MANY BUSINESS OPERATORS BELIEVE THEY NEED MORE CUSTOMERS, BUT ARE THEY BITING MORE THAN THEY CAN ACTUALLY CHEW? Many would say yes as there is a need for greater profitability for businesses. They are correct as the economy of scale dictates that an increase in demand can cause an increase supply. If your supply is increased, the labor cost in production could be minimized.
Since your fixed costs are spread over a higher volume of output, you may be able to sell at a lower rate. Eventually sales could increase to satisfy the potential growth in the customer base. This concept is good but there are other ripple effects to consider from increasing your production and customer base. Here are tips to consider before growing or expanding your business.
Staffing
We have a preconceived notion that in order to get more we have to tighten or belt. This is interpreted as utilizing the staff and stretching them to cover the needed shortfall. Tighten belt can be interpreted as cutting back on capital expenditure and reducing overhead expenses.
However, we must respect the human resource that is employed to generate our profitability because without our committed staff it cannot be realized.
As much as we want to extend our facilities to meet the demand of our customers. one must be cognizant of the policies that govern the organization's work hours and time allotment for staff. If we want more customers we must be prepared to take on additional staff or mechanize some functions.
Quality of Service Standards
Don't expect that customers will understand," Pardon our Progress" as we go about our expansion operation carelessly. Show that you have their interest and safety at heart by protecting them. In addition, let the customers in on the operation by informing and sensitizing them about the inconvenience they might experience. I am not saying that we should disclose your entire operations to them but at least prepared them for the change.
We all know that Rome was not built in one day and therefore it is expected that infrastructural changes will take some time. Inevitably the operations may alter but the standard and quality should not be compromised as a result.
Raising The Bar
Service quality should not fall during your expansion, here is why. If it takes one person to prepare a sandwich in one minute, it will then take the same time to prepare two sandwiches with an additional staff and so on.
Similarly, if it takes 5 minutes to prepare Cashiers check for one customer, it will take the same time for each if there is twenty or more other customers who demand similar service of the same representatives. Of course, the line will reduce due to the learning curve but then again," Rome wasn't built in a day".
If efficiency is reduced, and this may be due to several factors including fatigue, there may be a 'bottle neck' in the operation. Interestingly, increasing your staff compliment does not guarantee an improvement in service. However if the operation is properly supervised and monitored, efficiency can be achieved.
Cost Benefit Analysis
I often wonder if some companies conduct proper cost benefit analysis in their operations. We look at the overall green picture but ignore the red at the end. Will it cost my staff their family life? Is this an ethical issue? Will this impact on the country's overall macro performance negatively?
Years ago a giant car manufacturer realized that a certain model vehicle had a fuel system defect in its engine. The research was conducted to ascertain the cost benefit against the possibility of an accident. The question was; "If rubbers were not installed in the engines of the vehicles how devastating would the results be."
This rubber reduces the possible effect if an accident should occur and the overall costs benefit worked in favor of the research. This meant that damage would have occurred but at a minimal cost to the company. Consequently, the manufacturer decided to approve the model.
Years after, an accident occurred as a result of the same defect and the company was sued for more than their expectation. There was a breach in ethics of care by the company when they found out that there was a threat to human life and they did nothing. Where profit can be regained, loss of life cannot be reversed. We must be mindful of the cost benefit not only with strong emphasis on the company's profit but the human life that is affected.
Mission in View
When we set objectives we must periodically look at the organization's overall mission. With the view to maintain focus, companies must revisit their corporate strategies and align their operations to fit goals accordingly. However, we must also be flexible and responsive to changes around us. Here is an example: if we realize we would be reducing the number of departments from fifty to ten in 5 years, we have to look at reducing the customer data base at the end of that period. We must also look at all the other factors that might be affected and make adjustments accordingly.
Consequently, we have to look more seriously on customer retention rather than an increase in new customers (keep the old and reduce the new). It would be more economical to keep your clients and commit them to a well desirable level of customer service, than to attract new businesses outside that perimeter.
Therefore you expand your product range to meet and match the present and anticipated demands of your customers, while you make your infrastructural changes. The projected returns that would be derived from this change would not necessarily be the result of increase customer base but an improved service and a diversification of goods and services offered to existing clients. Consequently, you would have committed, loyal customers rather than having more new customers at the end of the projected five years.
The Bottom Line
The bottom-line in the whole expansion operation is indeed for the viability of the business. That goes without saying but in the whole process of carrying out your structural changes we have to consider other important factors. These are sometimes classified as externalities in business. We have to keep the organization's goal in perspective while at the same time, be proactive and work with the policies laid down by the government which includes taxes, duties as well as unforeseeable expenses, which include duties, tariffs, public nuisance bill for factories and other hazardous enterprises.
Changes in the work force also has an impact on our decisions. Globalization has opened up windows of opportunities for individuals and the ethical relativism that brings about this change affect the way we operate our business whether in our own country or when set up enterprises in other countries.
At the end of the day, we can reap the benefit and thus share it among the staff and customers in the form of bonuses and affordable prices respectively. This is a just reward for the help that was offered to you while you expand your business and made it possible to serve more of your valued customers.
"Firms must grow to stay economically healthy. To stop growing is to stagnate." (DAFT, Richard; 2007)
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