The new year - profits from within

Looking ahead to the new year, senior managers and business people will be asking what's in store for their companies. The eternal question is: "How can I increase profits with the minimum investment?"

This question becomes even more pertinent at times of economic stringency, and things are certainly quite difficult in Malta at the moment. The relationship between investment and profit is difficult to calculate in a way that has universal application.

Many businesses, like those in the food industry, operate on profit margins as low as four or five per cent. Increasing profits by charging customers more for goods and services is not an option in the current climate because the market will not bear these increases. History provides many examples of companies that have priced themselves out of the market, having ignored the effects of competition.

So what can be done? If increasing prices and providing further investment for the business are not options, then one has to look internally for increased profits. Typically, this is done by reducing costs, cutting staff, reducing the range of products and services offered, and concentrating on "core" activities. These actions result in a reduction in the scope and capability of the business.

But what happens when the economy picks up - will it be so easy to expand again to meet the demand? Staff will have moved on, new machinery and equipment may not be readily available, and competitors may have already positioned themselves to take up any slack created by an upturn in the economy.

It could even be said that these reductionist measures are signs of a business in retreat, and this of course can impact on the company's reputation and indeed on its share price!

How else then can we increase the efficiency and profitability of our businesses, without significant investment, without shedding staff, and without increasing our prices?

The answer lies in the development of well thought-out policies with clear aims and objectives set for the coming period, better management control systems, a re-examination of working methods, aiming to get things right first time rather than spending time and money trying to rectify problems, and avoiding losses caused by downtime and litigation.

Easier said than done, you may say. Fortunately, however, there is a vehicle that can be used to draw all of these desirable outcomes together, and that vehicle is an effective health and safety management system. Please don't stop reading at the mention of the words "health and safety"! You've come this far, so you may as well read on; there really are some tangible business benefits to be had from this.

These benefits may be divided into two types: firstly improved efficiency; and secondly the avoidance of loss. In a study of the real costs to employers of accidents at work, the UK's Health and Safety Executive found that one construction company typically lost 8.5 per cent of its contract prices through accidents and incidents on site.

A transport company lost a staggering 37 per cent of its profits, and a hospital lost 5 per cent of its annual running costs. These organisations were not selected because they had particularly bad records, or because they had been the subjects of enforcement action.

They were merely thought to be typical of companies in their sectors. If this is true, then it follows that most organisations are suffering similar losses, many of which are unseen and therefore ignored. There is no reason to suppose that the situation in Malta is any different; indeed it could even be worse because the drive to improve standards is more recent here.

The losses recorded included, for example, the costs of dealing with incidents, which often involves taking other staff away from their work, the loss of productivity when the injured person was away from his or her work (even for short periods), the costs of replacement staff and retraining them, increased burdens on other staff, loss of morale and motivation, poorer industrial relations, loss of reputation, and the damage to equipment, tools, and materials that often goes hand in hand with accidents.

These are merely a few of the examples that could be cited; it would therefore seem that companies are losing significant sums of money unnecessarily, and, let us be clear, these losses are unnecessary because most of them are preventable.

Imagine if we could in the first instance aim to reduce the number of accidents and incidents occurring annually in our organisations by 50 per cent, and therefore avoid the resulting losses. The savings would be there for all to see on the bottom line of our accounts.

One of the most puzzling aspects of these losses is that most companies do not recognise them as such, and indeed would be unable to assess the size of the problem. These companies probably control most of their other functions very well: finance, marketing, production, etc., so why is it that health and safety management with all the benefits that can be derived from it, is often overlooked?

It would be an interesting exercise for managers to monitor the number of accidents, near misses and other related incidents that occur in their organisations over, say, a three-month period. If done thoroughly and conscientiously it would undoubtedly provide quite an alarming picture of what is actually going on.

It could also be interesting just to stand quietly and observe a workplace and see for oneself how many incidents occur that could be classed as near misses, which often go unreported. They are near misses rather than full-blown accidents only by good luck; but good luck does not hold out for ever!

These incidents often result in losses however, and they must be considered alongside more serious incidents. The fact is that the more near misses that occur, the more likely it is that something more serious will eventually happen.

So what of the benefits? We have examined the losses that might be avoided, but how can we benefit positively from effective health and safety management? Most people would agree that to work in the most efficient manner, they need to have the right kind of work environment, appropriate tools, equipment and materials, and the most effective work methods.

It might surprise some to learn that achieving these things is synonymous with good health and safety management principles, and that this is why health and safety is so closely linked to good business.

Effective organisations are proactive in their approach to business; they do not wait for things to happen before they react. The same is true in health and safety. Risk assessment for example is a technique used for analysing the tasks that are being carried out in the workplace, in order not only to understand more about risks and how they can be controlled, but also to develop the most effective work methods.

Too often people are given tasks to carry out without being helped to find the best (safest) ways of carrying them out. They are left to do things in their own ways, often on an ad hoc basis. The implications for productivity would seem to be fairly obvious, especially to those of us who have wrestled with flat-packed furniture!

Imagine two groups of people set the task of assembling a flat-packed dining set. One group has the manufacturer's instructions on how to do this, and the other does not! Which group is likely to finish quicker? Leaving the vagaries of Chinese translation into English to one side, one might reasonably assume that those working to the pre-determined method would be sitting down to eat their lunch first!

The same is true at work; the most successful organisations understand this very well, and they develop systems to ensure that the work that is carried out is carefully controlled so that the most effective working methods are used. It is no coincidence that many of these organisations also perform well in their management of health and safety.

They realise that unless they integrate health and safety with all their other business functions, their productivity will be diminished. It is often said that this is all very well for large companies, but it doesn't work for the smaller ones. Nothing could be further from the truth!

Getting to grips with health and safety need not be a complex operation. What is required is a clear set of aims and objectives founded in a policy that can be used as a foundation to build from. A plan can then be formulated which incorporates target dates by which certain goals will be achieved.

Surely most effective business people already work to plans and targets, so it should not be such a large step to incorporate health and safety into their thinking. Those already involved as practitioners in health and safety must encourage others to get away from the traditional idea of health and safety at work, which often involved narrow-minded, unpleasant people telling bosses how awful they and their workplaces were, and how they were in imminent danger of being prosecuted and worse!

The reality is that modern thinking tells us that it is an important business function that has to permeate the whole business. In other words, it is a strategic management function that has to be dealt with at senior levels in organisations, be they large or small. If we do this, then we really can expect to see the results on our bottom lines! Happy New Year.

Chris Hudson, JP, MA, BA (Hons), CFIOSH, may be contacted at safety-1st@tiscali.co.uk or through the Institute of Health and Safety, Malta, where he is a consultant to the business. He is also senior lecturer in Occupational Health and Safety Management at the University of Portsmouth, UK.