Every organization wants to run as efficiently and productively as possible. Maximizing operational efficiency allows a company to reduce waste while still producing a high-quality product or service. There are many ways to increase efficiency (24 billion hours per year are wasted in unproductive meetings!), and developing an actionable strategy for your organization can yield significant results in productivity and profit margins.
Here, we provide a comprehensive, step-by-step playbook to achieve peak operational excellence in 2024, regardless of your business goals or industry.
What is Operational Efficiency?
An organization’s operational efficiency reduces waste of time, effort, and financial resources without sacrificing product quality. An organization that can optimize its employees’ time and resource utilization to deliver an outstanding product can expect not just higher profit margins, but a significant boost in profitability, happier employees, and myriad other benefits.
Several primary factors contribute to an efficient operation.
Productivity
Productivity and efficiency are two sides of the same coin. An organization can’t operate efficiently if its employees aren’t productive and its resources aren’t being deployed in productive ways.
Investments in tools and technology can pay dividends by helping employees collaborate and work through tasks faster and with fewer time-consuming mistakes. For instance, a manufacturing company could invest in automated assembly lines to increase production speed and reduce errors. Likewise, motivated and engaged business teams are 21% more productive and profitable than less engaged ones, according to Gallup Research. This could be seen in a sales team that implements a performance-based incentive system, leading to increased sales and revenue.
Cost Optimization
Business is often a numbers game. As they say, making money takes money, and minimizing avoidable costs is a constant struggle. A key goal of operational efficiency is to reduce waste and maximize resource yield, which comes down to optimizing how your business spends money.
Project and product management can contribute to process improvement and greater operational efficiency by setting up leaner business operations and developing a culture of continuous improvement in which everyone believes they can always do better.
Technology and Automation
From task managers and productivity tools to customer relationship management (CRM) tools and artificial intelligence, there’s no shortage of technology to help improve operational efficiency. Depending on your organization’s needs, technology can be a powerful tool in your hands, helping you streamline business processes, automate repetitive tasks, and reduce the amount of manual work required for certain jobs.
Moreover, user activity monitoring can give your organization greater insight into productivity and performance metrics. By tracking employee activity and project efficiency, you can identify high-performing and time-wasting employees, as well as bottlenecks and obstacles that are keeping workers from doing the job as efficiently as possible.
The Operational Efficiency Playbook
So, how does your organization achieve operational efficiency? Below, we break down the step-by-step process for 2024.
Step 1: Assess Your Current Operational Efficiency
Without a baseline, how will you know if you’re making any improvements? Before embarking on a project to improve operational efficiency, you need to understand how your organization is currently performing and how it may be lacking. Assess the following:
Productivity Metrics
Gather data on productivity both at an organizational and employee level. Some of the metrics you should track include:
- Employee project completion rate or work output
- Employee time utilization
- Organizational project completion rates
- Project quality
User activity monitoring tools can be handy in gathering this data. Tools like Teramind offer a host of analytics tools to provide insights into individual employee productivity.
Financial Metrics
Operational costs play a fundamental role in achieving peak efficiency. Your accountant or accounting team should sit down with organizational leaders to review the books with a fine-tooth comb. Go department by department to determine your overall operating expense ratio and extraneous costs that you can reduce or eliminate from the budget. This assessment should help you determine your return on assets and equity, and be an initial waste audit.
Customer Metrics
Improving productivity and reducing waste shouldn’t come at the expense of customer satisfaction. Efficient production that creates a bad customer experience is not operational efficiency.
At the outset, gather customer satisfaction (CSAT) scores and key metrics, such as the average resolution time for customer issues, that demonstrate customer loyalty. You should also survey loyal customers to gain qualitative feedback about what they like about your product or service.
Step 2: Set Clear Operational Efficiency Goals
How will you measure the success of your program? Every organization is different and may have different strategic goals or inefficiencies. All organizations, however, must set well-defined, measurable goals. This is a crucial step in the playbook, providing a clear roadmap to develop lasting efficiency solutions.
Businesses use many goal-setting frameworks, including SMART goals, Objectives and Key Results (OKRs), and Key Performance Indicators (KPIs). We break down an example of each below.
Example 1: Increase employee productivity by 15% within six months (SMART goal)
SMART is an acronym that stands for Specific, Measurable, Achievable, Relevant, and Time-bound. The goal above uses a specific timeframe, and although the organization will have to determine how to measure employee productivity, it is a measurable and achievable goal relevant to improving operational efficiency.
Technology would be instrumental in achieving this goal. An employee monitoring solution will help monitor user activity to identify best practices and opportunities for improvement. AI and machine learning tools can automate repetitive tasks to free up employee time to be more productive in other areas.
Example 2: Reduce operating expenses by 10% by the end of Q4 (KPI)
KPIs use key metrics to illustrate how your organization is moving toward operational efficiency. This goal is clear-cut and easily measurable within a set timeframe.
Achieving this goal may be as simple as renegotiating agreements with suppliers and vendors or reducing investment in tools and technology not all employees use. Again, analyzing user activity data can help identify and eliminate time-wasting activities, especially among hourly workers or third-party vendors.
Example 3: Improve customer satisfaction scores to 90% within 3 months (OKR)
This OKR aims to improve customer satisfaction and experience, and the key result to indicate success is a 90% CSAT score. Achieving this goal may include streamlining customer service processes by increasing staff, reducing company knowledge barriers, and improving self-service options, among many other possible solutions. Leveraging behavioral analytics on your web and app tools can also help identify customer pain points. Ultimately, the goal is to increase customer loyalty.
