Strategy

24th April 2014

Thoughts on Leverage 1 by Ian Kinnery

Without a doubt leverage is one of the most important concepts in business, but the dictionary definition of “The exertion of force by means of a lever” is not particularly helpful to business people.

However we all instinctively understand that running a business without leverage is hard work. Archimedes said “Give me a lever long enough, and a prop strong enough, I can single-handed move the world.” Being able to move the world single handed may be a bit of an exaggeration of the power of leverage in business but I am sure you get the point!

I tend to find the following three definitions most useful when I talk about leverage

1. Achieving ever more with ever less
2. Divide to multiply
3. Do something once and get paid forever

Achieving ever more with ever less is, in a phrase, the essence of what business is all about. It refers to the output we can expect from a given amount of resources.

The ability to produce more from the same amount of resources as your competitor means that your cost of production will be lower and therefore at the same price point your profits will be higher. Other options include the ability to undercut your competition on price whilst maintaining the same or better margins.

How to achieve ever more with ever less is not always as easy as it would seem. Driving people harder, turning up the speed of the production line, demanding more won’t always work but being aware that the objective is always to produce more from less is a good start.

In the old days my father and grandfather were both miners. In those days we were generally able to measure the output in terms of “work done”, in this case tons of coal hewn/ produced. In those days much labour was manual labour and therefore output was easily measured. If his boss had wanted to increase my Granddad’s productivity then perhaps providing a mechanical pick would have been a good solution.

In today’s environment comparatively little labour is manual, most of us are “knowledge workers”. Our output is more to do with our knowledge and efficiency than our physical ability. We can still measure the output and increasing output is just as important as it ever was but a quicker computer is not likely to improve efficiencies much, so we need to find other, more relevant and effective ways to bring leverage to our knowledge workers; to help them achieve more from less.

Helping our colleagues to want to produce more with less, otherwise known as motivation or leadership is one sure fire way to bring leverage to a situation. That is one reason why it is so important for any business owner to develop the highest levels of leadership skills.

Another area where being able to get more from less pays immediate dividends is in the use of our scarcest and most perishable resource. That is time. Those who are able to develop the disciplines and skills that promote the most effective and efficient use of time; those who can produce more output in less time will have an immediate advantage. We can increase the leverage in any business by increasing our own personal efficiency and that of our team. There are some straightforward things that we can quickly do to achieve that.

We will be looking at leverage and other similar, simple, but oh so effective strategies to build a better, more profitable business whilst generating a better lifestyle in our next free seminar. Why not come along and hear for yourself.Click here for details  Please note the change of date to 21st May.