Every entrepreneur or CEO wants to ensure improve your company’s the best levels of operational efficiency. After all, this means improving the quality of processes while reducing costs. It’s the famous “doing more with less”. It seems like something easy to achieve, but it’s not. Cutting costs indiscriminately and encouraging the team to work as much as possible without any analysis or strategy can actually have the opposite effect.
Maximizing the production chain, saving on inputs and ensuring excellence in outputs , is the ideal way to boost your profitability. But what measures should be taken to make this possible? How important is operational efficiency? Learn the most important details on the subject below.
What is operational efficiency?
In the corporate world, operational efficiency is linked to the intelligent and optimized use of resources, avoiding waste and misuse of these resources (not just money) during operations. This objective is only achieved when processes are optimized, allowing better results to be achieved only with rearrangements and changes in the teams’ work scheme.
Operational efficiency is often associated with factories and the concept of simply spending buy telemarketing data less money. But in today’s world, it’s much more about what employees are doing, where they’re spending their time, and how money is being spent.
The idea of improving processes is to make the entire production chain more intelligent and efficient without necessarily having to make large investments. In fact, the first step on the path to efficiency is to improve the management of your team, processes and the information that flows through them. All this with a focus on customer satisfaction.
Differences between operational efficiency and strategy according to Michael Porter
Before we delve into the basic differences between operational efficiency and strategy, we must first talk about professor and researcher Michael Porter, who brought this contribution to the business world.
Michael Porter is a PhD and professor at Harvard Business School, and a scholar in the areas of Administration and Economics. Throughout his career, Porter has formulated several concepts and techniques related to business strategy and management, which have been widely adopted not only in the world of business and economic development, but also in politics and in areas such as the environment and health. Author of dozens of books, Porter is one of the most sought-after writers and consultants by governments, companies and academic circles around the world.
Differences between operational efficiency and productivity
It’s easy to confuse the concept of operational efficiency with the concept of productivity. The words “efficiency” and “productivity” are often used interchangeably, and both are critical indicators of business performance.
Productivity, in a nutshell, is production (also known as output ). How much is being produced and how quickly? Throughout the 20th century, a company’s productivity pipefy: digital solution for business processes rate was considered the most important metric for determining its success. Companies closely tracked their production rates—and many still do—to monitor costs, allocate resources, and identify conditions that affect productivity.
Over time, it has become clear that productivity measures do not provide a complete picture of a company’s operations. Nor do they allow for strategic changes when market disruptions occur , as has been the case in recent years. This is where a robust operational efficiency program proves most effective. The goal of productivity is to increase a company’s output without making significant changes to its processes.
How important is operational efficiency?
Process optimization and waste reduction are key factors in increasing the efficiency of any company. The best part is that, while working on operational efficiency, managers gain a complete and integrated understanding of the organization.
In this way, the implemented processes gain more control and predictability. This allows for better identification of bottlenecks and more agile definition of solutions.
Basically, you start to continually improve business performance, making better use of opportunities. And, as a result, the entire internal culture of the company is transformed. When there is a focus on operational efficiency, it is directed towards the constant search for greater effectiveness and productivity.
Benefits of achieving operational efficiency
The journey towards operational efficiency brings important and lasting benefits to the day-to-day of any team. Costs and deadlines are reduced, results america email list improve, errors are eliminated and much more. Here are some advantages of investing in more efficient processes:
Improves productivity
Efforts towards operational efficiency result in greater team productivity. It is common to hear from teams that have chosen to automate and standardize their processes that hundreds of hours of work are saved (or more, depending on the scale of the company/team).
BASF’s Agricultural Solutions division, for example, optimized its processes by replacing spreadsheets with automated digital workflows and managed to save 2,400 hours of work for its employees in one year. See how BASF’s journey to become more efficient went .
Reduces costs and waste
By focusing on operational efficiency, procedural errors that lead to wasted resources are avoided. This allows the company to redirect this money to more interesting initiatives, which are often put on the back burner due to the urgency of routine execution.
An interesting example is Dasa, the largest integrated healthcare network in Brazil, which implemented an automation platform to improve its supply chain processes in 2020 and recorded a ROI (Return on Investment) of 223% in just one year. Read more about this case study .
Prevents errors
Errors and rework, as we know, lead to unnecessary waste of time and money. They also compromise the quality of the final products and often leave the teams involved frustrated.
To achieve operational efficiency, processes need to be mapped and improved to eliminate errors. Task automation also helps reduce frequent errors that manual human work often misses.
How to calculate your company’s operational efficiency
To calculate your company’s operational efficiency, you need to know the value of inputs (production costs, labor costs) and outputs (revenue from products/services) of the processes.
Efficiency is the ratio between one aspect and another. You can calculate your company’s operational efficiency with a simple formula.
Challenges in achieving operational efficiency
How many times have you challenged an outdated process in an organization only to hear the familiar “we’ve always done it this way”? This attitude ensures that a lack of updated processes will not only overwhelm a team, but will condemn them to the same outdated, irrelevant processes and inconsistent results. Other times, leaders refuse to invest financially in new technology or training because they won’t immediately see the increased revenue as a result of that investment.
These are just two examples of operational efficiency roadblocks. Other common barriers to operational efficiency include:
Lots of manual work
One of the most common sources of inefficiency is excessive manual work. Activities such as writing emails, entering data, capturing information, obtaining approvals, updating status, and sending notifications are examples of work that can be solved through task automation .
Symptoms that teams are doing too much manual work include an increase in spreadsheets and endless email and messaging. Switching between applications can also be a sign that the process or workflow is too manual and likely to be detrimental to operational efficiency.
Learn more about automating a manual process .
Inefficient processes
Bottlenecks , communication and data silos, and process friction have been identified as major contributors to business inefficiency and lost revenue. Bottlenecks create conditions for missed deadlines and customer dissatisfaction. Silos emerge naturally as companies (and their technology stacks) grow.
Process friction occurs when handoffs between people or systems fail or when a process requires a lot of manual input.
Lack of succession or clarity of those responsible for the processes
When few employees have the knowledge or ability to absorb and perform a single function, process disruptions are common.
When new hires come on board and new teams are created, processes that were previously managed by a few people can grow to involve multiple departments. Without growth planning or workflow transparency, handing off processes can be confusing or complicated.
A closely related cause of inefficiency is systems segregation. This is the corporate tendency to adopt multiple applications and software systems that do not intersect with each other. An order, for example, might involve the use of multiple email chains, CAD drawings, spreadsheets, and a corporate database.
For this application, it is possible that hundreds of data points are redundantly entered into any of these systems. This creates a daily waste of time and resources and often leads to employee frustration and burnout.
Inefficient or obsolete technology
Outdated or non-automated technology often hinders efficiency. We’ll discuss some efficiency drivers below.