Step 3: Develop and Implement Efficiency Initiatives
When you have clear goals, you’re ready to employ efficiency initiatives. Whatever business goal you’re working toward, these strategies can help.
Conduct Regular Efficiency Audits
Conduct regular efficiency audits to avoid straying too far from your objectives. This will help the organization stay on track to reduce operating costs, improve inventory management and quality control, or pursue other operational efficiency strategies. User activity monitoring tools are an easy way to track progress and identify new areas for improvement as they arise.
Remember that employee buy-in is crucial for any operational efficiency program to succeed. Solicit employee feedback and ideas for optimization. They should feel invested in this project.
Invest in Automation and Technology
Human employees are likely to perform certain tasks that can be done by machines. Identifying manual processes that can be automated will free up employees to be more productive on tasks that can’t be automated.
Yes, it’s a financial investment that may directly impact your cost optimization, but the trade-off of improved human productivity is typically worth the cost. Always train employees on new technology and processes so that they can do their most efficient work and recognize new opportunities for technology and automation.
Foster a Culture of Continuous Improvement
Organizations that are not dedicated to growing and innovating tend to get left behind by the relentless march of progress. Those that encourage the continuous process of experimentation, innovation, and out-of-the-box thinking are more likely to discover new revenue streams, find new ways to optimize resources, and achieve operational efficiency.
Your people are your organization’s best resource, and it’s in your interest to get the most out of them. Celebrate and reward efficiency gains not with pizza parties but with promotions and compensation. Incentivize high performers so everyone is motivated to get better.
Step 4: Monitor, Measure, and Adjust
Just as you foster a culture of continuous improvement among your employees, you must have the same mindset for your operational efficiency objectives. You can’t see the future, and ongoing monitoring and optimization allow you to adjust your program as you stray off track, identify unforeseen obstacles, or even meet goals early.
Employee monitoring solutions and your analytics tools will help you gather real-time data to track progress toward goals and make data-driven decisions.
Schedule Regular Progress Reviews
Some of the goals listed above were based on annual or quarterly timelines. Depending on when your organization aims to see results, you should schedule regular progress reviews to assess performance against goals. These could be weekly, monthly, or quarterly, depending on your ramp.
In these progress reviews, dive deep into the data, explore individual employee performances, and work to identify areas for course correction and improvement, if necessary.
Leverage Advanced Analytics
A good employee monitoring tool will have User & Entity Behavioral Analytics (UEBA) capabilities. These advanced analytics track a wide range of employee behaviors and actions, helping you understand how they work on specific projects. As such, behavioral analytics can use data to identify trends and patterns over time that will help uncover hidden inefficiencies and opportunities for optimization.
Continuously Refine Your Playbook
Football coaches don’t enter every new season with last year’s playbook. Your playbook should be a living document that evolves based on results and learnings. Refine goals, initiatives, and processes as you learn more about your organization’s operational efficiency and always remain transparent in how and why you’re making the updates that you do.
The entire organization should feel invested in improving operational efficiency, so they must share in the successes and failures. Don’t just keep the details bottled up with the executive business team.
The Benefits of Improving Operational Efficiency
Efficiency is a major buzzword in corporate America. But there’s a reason for that. Improving operational efficiency can have a number of profound benefits for an organization.
Increased Profitability
Perhaps most importantly, efficient organizations have larger profit margins because they reduce waste without damaging sales. It seems obvious, right? Suppose a toy company that makes popular stuffed animals can switch from expensive silk to inexpensive synthetic fiber without causing a customer uproar. In that case, it can make an enormous difference in that company’s bottom line.
You may not realize it, but you’ve likely seen efficiency initiatives happening right under your nose. The food industry is amid a massive efficiency overhaul, evidenced to consumers by self-service kiosks at grocery stores and pay-at-table options at restaurants, powered by companies like Toast and Square.
Giving customers the option to checkout faster if they’re willing to do one part of a cashier’s or server’s job frees up the cashier or server to help another customer. It allows the business to schedule fewer staff members for a shift.
Enhanced Customer Satisfaction
To continue with the previous example, 60% of grocery shoppers prefer using self-checkout (despite the technology occasionally failing). In other industries, improving operational efficiency is even more likely to improve customer satisfaction. Streamlined processes, like self-checkout, usually lead to better customer experiences.
An important element of any operational efficiency program is improving customer experiences, which often means investing in more efficient customer service and support. Fewer complaints, and faster resolution of those complaints can keep your CSAT scores high and enjoy stronger customer retention.
Competitive Advantage
The most efficient companies will always have a competitive advantage in the marketplace, not just due to the cost advantage gained by leaner business operations. As we just mentioned, operational efficiency leads to streamlined processes that can improve customer experiences and make them more likely to continue patronizing your company.
Zendesk research has found that 73% of customers will switch to a competitor after multiple bad customer service experiences. Those customers are just waiting for one good experience to discover how much better your company is than your competitor’s.
Efficient organizations also tend to be more innovative and agile, better able to adapt to market trends, and anticipate their customers’ wants and needs. This allows them to stay on the cutting edge, keep their marketing fresh, and resonate more strongly with potential customers, gaining and maintaining a competitive advantage.
Conclusion
Efficient organizations are better set up for both short and long-term success. Your organization can succeed in a rapidly innovating competitive landscape by developing an operational efficiency playbook and updating it with data-driven insights into business operations and feedback. This guide will help.
