How to improve operational efficiency
This blog discusses the many organizational-level strategies that can be deployed to improve operational efficiency.
In 1913, Henry Ford introduced the assembly line method of manufacturing. It didn’t change manufacturing alone. It changed the way people work, forever.
The assembly line innovation slashed the workforce requirement to a quarter and also brought down the time taken to manufacture a Ford car from 12 hours to two hours and 30 minutes. In other words, it amplified Ford’s operational efficiency by a moonshot figure.
Today, in 2020, businesses are facing the same challenge that Henry Ford faced when his manufacturing efficiency was nosediving. Despite the availability of technologies that foster productivity, businesses hit an operational efficiency plateau.
BTW, what is operational efficiency?
The most popular definition of operational efficiency is:
“The ability of a business entity to deliver products and services cost-effectively while ensuring its high quality.”
In other words, operational efficiency is the ability of a business to generate maximum profits by incurring minimum costs. The cost reduction or profit maximization motives should not be detrimental to the product/service quality.
There are several paths that businesses take to improve operational efficiency. They are:
- Same for less, i.e. the same output for less input
- More for same, i.e. more output for the same input
- Much more for more, i.e. much more output for more input
The higher the operating efficiency, the better is the long-term stability of the business.
Operational efficiency maximization has been a priority for organizations since the advent of the Industrial revolution. In fact, Japan which was razed to the ground after the World War was able to climb to the leaderboards of the global economy by maximizing its operational efficiency. From Just in time ordering to Kaizen, they deployed a variety of novel management techniques that helped the whole country rebound to economic growth.
As a business owner, you could be wondering how this matters to managing your business. Your business could be just-launched startup or a stable mid-sized business making a beeline for the big league, operational efficiency is a make or break metric. It will decide how fast your growth rate will climb north and not slump down in a depressing note. That said, here are some strategies that can help you in improving your operational efficiency.
Strategies aid in improving operational efficiency
Every business that has growth as its priority, needs to increase operational efficiency. However, operational efficiency is not a silver bullet which when fired will bring down a chunk of big results. Improving operational efficiency is more or less like an organizational overhaul that requires a lot of small changes, which will yield results in the long-term. But, once the results are evident, the efficiency rate would grow at an unprecedented rate.
Standardize business processes
Imagine a team is assigned with a simple task like drawing a happy pig. The inputs from many people, the artist talent of many combined with each one’s perspective of the output would most probably result in an end picture that looks far from a happy pig.
But, imagine if there is a standard process of drawing a pig? A step-by-step process that everybody can understand and follow to a T. Such a well-aligned process can result in standard outcomes.
The unique thing about a business process is that its outcome is a domino effect of all underlying processes. When these underlying processes are standardized the overall operational efficiency improves substantially.
Standardization is basically setting some ground rules about tasks that have to be carried out in a team or the organization as a whole. There are several tools and techniques that help businesses perfect their processes. Six Sigma is one among them. Six Sigma was created by Bill Smith as a process improvement tool during his stint at Motorola. It was adopted as the central process improvement framework by several large corporations, including General Electric.
What makes frameworks like Six Sigma successful in improving operational efficiency is that they establish a common set of standards/rules/workflows that has to be followed in performing a task.
Circling back to the drawing a pic example, here is how a Standard Operating Procedure (SOP) would look like.
If the SOP is followed to the T, the end result would be consistent for all the users. Here is how the drawing would progress.
The takeaway from this exercise is that even a silly task which can result in various outcomes can be standardized with a standard procedure.
From an operational point of view, standardizing processes can give several benefits, like:
- Quality consistency
- Minimizes deviation from standards
- Loss reduction
- Transparency in operations
- Ownership of tasks
- Accelerated output
All of which operational efficiency targets to achieve. In any organization, there are several operational areas where standardization can be brought about to improve operational efficiency. Some examples include:
- New customer onboarding
- Post-sales customer support
- Documenting the inbound call process
- Call center scripts for agents
Embrace the Kaizen process
A bit of history is required to understand what Kaizen and how it can help a business improve its operational efficiency. After World War II and the nuke bombing, Japan was heavily damaged and hardly had any resources to restore its economic health.
Despite its detrimental position, within a span of twenty years (1954 to 1972), Japan was able to rise as a global economic powerhouse. In fact, it became the second-largest economy after the United States.
Kaizen is one of the management methodologies that were developed in Japan during the same period. It can also be credited to have helped Japan ramp its heavy industrialization with minimal resources. In fact, the Kaizen concept was so good that even US corporations adopted it under the rechristened name of Lean production.
At the heart of Kaizen or Lean production are an action plan and a philosophy. The action plan is to improve specific processes within the company. The philosophy is to build an organizational culture that makes employees active participants in process improvements.
Also, Kaizen has five elements to it which makes it an ideal strategy for improving operational efficiency.
- Personal discipline
- Improve morale
- Quality circles
- Process improvements
In a way, any business that is treading the growth path is almost like Japan after World War II. They are stripped of access to major resources, there are several survival problems to tackle, and also growth has to be achieved at an astounding pace.
