Operational Efficiency – it’s not just about cost cutting
Efficiency of any kind is not just about reducing costs. There are other business objectives, including service quality that still have to be achieved in order to keep existing customers but also to grow revenue and maximise the capability of the organisation. Many organisations are too concerned with costs and are not aware that the real business value can be destroyed if approached purely as a cost cutting exercise.
To look at efficiency, we need to look for a definition to define what we want to extract – “a measure of whether the right amount of resources have been used to deliver a process, service or activity. An efficient process achieves its objectives with the minimum amount of time, funds, people or other resources.” – Information Technology Infrastructure Library (2011).
One objective must be to deliver services which meet customer requirements/needs. In the current economic climate cost is a big factor therefore reducing the cost of delivering a product or service is often the main driver for improving operational efficiency. You can reduce your costs necessary to deliver a service or operate a process but if your customers leave because the quality of service has dropped then you will fall into a downward spiral and be in danger of going out of business.
Typical Cost Reduction Measures
We’ve probably all seen the standard approach used when challenged to reduce costs by a certain amount or percentage:
- Remove contractors/consultants.
- Ban travel.
- Reduce training.
- Reduce overheads.
- Cancel bonuses.
- Reduce repairs and maintenance.
- Reduce permanent headcount.
But what are some of the consequences:
- Over-stretch remaining resources, losing key knowledge.
- Reduce motivation and therefore productivity.
- Negatively impact service quality, lose customers and revenue.
At this point, we circle back in the process:
- Start the cycle again to reduce costs further.
- Invest to improve service quality.
This cycle can range from monthly, quarterly or yearly depending on the perceived urgency to make changes. If the focus is only on cost then by removing your workforce you achieve this simplistic target but what about sales? How do you sustain the business and improve or return to profitability?
How do you Turn It Around?
You can turn it around but you must approach it from a strategic mind frame and always reference back to the ‘why’ of your business and your business or strategic plan. Look at the reasons why you implemented that cost item into the business in the first place. This is the only way to get the optimum balance between cost and quality.
So, how do we approach driving increased efficiency bearing in mind these risks or constraints? We refer about efficiency being a measure of whether the right amount of resources is used to deliver a process, service or activity. What do we mean by resources?
Resources include IT, people, time, funds, materials or anything else that might help to deliver a product or service. Resources are assets of an organisation and are either material assets or contribute to the goodwill of the business.
Automating resources is one of the key techniques to improve efficiency and can achieve significant benefits when implemented with effective business change. Automation is about using technology and process improvement effectively to complete tasks.
How do we Automate Resources?
- Apply careful investment consideration for appropriate tools and equipment.
- Develop processes that are clear, documented, repeatable and effectively automated. The idea is not to automate a bad process.
- Pick the right people and utilise appropriate change management and implementation processes to ensure it is imbedded into the organisation for the long-term.
- Ensure clear communication to all stakeholders.
Start the assessment process by looking at the most important services or process first i.e. the ones that happen most often or the ones that generate the most revenue or customer impact. By looking at these you pick the low hanging fruit and get a bigger return more quickly. This not only returns funds to your bottom line immediately but it instills confidence and energises the organisation around the changes that need to be made.
There is also the additional benefit that when you review the business product or service line then you can start filtering out products and services that involve too much effort for the value obtained.
Here is my list of key takeaways for anyone needing to generate additional operational efficiencies.
Operational Efficiency Key Takeaways
- Cost reduction does not equal efficiency.
- Understand your current costs and baseline service quality.
- Agree the required level of cost and quality to ensure this is balanced. Absorb this information from all levels of your organisation (internal and external).
- Think People, Process, Partners & Products/Services.
- Tools and equipment alone do not generate the required benefits. You need effective cultural change and appropriate implementation processes including change management.
- Simplification and standardisation are often the keys to increasing operational efficiency. This involves creating repeatable standard processes and remove duplication and bottlenecks.
- Utilise experience. Too many organisations expect their people to get it right first time without having the experience of how to do it. Involve them and don’t make it too technically orientated.
The basic principle of business is quite simple. If you deliver services or products which meet your customer’s needs at an acceptable cost you are likely to stay in business. Get the balance wrong and you may need to update your CV. Get it right and the benefits are huge.
If your company needs guidance on developing efficiency strategies, contact the Cashflow Tech Systemz team at firstname.lastname@example.org