Operational efficiency may sound like just another trendy buzzword, but this underrated business practice can save you a lot of time and money in the long run.
In this quick overview, we’ll talk about the importance of implementing operational efficiency, along with the all-too-common mistakes entrepreneurs make when trying it out.
What Is Operational Efficiency?
According to Entrepreneur.com, operational efficiency measures “the efficiency of profit earned as a function of operating costs”. No matter what your business model is, the more efficiently your business operates, the more profitable your business will be.
In other words, operational efficiency is a set of business processes used to improve productivity and prevent errors or delays that can cost a business time, money, and customers. It’s about looking at the ratio between your inputs – that is your operational costs, employees, and the time and effort spent to produce your products and services – and your outputs. This includes factors like revenues, customer satisfaction, brand recognition, and scalability.
But remember, operational efficiency isn’t synonymous with cost cutting. The goal of improving operational efficiency isn’t simply to save your business money where you can, but to make sure you have a healthy input to output balance. As such, you can implement operational efficiency by vying for the same output for less input, or you can also achieve efficiency by vying for more output for the same or even more input.
It’s also important to remember that improving process efficiency isn’t a one-time deal. You don’t just initiate a few processes and call it a day. Operational efficiency is a sustained effort that requires cooperation across all departments. It is not unusual to go through a trial and error process when figuring out what works best in terms of efficiency.
How To Increase Operational Efficiency
There are several strategies you can employ to improve operating efficiency in your organization. Here are a few examples:
Process Refinement
This is the first step towards improving efficiency in your organization. After all, without the right processes in place, your team members and employees won’t have the tools to work efficiently.
How can you refine your processes? Observe day-to-day operations, have open lines of communication with your employees, and look for areas that need improving. From there, you can start to build a strategy that accounts for gaps in your current processes. Make sure there is enough structure, but not too much bureaucracy, to keep your ship running smoothly.
Resource Utilization
Funds, production materials, equipment, even space – these are all resources that can either cost or save you more money, depending on how you utilize them. To achieve efficiency in your day-to-day operations, you need to make sure your resources aren’t being mismanaged.
When it comes to material resources, such as inventory management, you need to make sure you order exactly what you need for production. Excess resources don’t just have an upfront cost, they will also cost you money to keep, maintain, transport, and even dispose.
In the production process, you can eliminate waste by following the 5S approach – a visual management strategy that is popular in Japan, especially in production and distribution industries. 5S stands for Sort, Shine, Straighten, Standardize, and Sustain, which are the five key steps in improving organization and efficiency in the workplace.
Employee Management
Even if you refine your processes and manage your resources, you can’t achieve operations efficiency without cooperation from every team member. Your network is your best asset, so you best know how to take care of them. Providing fair compensation and work hours, facilitating training workshops, setting clear key performance indicators (KPIs), encouraging a collaborative and open company culture, and conducting regular performance reviews are just some ways executives can expect efficiency from their employees.
As a CEO, it would also benefit you to reach out beyond your executives and to have check-ins with employees of all levels. You never know who you could gain key insight and information from. Sometimes, reaching out could mean the difference between having a vague understanding of some of the operational issues faced by your people on a day-to-day basis, and learning about it first-hand.
5 Mistakes To Avoid When Implementing Operational Efficiency
Now that you have a better understanding of the definition of operational efficiency, we can introduce some of the most common mistakes entrepreneurs encounter when trying to implement it in their business.
1. Using Outdated (Or Free) Tools
As the old adage goes, “work smarter, not harder.” Upgrading to newer, better technology may seem like a costly move, but stubbornly sticking to outdated IT systems, clunky free softwares, and machines that have seen better days can all be a huge detriment to the work that you do. Outdated tools can slow down productivity, lower morale, waste precious time, and lead to an overall decline in quality – eventually costing you more than you had hoped to save.
2. Refusing To Listen To Your Employees
Operations don’t just happen. They’re run by your most important resources – your people. If you want to achieve operational efficiency and excellence, you need to listen to your employees. This is especially true for front-line workers who have a clear understanding of the day-to-day activities happening in your company. As mentioned earlier, take the time to sit down with your team and listen to their suggestions on how things could be improved. Even if they aren’t in high-level or strategic positions, they have enough experience on the ground to know what works and what doesn’t.
3. Ignoring The Real-Life Situations Where Your Processes Will Be Applied
It’s one thing to come up with theories and strategies that could fix problem areas, and another to actually observe the manner in which they are being applied, and where they could go wrong.
For example, you could implement a new online data collection tool, such as an app or a website, to help lighten the load and lessen the paperwork that your front desk has to deal with. However, your customers may find the app too slow or too clunky, leading them to ask for help and resort to physical forms anyway.
4. Overlooking Redundancies
Earlier, we mentioned the importance of encouraging collaboration in an organization. This isn’t just something you should do in your separate departments but interdepartmental as well. This is so you can avoid the costs incurred by redundancies. See, when teams aren’t in communication with each other, processes can duplicate, leading to a waste of time, energy, and even revenue.
5. Having Zero Benchmarks
A benchmark is a standard against which a company’s performance can be measured. Your company could have an internal benchmark, or a value indicating where you are, where you don’t want to be, and where you hope to be. Most companies also have an external benchmark, meaning an industry standard or a competitor that they want to measure against.
So what is the value of benchmarking? Without a benchmark, you isolate your company from the current markets, and in effect, your customers. As such, you end up running the risk of implementing processes that don’t improve your business.
The Bottom Line
Whatever product or service you offer, whatever companies you’re competing with, and whatever industry your business operates in, you can always benefit from upping your operational efficiency. It’s just a matter of committing to improving workflow, utilizing your resources, and listening to your team.
Are you interested in implementing operational efficiency strategies for your own business? Schedule a call with us today! We’ll give you the tools you need to accelerate your business.
