Recent research from McKinsey Global Institute reveals that annual productivity could very well grow by one percentage point through 2024 — a number that's double that of the productivity growth rate before the pandemic. Additionally, the U.S. economy is projected to grow by about 6.4% according to the International Monetary Fund. Promising news with a lot at stake.
But as we all know, growth takes money. And many midsize companies — typically defined as businesses with anywhere from 100 to 999 employees — are more risk averse than they were before COVID. After all, many organizations were forced to get support through federal PPP programs or drawing on lines of credit just to survive the pandemic.
So how can midsize companies position themselves to capitalize on the recovering economy without having to call on their banks or investors? Maximizing efficiency. It’s almost like a magic formula that, when applied correctly, not only boosts productivity, but frees up capital that can then be used for growth. That said, you have to boost efficiency in ways that don't undercut your company's ability to grow and thrive.
Look at all the Variables that Go Into Productivity
The productivity is pretty simple, right? You divide your outputs by your inputs. But many companies mistakenly only view inputs as labor. Additional, equally important inputs include variables like inventory, materials, capital equipment and technology investments. Instead of looking at boosting productivity as an exercise in cutting costs, if you consider all the variables involved, you'll be able to get more out of all your assets, not just your employees.
For example, let's consider company A, which is struggling with fewer employees than needed, but still looking to meet its goals by increasing both efficiency and productivity. In this case, the company needs to figure out how to get more with less. So it focuses on it's most profitable customers, giving them top priority while leveraging technology to make sure customer service creates maximum value. In return, they save energy, time and assets to increase productivity while conserving necessary capital and doing more, even with fewer employees. Now imagine how a similar attitude toward productivity could impact your business.
Up Your Financial Planning Game
Working capital is the lifeblood of any company. According to results from the AchieveNEXT 2021 Sentiment Study, financial analysis and planning are the two top skills gaps according to CFOs. That underscores the importance of keeping your skills sharp and making sure that you've got the talent and technology to support your finance team and make it easier to gain real-time analytics, create reports and carry out strategic planning.
And here's why: if you have money tied up in slowly-collected receivables, unnecessary inventory and bills paid too early, you're missing out on cheap capital that you could otherwise put toward growth. Data shows that there's a four-fold difference in performance between middle-market companies in the 25th and 75th percentiles for inventories, payables and receivables. By moving up from the median to the 75th percentile, you could free up millions of dollars in capital that you can use to expand or pursue other goals.
The pandemic has taught us all some valuable and useful lessons in adapting quickly. For many businesses, it also revealed tons of unnecessary fat that could easily be trimmed. Without the ability to travel, sales teams adapted to virtual methods, saving tons of money in the process to gain sales and reduce the cost of customer acquisition. With large swaths of workers shifting to remote work, many organizations are rethinking their real estate needs, negotiating for lower rents and switching for space with a much smaller footprint. Lastly, don't underestimate the importance of digitalization, which lets you optimize operations across the company.
Deeper digital capabilities are the key to being able to pivot quickly when there's a disruption. They also provide opportunities to increase sales, increase efficiency and increase your company's ability to use data to make key decisions. That said, remember that while digitization is a boss move, it's not a magic wand that fixes everything on its own. You need to integrate digital solutions with your processes and people to reap the benefits.
When you take approaches like these, you'll easily fund and feed your midsize company's growth and efficiency. Not only are they more effective than just looking to cut costs, these types of strategies also boost enterprise value and better position the company for gaining outside capital down the road.