There are many metrics used to accurately gauge how a business is performing.
For example, net revenue is a big metric that most businesses focus on intensely. Other major metrics include net profit margin, monthly recurring revenue, and cost of customer acquisition.
While on an individual or organization level, productivity monitoring software is also often used as an indicator of business performance.
Beyond these common practices, one essential metric that should be front and center for success-minded businesses is operational efficiency.
What Is Operational Efficiency?
Operational efficiency is the relationship between the inputs and outputs of a business.
Inputs are what’s needed to run a company and outputs what is gained. Put simply, operational efficiency is a measure of a business’s outputs against its inputs. And the better the input to output ratio, the more operational efficiency improves.
The inputs that determine operational efficiency are usually money, productivity and people. The outputs are the work and sales that come from these inputs.
When this input/output relationship is positive, it means a business is on the right track. If operational efficiency is poor, businesses must take steps to fix it to reduce unnecessary extra expenses.
Operational efficiency is a method used by businesses both big and small to understand where their money is going and whether or not each dollar could be better spent elsewhere.
Why Operational Efficiency Is Important
Many businesses struggle with assessing how efficient their workforce is. It can be hard to put your finger on exactly.
For some inputs, like costs, determining efficiency can be easier, when compared to other aspects of your business. Putting in $1 and seeing $3 in return is a clear indicator of efficiency.
On the other hand, quantifying how efficient employees within a business are can be much more difficult. And as there are typically numerous positions and departments within a company, evaluating operational efficiency in that regard becomes even more complex.
This is why operational efficiency is an ongoing effort. Businesses must continue to measure inputs against outputs to eliminate extraneous expenses as much as possible.
We’ll take a look at ways to boost operational efficiencies in a moment. But first, let’s look at the impact of operational inefficiency.
The Downsides Of Operational Inefficiency
Operational inefficiency is the opposite of operational efficiency.
Unfortunately, many businesses are currently in this negative state of business without even realizing it. Which is why it’s important to measure inputs/outputs as rigorously as possible.
Failure to evaluate work efficiency can be dangerous. Spending money (wages, salaries, purchases, taxes, and other major business expenses) without a return means a business loses money.
After all, the goal of financial inputs is to make a return that is greater than the investment, as the entire purpose of a business is to make money.
It’s important to note that the outputs of a business don’t just mean sales. It can mean customer service, product quality, and other factors that define business success.
Considering the competitive nature of business, operational efficiency is especially important.
Simply put, if your competitors have a better grasp on their inputs and outputs than you do, they are better equipped to capitalize. It gives them a platform to grow faster because they can scale based on a deep knowledge of their operational efficiency.
How To Improve Operational Efficiency
There are many methods businesses can use to improve operational efficiency. Some of these methods include:
Working on optimizing processes and systems is a key area that businesses can focus on to improve work efficiency.
It all starts with process refinement. Since processes are such an important part of a business's operations, it is crucial to do a ‘deep dive’ into your current systems and processes to determine areas of improvement. Evaluating current business processes makes improving operational efficiency a much easier task.
So, the best place to start is by automating as much work as possible and refining any current systems.
When analyzing current processes or systems, ask:
- Can this be done better?
- Can this be done faster?
- Can this be done cheaper?
- Can this be automated?
This also means using technology wherever possible. A tool like productivity monitoring software can help simplify the process of optimizing your processes.
A team is only as successful as its employees.
So, it’s very important to focus on supporting staff when working to improve operational efficiency.
This means providing employees with:
- The tools they need to succeed
- Maximum work flexibility
- Opportunities to engage with other employees
- As much managerial guidance as necessary
Focusing on these aspects will help support staff, which will ultimately boost operational efficiency.
You can also track employee productivity to provide additional support to employees.
For instance, employee productivity is consistently high, you can reward them for their good work. On the other hand, if productivity is low, you can’t figure out why and provide extra support employees may need.
Effective Project Management
Without effective project management, reaching operational efficiency is very difficult.
Focusing on project management can help increase work efficiency for businesses both big and small.
Some ways to ensure effective project management include:
- Good time management
- Consistent meetings
- Offer incentives
- Regular check-ins with employees
- Precise time tracking
- Being present when needed
Without a set financial strategy or sufficient planning, operational efficiency is nearly impossible. After all, expenses (and any money involved in a business) are key inputs that must be diligently tracked to reach operational efficiency.
So, businesses and enterprise teams must focus on having a clear financial plan set for the future.
Regular strategizing, meetings, and analysis of financials are essential if a business is to reach operational efficiency.
Office productivity is a clear input that contributes to operational efficiency. When employees are productive, this elevates the input of effort, in turn producing greater outputs. This is why it’s so important to track employee productivity.
Productivity is part art, part science. Managers can increase overall productivity by creating an environment where employees are most productive, including:
- Managing performance with business and productivity software
- Giving employees access to their productivity data
- Balancing employee workloads so they aren’t overworked
- Allowing employees to work at times when most productive
Today, managing productivity extends to remote employees too, which makes cloud based employee monitoring an invaluable tool. Thankfully, top productivity apps and productivity monitoring software make supporting productivity in and out of the officer easier than ever.
As we’ve seen, operational efficiency is an effective method for businesses and enterprise teams to ensure they are on a positive trajectory and their employee expenses are being well spent.
It’s a way to clearly quantify, measure and optimize company performance. Simply, when you understand how efficiently your business operates, it enables you to better plan for growth, structure your team with confidence, and allocate resources more effectively.
Whether optimizing your processes or choosing to more accurately track employee productivity, the extra effort you put into operational efficiency will be reflected through improved long-term company performance.