity. Yipee!! Where do I sign? How soon can it be installed?