A Kaizen approach can help improve operational efficiency metrics. Here is how:
- It fosters a positive team culture making all members work towards a shared goal
- It imposes personal discipline — from CEO to intern, which maximizes productivity by notches
- It develops positive employee morale which heightens innovation
- It creates continuous improvements to existing processes, thereby eliminating any form of redundancy.
Move to the cloud
According to LogicMonitor’s Cloud Vision 2020: The Future of the Cloud Study (opt-in required), 83% of enterprise workloads will be in the cloud by 2020. Cloud has become the default mode of hosting and storage of business applications.
Cloud migration comes with a host of benefits that no business can turn a blind eye towards. Some of the evident benefits of moving to the cloud are:
- Cost-savings as it does not require any investment for hardware or personnel
- Utility services on demand through SaaS, PaaS, IaaS, etc.
- On-demand access to IT services
- Quick scalability on the fly without the need for long-term contracts or upfront fees
- Tightened security — encryption, domain-based access, GDPR, etc.
- Assured business continuity, since no natural calamities or disruptions can stall operations
Be it your phone system or your CRM software, moving to the cloud can benefit your business in countless ways. For example, in the case of a business phone system, traditionally businesses used to secure phone connections from network carriers. The connections came in the form of phone cables that are cumbersome to set up and maintain. In fact, it used to take anywhere from a week to months to have an entire office phone system. But, with cloud telephony, you can have access to a modern phone system instantly.
Also, cloud telephony empowers your business with advanced call routing capabilities like team-based routing, time-based routing, intent-based routing, and much more. Features like IVR, ACD, Smart Escalations, holiday routing can ensure that your business stays on top of customer support even when agent strength is low.
Mistake-proof employee operations
The single trait of an employee is his/her ability to sign-off work as duly completed with hallmark quality. No employee ever works with the intention of making an intentional mistake. But, given the complexity of our tasks and the pace at which they have to be accomplished, mistakes creep in like uninvited guests at a grand luncheon.
The best way to mistake-proof any process or task is by introducing a checklist.
Atul Gawande in his book, The Checklist Manifesto, writes, “Under conditions of complexity, not only are checklists a help, they are required for success.”
In a complex process that is made up of several tasks, a checklist helps minimize errors by ensuring that all the tasks are duly done without fail and in the required fashion. It reiterates the items to be done and the order in which they have to be done to ensure success.
In one sentence, using a simple checklist that lists down major tasks involved in a process can indirectly help nudge the operational efficiency of a business.
Make systems work together
A Formula 1 car is a single machine. But, under the hood, it is made up of 80,000 parts. Right from powerful cylinders that propel the engine to tiny electric sensors that stream real-time data, a Formula 1 car is a mesh of several systems working in synchronization.
A functional enterprise is no different either. It may not work with the velocity of a Formula 1 car, but certainly, there are time-sensitive activities that are conducted in a certain fashion.
The fact is, be it a Formula 1 car, or a business, things move ahead with pace and precision only if the underlying parts work in synchronization.
Traditionally, businesses were made up of departments that worked in silos. Each department had its own dataset, code of operations, working processes and so on. All these compartmentalized departments withheld information from each other. As a result, there was a duplication of tasks, a lack of data visibility across the organization and a breakdown of collaboration.
In the digital era, businesses have more tools than ever to collaborate and work together as a single unit — more like a Formula 1 car. Businesses that have properly integrated team efforts and their data are competitive advantage of maximizing their operational efficiency.
Think of the positive consequences:
- Organizational data does not remain stagnant with one department
- There is agility in operations as expertise can be shared across departments
- There is no duplication of works since data and personnel is shared
From Zero to One: Final takeaways to improve your operational efficiency
Operational efficiency is an important metric for businesses that want to improve their employee productivity, profitability, and long-term sustainability. It is not a standalone metric, but, a collection of several variable resources coming together.
That said, operational efficiency cannot be improved overnight. Primarily because it takes time to orchestrate an organization-wide overhaul. Siloed systems have to be torn down, redundancies eliminated, and an integrated way of working introduced to improve operational efficiency.
And when that happens, the business will be able to deliver better customer experiences to its customers. Achieve cost efficiency, keep the competition at bay, and also see its bottom line flourish.
Illustrations by Mahalakshmi & Nikhil Kanda. Animation by Yuvaraj Linganathan.
Freshcaller is a modern-day reimagining of our everyday phone system for customer support, sales, IT, and HR teams. With its cloud-based architecture, Freshcaller brings together the best of legacy features like IVR and advanced call routing capabilities like Smart Escalations, Customizable Performance Reporting to help you set up state-of-the-art phone operations. Freshcaller offers phone numbers in 90+ countries, requires zero phone hardware, and is extremely easy to use.
Visit the Freshcaller web page for more information.
Now that you know how to maximize your operational efficiency, let’s get one level deeper.
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