Automation and process improvement can help businesses reduce costs, improve net profit margins and allow people to focus on more intellectually stimulating work by eliminating the drudgery of performing cumbersome processes that take time and cost money to perform. With the availability of new software-as-a-service (SaaS) and robotic process automation (RPA) tools, organisations can now run their operations more efficiently than ever. This can help businesses effectively reduce costs without impacting quality or sales and in turn, provide a path to sustainably higher profit margins and thus, ward-off the negative implications that globalization can have on their workforce.
A Sustainable Approach to Increased Margins At a fundamental level, if a business can create a product or provide a service for less than it costs to produce or provide then it can generate a profit. Earning a profit is important to a business because profitability impacts whether a company can provide satisfactory distributions to its shareholders and to fund projects to grow its business and better service its customers.
Another important financial metric for all business is net profit margin which is essentially an indicator of how much profit each dollar of sales generates and is calculated by dividing net profit by total revenue. The seemingly obvious way a business can improve its margins is to reduce its cost base or increase its revenue however, this does not always work out in practice. Consider a company that ramps-up annual revenue from $1 million to $2.2 million by hiring an additional 10 sales staff to go from five to 15 people with an average salary of $100,000 each. The additional $1.2 million in revenue will only result in $200,000 of added net profit and actually reduces profit margin by nearly 20 percent.
The same is true for lowering costs. If cost reductions diminish the quality of a companies products or service offering, then the company may have no other option but to reduce prices to maintain the same level of sales. This can eliminate any potential gains and result in an overall loss. On the other hand, if a company can efficiently cut costs without affecting quality, sales price or sales figures, then that can provide a sustainable path to higher profit margins.
Candidates for Automation Businesses that employ more than one person will encounter labor costs and are required to pay compensation to their employees for their service. Businesses primarily employ people to contribute labor and expertise to their endeavor. Often this labor involves an employee or worker dedicating their time to carrying-out manual work (“manual” deriving from the Latin word for hand implying a human) in the form a process that involves executing a series of actions or steps in order to achieve a particular end or output. Here are a few examples of common manual processes being carried out across various industry verticals and functions:
- Hospitality – A waiter in a diner making and preparing breakfast for a customer might go through a five-step process that looks like the following; crack and fry eggs, put bread in a toaster, take out a plate, place eggs and toast on a plate and serve to customer.
- Manufacturing – An assembly-line worker working in the body shop of an automotive plant responsible for painting the metal shell of an assembled vehicle might go through a process like the following; mask vehicle, clean the shell, spray on the primer, add two more coats, leave the car to dry in an industrial oven.
- Information Technology – An application support specialist working on the trading and risk systems within a bank may have to fulfill a manual data audit on behalf of an external auditing company. This process might go through the following steps; review and understand requirements of the request, log into database, write custom SQL query to retrieve data requested, capture screenshots from systems and email results to external auditors.
- Accounting & Finance – An accounts payable representative working within the finance department maybe go through a process to pay suppliers. For instance, validate that the work was completed according to the contract, input data into an invoice, forward to the vendor, handle any disputes.
- Human Resources – A recruiter after receiving sign-off and approval to hire a new candidate will have to go through a formal onboarding process that might look like; draft-up contract, forward to the candidate for signature, go through background checks, work-out start date with the hiring manager, input client data into HR system.
Processes can require skilled or unskilled labor to perform successfully. For example, a routine blood check at a hospital requires a highly skilled, qualified and authorized medical nurse who has received specialized training and usually a degree to go through a controlled routine process of drawing blood. On the contrary, an unskilled process is one that is generally menial and repetitive in nature, that does not require specialized know-how, training, and experience to carry out. For example, data entry in the form of manually copying and pasting contact information from a web page into a spreadsheet and can be can be fully learned in fewer than 30 days often fall into the unskilled labor category.
In recent years, many companies have moved such positions that involve little specialization and training away from their high costs city center locations in which they operate and for a logical reason. On average, employees in major first world countries cost more to employ for a role with the equivalent required in a second or third tier country. For example, a plant operator working in North America, a first-world country will, on average, be paid more than his or her equivalent in country within a second or third world within a developed country. It is for this reason why businesses are lured into and often commit to outsourcing low-skilled, repetitive processes to lower costs locations.