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Compounding advantages in labor savings

I talk a lot about efficiencies by using technology. The question always comes up, (especially from nervous data entry clerks) what do you do with all the saved labor? Do you just fire people?

That uncomfortable topic makes everyone pull some kind of face. 

The truth is, companies that are pulling away from the pack are using the technology to re-allocate labor, because nobody likes to fire employees. There are some things that machines and algorithms just can’t do, and humans should stick to those things! 

Rather than letting go of the employee that used to collect your money, you can reallocate that labor to providing above and beyond service to the customers who are paying their own bills. Two things happen, the billing isn't personal (no hard feelings) and the time is spent talking about things that are important. When you free up the time it takes to do something that destroys human connections, you have more time to nurture relationships.

Let's look at two companies head to head. The one who employs the above tactic, and the one exact competitor who doesn't.

ABC cabinets reassigns their collections agent to proactively call customers to add value, while XYZ cabinets uses that labor to call and ask the same question every week..."when will you pay us, and how much?".

From the customer's perspective, you see why XYZ ends up loosing to ABC. The customer gets a proactive courtesy call proving they are on their side and willing to work (for free, it's called service) for their benefit. Whereas XYZ pesters their customer with the same awkward conversation, which always ends up in screening calls. 

You see, I t's not enough to simply save time. The real power comes when you "compound advantages". A company who implements 5 time saving advantages from technology, for example, and reallocates the opportunities will pull away from the crowd and is the reason some companies get talked about, and some don't.

This principle is everywhere. In nature, think of an avalanche. The new snow is quickly used to move more snow. In finance, it's called compounding interest. Whatever you call it, it's part of what separates amazing companies from the rest. 

Back to our example of ABC (who we’ve renamed, but is a real company). Let’s look at how this can work. This will be an oversimplified, linear example, whereas in reality, there are multiple non-linear events happening simultaneously, but you get the idea: As a first step, ABC successfully eliminated printing and distributing a giant catalog every quarter, putting it all online. 

ABC had two options: The cost savings could be put into more online tools (compounding the advantage), or the owner could pocket the 1k. ABC was smart...

In their second move, they moved their ordering system online, which led to the elimination of order entry. Eliminating order entry made their reworks decline about 35%, and put another 35% back in the hands of their customers (who gladly took the blame because they gained efficiency on the self serve tools). Eliminating order entry also freed up a significant labor cost, which was reallocated into more online tools.

In the next move, they created a payment reminder system and an easy way for customers to pay online, their average days aging reduced from 58 to 29. The cash flow position was astronomical. 

When their customers started telling their friends about the easy ordering system and easy way of doing business, ABC had more new accounts signing themselves up than their sales team was bringing in. What did they do? They compounded the advantage! 

Rather than sending sales guys out to "beat the bush", they turned them into some sort of customer service ninjas who would make surprise quick deliveries and build real relationships with already happy customers. 

Of course, turning something annoying into a real service had it's benefits, and when more customers signed up than they could handle, they had a very good problem and their momentum really does look like an avalanche. It can be done, and I’ve seen it plenty. 

Compounding advantages requires strict adherence to the law of the harvest. You reap what you sow. The more you can refrain from taking the initial savings out and putting into something (you're hopefully not making payments on), the more the gain will compound and the greater it will become down the road. 

The above example is a good one, but not the only one. You have improvements to make at your shop. Make them and compound the gained advantage, over and over. When you use this tactic WITH technology, you're compounding with other exponentially compounded advantages. Technology IS a compounded advantage that you're picking up somewhere in the middle for (close to) free!

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