Operational Efficiency

Improving productivity through effective process strategy

In business, the term “operational efficiency” can be easily confused. It is often used interchangeably with “efficiency” or “productivity”, for instance. However, “efficiency” – according to popular management framework ITIL V3 – is a “measure of whether the right amount of resources have been used to deliver a process, service or activity.” If we consider “resources” as input and a “process, service or activity” as output, we have the beginnings of a reliable description.

Our own approach starts with the balance of output and input. Output refers to business gains like revenue and customers, including broader metrics such as customer loyalty, market differentiation, innovation or opportunities, to name a few. Therefore, as operational efficiency improves, output increases – or holds steady – while input decreases. A truly efficient process strategy is one that is thoroughly planned to ensure maximum cost efficiency while maintaining high quality standards.

Most businesses are engaged in management of operational efficiency to some degree – whether through allocation of resources, oversight of production and distribution, or administration of inventories. But, few are able to achieve authentic productivity, as the result of disparate teams, resources and objectives.

Measurement of operational efficiency

First Steps

Any attempt to improve operational efficiency begins with measurement. Many companies focus on the “input” side of the equation most heavily, measuring production costs or man hours first and foremost. However, input indicators, while important, rarely tell the whole story.

Measurement requires performance indicators and methods of tracking to be properly defined for both input and output within the business. It’s important to note, though, that the specific indicators chosen and their importance to the business will vary significantly between, and even within, industries.

Nevertheless, input typically covers categories such as expenditure and human resources used, while output refers to areas such as revenue, customer numbers, growth or customer satisfaction.

Treating these two indicators as equally imperative to business functionality and mapping them out accordingly is the first step to achieving optimal operational efficiency.

“Knowing specifically where your business excels and requires improvement highlights that your company is working to build solid foundations, which will benefit from an effective process strategy.”

Comparison of operational efficiency

If your business means to compare its operational efficiency with others – through a benchmarking process or otherwise – it is important to factor complexity, load and strategy into your definition, measurement and tracking of performance indicators.

This is because two companies, even within the same sector, may require minor or vast differences in approach according to their customer behaviour. One business may have to allocate more input resources to delivering a personal approach to customers, where another utilises a digital ordering system.  Difference in strategy is an essential factor to consider, too. Where production cost is a critical indicator for many companies, others measure their success primarily by the loyalty of their customer base.

Failure to measure differences in complexity, load and strategy may lead to incorrect conclusions being drawn from any quantitative results found.

This reinforces the need to ensure your process strategy is flexible, well-planned and futureproof. Never rush this vital step as it forms the basis of your entire process improvement project. It will truly benefit your company to hold weekly scrum meetings, where all your business executives and key decision makers pick apart your processes, and decide where operational improvement is vital.

Improvement of operational efficiency

As highlighted above, efficiency isn’t simply a cost-cutting exercise – a fact which too many organisations fail to realise, or are quick to forget, to the detriment of their products or services. On the contrary, an increase in costs can lead to greater operational efficiency in various cases, just as long as output increases correspondingly.

When reviewing operational efficiency with the business, the most common and straightforward approaches are:

  • Achieve the same output with less input (same for less)
  • Achieve more output with the same input (more for same)
  • Achieve much more output with more input (much more for more)

In a “same for less” approach, a business might aim to produce the same volume of goods it does currently, while reducing the amount of personnel (and the associated costs with paying them). This would typically involve a process consultancy session where you can pick apart your processes, identifying critical optimisation and automation opportunities.

A “more for same” approach might involve businesses reviewing quality assurance procedures in order to reduce faulty products being produced, in the process reducing associated aftersales costs – while maintaining the same resource allocation. This goal could also be delivered by improving training programs or revising existing quality standards, for instance.

A “much more for more” approach can be illustrated in an example of a production company. A manufacturer which invests in a new factory may be afforded the chance to create more goods of better quality, for instance. The initial investment sum – while significant – may deliver greater results in the long run, if the new and improved products can be sold at a premium. Another example may be provided in a service company increasing its future performance and revenues exclusively through investment in its customer service branch.

Achieving operational efficiency with automation

Identifying where automation can be effectively utilised is a key process planning technique when improving operational efficiency. As companies look to improve their obsolete and failing processes automation is an increasingly popular option to look to and incorporate into a proposed process roadmap.

There’s no denying the powerful capabilities of automation – When effectively placed and programmed your company can achieve unrivalled speed and error free task completion that is no match to any previous advancement or alternative.

Of course, investment of time is needed to first investigate where automation is best suited. You need to discover how your process operates to then pick it apart, identifying where clear and repeatable tasks would ultimately benefit from being automated.

However, the business benefits for this investment can be enormous. Tasks can be performed faster, the potential for human error can be reduced, and quality can be increased while costs shrink. All these benefits are simple enough to achieve as long as your company has a consistent, effective, and agile process improvement strategy in place.

PRONYX are the Process Strategy Experts. Our knowledge of diverse industries and the process components needed to operate effectively within that specific field mean that the PRONYX Team are ideally positioned to work with your company.

Our dedicated team will work to understand your operational needs and craft an effective, adaptable process, which is guaranteed to improve the way you do business.

Start your journey today – Call our team on 0330 111 0571 or contact us via our form.