Small Changes Yield Big Results

by Michael Curry

In 1896, the Italian economist Vilfredo Pareto observed that many of life’s results are influenced by a few choices. Dubbed the 80/20 rule, Pareto’s principle implies the greatest benefit we experience is often a result of just a few factors. The 80/20 rule can be very useful to a small business in approximating the expected result of an investment in technology.

As an eBusiness consultant, when I start working with a new business client I am on the look out for small changes that can improve the bottom line, such as automating inefficient business practices. Inefficiencies are easy to spot—they are the repetitive tasks we do over and over and intuitively know to be a waste of our time. When we can apply the 80/20 rule to primary revenue-generating processes, the results are dramatic.

Technology is increasingly the competitive edge businesses use to distinguish themselves from competition in order to become more profitable.  How might you apply technology to your own business practices? Following are a few examples of how technology has helped many other small businesses.

"Anytime you encounter a repetitive task essential to the business’ income, ask yourself: can this be automated? By automating the mundane, you are freed up to perform tasks that have the potential to significantly improve your business."

Saving Time. Time is our most precious non-renewable resource, and saving time is the primary motivation of many projects. By automating the mundane, you free yourself and others to perform tasks that have the potential to significantly improve your business. How many hours might be saved through an investment in technology? It should be relatively easy to come up with a list of repetitive tasks, and then make some conservative estimates as to how many hours a day are spent doing them. As a starting point, estimate a savings of 50 percent and calculate what that additional time is worth over one-to-three years.

Reducing Error. Computers are better suited to doing some detailed tasks than a human is. People become distracted and often make costly mistakes. This is why quality-control processes are commonplace in manufacturing. If an error is not caught, what does this cost the organization? Is there some way to automate a repetitive task? To estimate the potential benefit of automating a process, consider the value of decreased employee turnover, increased productivity, an improved reputation, lower support costs and fewer product returns.

Increasing Revenue. The bottom line of any technology project should be to make money. It may be by increasing sales, retaining customers, avoiding expenses or in some way putting more money back into the company at the end of each day. The sales staff may champion a technology improvement if they believe the investment can help close sales. In making calculations, be conservative when estimating benefits, especially with respect to increased sales. So many factors influence the buying process, and it is difficult to be confident an idea will increase sales until it has been tested.

Decreasing Costs. Are there expenses that can be eliminated or reduced by adopting technology? For example, you may remember new software programs not-so-long ago included a simple how-to book that explained the basics of the software. Such books have been nearly eliminated. Today if you buy software, at most you find a pamphlet that explains how to install and register the product or how to contact support if you need help. This was not just a cost-savings strategy on the part of software manufactures because studies found users rarely read the how-to-books. Consequently, manufactures found it more beneficial to invest in improving their electronic help and eliminated the books. The Internet makes it much cheaper to publish and distribute documents than ever before, so this is one way a small business can decrease costs.

Improve Response Time. Automated reporting tools can speed the digestion of raw information to help make more informed business decisions. Retail and manufacturing companies, for example, experience a lag time between buying inventory and recouping costs through sales. For these organizations, adding a system that better tracks inventory on hand against sales orders will reduce overhead. I often find when I can help a business visualize their data and see things previously hidden they make better decisions and quickly realize a return on their investment. The life of any business is their cash flow, so a report generator can be extremely beneficial.

Implements a Requirement. There are many cases where laws, regulations or other rules dictate information must be available on a recurring basis. If there is a possibility of punitive damages from noncompliance, or if the requirements are labor intensive, then an automated system may offer some cost benefit. For example, many small businesses choose to outsource their payrolls just to simplify meeting statutory requirements of state and federal tax withholdings. Other companies may decide to invest in an automated personnel records system if it makes sense to keep their records in-house.

As the 80/20 rule implies, simple solutions can make a tremendous return on investment. I recommend a business begin by looking for ineffectiveness in their primary revenue-generating processes. To help gauge how much you can afford to spend on improvements, calculate how much you might benefit from becoming more efficient. Then start small and gradually introduce improvements to become more profitable.

 


 
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