The Key to Delegation: Comparative Advantage in Small Business

“It’s faster/easier to do it myself.”

“I don’t have time to train someone else.”

“No one can do it as well as I can.”

Do these excuses sound familiar? These are just a few reasons people give for not delegating tasks. Doing everything yourself may seem like it saves time or produces better results, and it might – in the short term, but ultimately if you want to grow or scale your business, it’s not sustainable. 

These “savings” are only immediate. They may save you time today. But overall, investing in and trusting your employees to take over certain activities will pay off abundantly over the long term. Overcoming the mental hurdles to delegation starts with understanding absolute versus comparative advantage.

In today’s video ProcessDriven CEO, Layla Pomper explains how many business owners get stuck in the concept of absolute advantage rather than considering comparative advantage when it comes to delegating tasks. This quick video is about ten minutes, so we hope you get a chance to watch it, but if you’re looking for the cliff notes, we’ve provided some details on the two concepts below.

What is Absolute Advantage? (timestamp 00:45)

Absolute advantage means achieving a result or producing a good or service more efficiently than someone else. 

In the video, Layla uses the example of a race. When two or more people compete in a foot race, and one has more speed and power, they have an absolute head-to-head advantage in reaching the finish line. This is an apples-to-apples type comparison. There’s one goal to focus on – finishing the race before anyone else, so it makes sense that the very best runner competes. 

In a small business context, a firm might have an absolute advantage in producing a specific product because it has more experienced staff, better equipment, or more efficient processes. Or if a small business owner recognizes that one of their employees has an absolute advantage in a particular task (like customer service or digital marketing), delegating that task to the employee would make sense.

What is Comparative Advantage? (timestamp 03:00)

Comparative advantage is a bit more nuanced. It refers to the ability to produce a good or service at a lower opportunity cost than other entities. Opportunity cost here refers to the cost of forgoing the next best alternative when making a decision. Or acknowledging that every choice we make requires giving up another option.

In terms of a small business, an owner might or might not be the absolute best at any single task in the business. However, they have a comparative advantage in top-tier activities because the opportunity cost of doing other tasks is higher. 

This means the CEO is better off spending their time on strategic planning and delegating other tasks to their employees, even if they are more skilled in performing those tasks. The key to comparative advantage is focusing on tasks where you have the least to lose (the lowest opportunity cost). 

Layla uses the example of replying to emails. While it may take less time for the CEO to respond to several complex customer inquiries, is that the best use of their time? Delegating emails to a team member frees the owner up for vital tasks that benefit from their specific expertise, such as budgeting and strategy. 

The opportunity cost is that if the CEO responds to emails, they lose the option to focus on creating the annual budget with that time. While it may take an employee a little longer to reply to emails, it would take significantly more resources for them to master budgeting. Therefore, delegation makes sense – even if, in the short term, the CEO could perform the email task more quickly.

In sum, absolute advantage focuses on efficiency, whereas comparative advantage considers the opportunity cost. Both are useful concepts for small business owners when allocating resources and delegating tasks.

Do you have questions or challenges around these concepts or delegation? Leave them in the video comments! While you’re there, hit the “subscribe” button and get notified when we deliver fresh ProcessDriven content.

Until next time, enjoy the process!

Ready to feel fully in control of your business so you can hire, scale, or sell your business with ease? Check out ProcessDriven Foundations™️.

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