Financial Implications of Poor Operations Management

Operations Management Role is Critical for Small Businesses

There are many factors that influence the success or failure of an organization, but poor operations management skills may be one of the most significant. A lack of good management can not only have long lasting effects on employee satisfaction and customer satisfaction, but also can carry financial implications that can make or break a business.

Could bad managers really impact your business financially?

The following examples are common ways in which poor operations management can have a negative effect on finances.

1) Low Employee Morale

Bad managers can lower morale within an employee base. There are a number of management mistakes that can lead to this, such as personal favoritism, poor work-life balance, or not recognizing employees’ accomplishments. When employees perceive these injustices, they are often quick to complain to one another, put in minimal effort, or make more mistakes. On a financial level, this can lead to lost revenue from decreased productivity across the board. Furthermore, poorly-managed firms will often see low employee retention, leading to increased training and hiring costs. In contrast, a successful manager will motivate his or her employees and increase morale. This will create a productive base of employees that are happy to be there and ready to commit to their jobs in the long term. The last thing you want as a manager is to have a negative impact on your human resources.

2) Reduced Productivity

Poor operations management can also lead to reduced productivity on both an individual and company-wide level. Many managers make the mistake of expecting all employees to be on the same page with regard to productivity and performance expectations. In fact, this very mistake is what often leads to infighting, accusations of favoritism, and low morale. Employees who are faced with confusing or non-standardized performance expectations may be constantly doubting their work, leading to lessened motivation and, subsequently, productivity. Low productivity can reduce profits by slowing down revenue streams and creating bare-minimum work. A good manager can counter this by clearly communicating expectations after hiring, and by introducing regular performance appraisals to positively reinforce employees’ outlook on their work. A positive employee environment should feel more like a community than an office.

3) Loss of Talent

The best employees are a valuable asset, and no manager wants to lose them. Unfortunately, these high-performing employees are often the quickest to go when management strategies fail to maintain them. Not only will highly skilled employees be quicker to leave under poor management, but their time spent searching for other jobs will also sap their own productivity. A lack of employee talent will but any company at a competitive disadvantage, thus reducing profits in favor of other firms. A skilled manager can counter this by effectively communicating his or her appreciation and understanding of the value these high-performing employees bring to the table. Making sure that feedback is constructive (with the opportunity for employees to give feedback as well) is essential to maintaining your best talent.

4) Reliance on the Status Quo

In the world of business, companies love to stick to proven methods of getting things done. However, this is often too simplistic of an approach to apply universally. For example, one group of employees’ skills might be radically different than company tradition, meaning a different approach would be more productive. Furthermore, in our rapidly advancing society, technological changes also often make traditions obsolete and require thinking outside the box. A common managerial mistake is to rely too much on these “status quo” practices, which can very much waste time and cost more than a novel approach. The best managers will always be searching for other solutions when it comes to saving money and time. Managers can also listen to employee suggestions—no question should ever be answered with the phrase “we’ve always done it this way.” That said, it is important to make whichever approach is chosen universal across the company. If there’s anything more costly than outdated practices, it’s inconsistent practices.

5) Ignorance of Consumer Trends and Preferences

As a manager, never assume you know more than the customer. Oftentimes, companies will struggle for months to solve a problem whose solution might seem obvious to a consumer on the other end. Not taking customer opinions and preferences into account can be costly, mainly due to the lack of sales that comes with being out of touch with what people want. To counter this, good managers can utilize customer feedback forms like the Net Promoter Score (NPS). This allows a company to quantify customer satisfaction and track it over time. Additionally, complaints and anger should never be brushed off. Listen to what is upsetting the customer—perhaps a possible new way of doing things will come to light that can save revenue and improve the product. Managers also should make sure they use their company’s product and think about it through the lens of a consumer.

6) Inadequate Budgeting

Of course, managers are also tasked with steering the direction of a company’s finances and budget. Poor management skills can impact this, not only through direct budgeting mistakes but also through the effects of the other financial implications mentioned above. For instance, if a company’s sales department is afflicted by bad management, direct financial losses will occur if quotas are not met by poorly motivated employees. In addition, if a manager sets expenditures too high or mismanages money, a lower net income will result. A good manager can account for this by practicing skilled budgeting, consulting with relevant associates, heeding this advice of accounting departments, and keeping a good daily schedule. No manager should see him or herself as bigger than the company’s own success. Regular discussion and reviews of budgets should be commonplace to ensure that the firm is on-track with its profit expectations.

7) Can Make Hiring More Difficult

If your business has bad management, leading to high employee turnover, low employee engagement, and a general lack of vigor in team members and co-workers, why would anyone else want to work there? As a small business, it’s crucial to have a positive working environment. Anecdotally, some of my best hires have come from employee referrals! This would never happen if electrIQ marketing had high turnover and a general lack of satisfaction across the entire organization. Anecdotally, when hiring an entry level position a few months ago, one of our prospects messaged every single current employee on Linkedin asking what it was like to work for us. Since we have a positive working environment, the reviews our employees gave were supportive and she ultimately took the job, but what if our employees weren’t happy? Would she still have accepted the job or would we need to settle for a lesser qualified candidate?

How to Avoid Poor Operations Management in a Nutshell

While these financial implications of poor operations management may seem daunting, there are many proven ways to ensure your management skills are increasing productivity and profits. Having a friendly and constructive approach to employees, while simultaneously setting clear expectations and standards, is an ideal way to reduce turnover, increase morale, and keep critical talent within the company. Fair hiring practices, transparency, and regular performance appraisals are also critical. Thinking outside the box and listening to customers can improve both product and productivity. Finally, managing an effective budget and keeping company goals in sight will help ensure your business is well-managed and does not suffer from the above financial ailments.