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Want to Succeed? Stop Being So Efficient

You might be losing key opportunities because you're too focused on saving resources and not enough on investing in them.
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Efficiency: It's on the list of what most entrepreneurs want and need for their companies. The greater the efficiency, the more effectively you can put resources to work, and the stronger your company. Get to market faster. Make more money.

But what happens when you're too efficient? You can suddenly find that your business can't do what it needs to, as the economics blog Naked Capitalism points out:

Readers have had a bit of schadenfreude in seeing how Walmart has gotten too clever by half and has squeezed both its workers and staffing levels so much that it is undermining critical store operations to the point where the mainstream media has taken notice.

You've probably seen this happen. You walk into a store needing help and find that there is none to be had; or a company puts supplies you need on back-order because it doesn't have the inventory it needs.

The Customer Gets Squeezed

The drive for efficiency becomes like a financial eating disorder, with executives cutting, cutting, cutting costs and self-congratulating at achieving the goal, no matter what the cost. In the healthcare industry, hospitals are feeling the pinch as they can't get common drugs that are necessary for many patients. There are 323 drugs in chronic shortage right now.

What's missing is a ready supply of some simple chemicals that nevertheless must be made in sterile conditions, but that happen to be relatively low in margin. Manufacturers would rather spend their time on what makes better money.

The problem is, what do you do when your customers get tired of your inability to supply what they really need?

There are times to slim down operations, but when you do so at the expense of satisfying customers, you're cutting your own throat. Facing sudden competition in the drug industry is difficult, given the degree of regulation it involves. But how many companies are in that position? How readily could someone give you a run for your money?

Take Stock of Your Operations

It might be time to ask yourself some of the following questions:

  • Do I have the inventory necessary to reliably address 80 percent of my customers' orders?
  • How long do customers have to wait to talk to a representative because of lean staffing?
  • Do employees have the opportunity to be creative and find the next innovation in our industry?
  • Does the company have enough capacity available to take advantage of one of those big opportunities I'm interested in landing?
  • Perhaps most importantly, has cost cutting become an automatic response to changing conditions in our business?

Do be efficient. But remember that moderation and prudence are also excellent characteristics for an entrepreneur to cultivate.

Last updated: Apr 25, 2013

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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