Division of labor makes a business more productive

Adam Smith, father of outsourcing

Published in 1776, British philosopher Adam Smith wrote in The Wealth of Nations that labor is most productive when it is divided into simple, discrete actions. Even in the manufacture of simple products, such as a wooden chair, the division of labor improves productivity dramatically. The simpler the task to be performed, the more productive the worker becomes. Smith provided three ways in which this division drives productivity. First, each worker becomes an expert in his or her activity, reducing error and increasing efficiency.  Second, by focusing on one, rather than several tasks, the worker does not waste time switching from one activity to another.  Third, innovation springs from workers focused throughout their work day on one task, making it both easier and more efficient.

Entrepreneurs 237 years later, particularly those going into business by themselves, must be Chef, Cook and Bottle Washer. By having to undertake each task to keep the business running and growing, they learn all aspects of their business. However, this hands-on approach makes them the proverbial Jack Of All Trades, Master Of None and leaves the business much less productive than it could be. They drop everything to travel to a 4 day trade show where they take a few dozen orders and then return to pick, pack and ship those orders over the next couple of days. After the orders are shipped, the entrepreneur turns her attention to generating and mailing invoices and then places orders with vendors for more product and shipping supplies. Throw in a day to answer customer service inquiries, take returns and send refunds and another day to generate posts to her Facebook, Pinterest and Twitter accounts. Tack on a third day on new product development and it’s been a full week since she has focused her energy on selling. The business may grow, but only in fits and starts.

This approach to early stage business management is normal and to be expected, but it exhausts the entrepreneur and at some point, the business is unable to grow any further. Young businesses managers will typically reinvest as much working capital as possible into growing the business by purchasing raw materials and supplies. Moving to a larger property, adding equipment and hiring workers are expensive and risky should the planned growth not immediately materialize. In the past, necessary investments in plant, equipment and headcount were among the riskiest an entrepreneur could make and missteps doing so could result in bankruptcy.

So what’s the alternative? Improvements in technology, communications and globalization have spawned the creation of third-party service providers offering services to early stage, growing businesses at lower cost and reduced risk. Even the smallest businesses can now take advantage of Adam Smith’s Division of Labor just like General Motors and Apple Computer.  By outsourcing with TD Business Solutions, entrepreneurs gain instant access to more than 50 years’ expertise in foreign and domestic sourcing, Electronic Data Interchange (EDI), national accounts sales management, brand and marketing communications development and customer relationship management.  To learn how to create your own Division of Labor, contact a professional today at info@tdbizsolutions.com.