The One Measure Every Cannabis Firm Needs to Care About
All MSOs and LPs want to reduce/avoid cost and increase profits over the long term. After capturing the low hanging fruit (e.g., implementing layoffs) what is left to do, short of divesting assets?
Boost productivity.
Productivity is about getting more output for a given input. Think of it as increasing the number of PCs you could produce over a period with a given workforce and asset base.
However, productivity is much more than throughput. Highly productive companies can also defer hiring, scale easier, and limit costly errors.
Some will disagree, but the impact on your workforce is irrefutable: productivity gains lead to higher wages, more engagement, and enhanced skills.
Productivity is a simple idea but with lots of complexity.
In my experience, unlocking productivity gains require improvements in one or more of the following drivers:
1. Raising employee skill levels through regular training schemes;
2. Deploying labour saving automation and IT;
3. Cutting organizational flabbiness (i.e, bad practices, rules and structures) and;
4. Optimizing compensation programs to incentivize greater effort, innovative thinking etc.
Before embarking on a productivity-lifting journey, it’s important to know where you want to see improvement and how you will measure it.
Some commonly understood (albeit crude) productivity metrics are units or kgs produced or revenue per employee. With today’s market dynamics, some MSOs and LPs may want to consider gross profit or net income per employee as their measure.
Choosing the right mix of productivity drivers will depend on your business model, quality of management, level of IT & organizational development and culture.
Some methods such as tweaking sales team quotas can yield quick results but also introduce bad behaviors. Other strategies like upskilling your staff could take a year or two to generate a ROI.
The rate of productivity growth also depends on your starting point. If you begin with a low level of IT, automation or skills, the incremental return on capital and productivity jumps will be very high. However, the improvements tend to slow down after initial or big leaps.
There’s no ‘silver bullet’ to boosting productivity. Enhancements in areas like cultivation yields or marketing performance will typically advance at a ‘slow burn’ pace. My cannabis data suggests that about 50% of productivity rewards happen when each worker has more data, IT and equipment at their disposal - and knows how to use it.
Increasing productivity, therefore, will be as much about investment as anything else.
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