Apart from cutting costs, achieving the utmost operational efficiency is the ultimate target of any successful business. However, the crucial part is that the process itself always follows the age-old Trickle-Down method of economics. That means it is only viable and feasible when the executive level of an organization identifies all the issues and implements the smartest resource allocation measures at every level. According to BTOES (Business Transformation & Operational Excellence) – “Companies in pursuit of operational excellence do two things significantly differently than other companies: they manage their business and operational processes systematically and invest in developing the right culture.”
Broadly there are two types of businesses in this world; the first type is manufacturing-based and the second type is service-based. Often, achieving operational efficiency in the manufacturing sector is much easier than in the service sector. As per observation, executives dealing with people often fail to achieve that golden point of utmost operational efficiency when they are in a service sector. Though there are various reasons behind that and in this article, all those points will be discussed with common crises along with the proposed solutions.
What is Operational Efficiency?
Operational efficiency is a critical goal for businesses aiming to improve productivity, reduce waste, and achieve sustainable growth. Executives, as the strategic decision-makers, play a pivotal role in steering organizations toward this goal. In this blog, we will explore ten actionable steps to enhance operational efficiency at the executive level, ensuring your organization stays competitive in a dynamic market. To be precise Operational Efficiency is the most well-crafted business practice where an organization targets to achieve maximum output by cutting all the irrelevant and unnecessary costs.
Operational Efficiency Begins With Recording Performance Gap
Any service sector that wants to achieve operational excellence should begin by measuring present gaps in performance. In service sectors often executives believe all the performances are the responsibilities of the people working under them. However, the reality is executives should begin with self-accountability, and with proper assessment of the performance gap, it’s impossible. Therefore, the very first step here should be to record the performance gap within the system and compare it with the best industry practices. It is always a wise step to compare with the best practitioners; since in that way striving towards the best becomes easier.
The foundation of operational efficiency lies in setting well-defined goals. Executives must collaborate with their teams to identify objectives that align with the organization’s vision and mission. Clear goals provide a roadmap for decision-making and help prioritize tasks effectively. As a starting accomplishment increasing a mere 2% of employee accountability can increase the overall accomplishment of the business to a great extent.
Ensure The Best Training For Optimum Operational Efficiency
Once the performance gap has been recorded, it must be compared with the best industry standards. Then finally it is time for training. Many organizations take training as a mere formality and a waste of resources. Meanwhile, the reality is training ensures efficiency at every level. Not only that it also clarifies accountability among workforces. Once everyone in the system knows their responsibilities then they just can’t roam within the system. According to a study by McKinsey & Company, the chances of high-performances are a whopping 4.2 times higher with those companies that have clearly defined goals. Meanwhile, companies without clearly defined goals are more likely to be doomed.
A skilled workforce is indispensable for operational efficiency. Executives should allocate resources for employee training programs that enhance skills, improve adaptability, and foster innovation. Cross-training employees can also reduce downtime and increase flexibility. Amazon’s Career Choice program offers employees training for in-demand skills exclusively. That training strategy boosts both individual growth and company productivity. Amazon employees getting better-paying positions and the company also prospering.
Update the KPI of the Workforce
To ensure operational efficiency the next most crucial task of executives is to develop proper Key Performance Indicators (KPIs) for every staff. Many executives cannot develop perfect KPIs for the system and it always ends up in the wastage of valuable resources. Tracking performance metrics is crucial for assessing progress and identifying inefficiencies. Executives should establish relevant KPIs for different departments and review them regularly to make data-driven adjustments.
For the production department, the primary KPI must be determining Output Per Hour. Meanwhile, for the finance department, the financial metrics must be the determination of operating margin and cost-to-revenue ratio. At the same time, to get the details of customer satisfaction the Net Promoter Score (NPS) needs to be calculated.
Operational efficiency is not a one-time initiative; it is an ongoing process. Executives must encourage a culture of continuous improvement by promoting innovation. They also need to reward employees who identify and implement strategies to enhance operational efficiency. Organizations that consistently monitor KPIs are 37% more likely to achieve their operational efficiency goals. Toyota’s implementation of Kaizen (continuous improvement) principles has been instrumental in maintaining its position as a leader in operational efficiency.
The Boston University’s Questrom School of Business had carried out a study under the supervision of consultant Erin Reid and the topic of that study was measuring employee efficiency. According to that study, the apparent performance of staff who were working 40 hours every week was almost equal to the staff who were working 80 hours every week. It shows, that often managers could not even identify which staff is working actually and who is just pretending to work. A proper KPI is the only solution to that problem.
Identify Repetitive Functions
Any service-based system that deals with lots of people often struggles to complete too many repetitive functions. Though these administrative functions are necessary still they are extremely time-consuming. A wise executive always identifies these repetitive functions at first. At the executive level, decision-making speed and accuracy significantly impact operational efficiency. Implementing a decision matrix or utilizing decision-support systems can reduce bottlenecks and improve outcomes.
According to a study conducted by McKinsey, 79% of all companies have attempted to cut costs during the global crisis. Around 53% of the executives found it helpful for the system. Both PwC and McKinsey’s study agreed on one point simultaneously and that is cutting the cost should not be the sole purpose of a business. Every business must not compromise quality in the quest for cost-cutting. In that context identifying repetitive functions usually consumes a great amount of resources. According to Bain & Company, companies with fast decision-making processes are 95% more likely to deliver strong financial results.
Automate Process Selectively
Once an executive identifies the repetitive tasks within a system then they must execute an appropriate Professional Services Automation Software (PSAS). The purpose of the PSAS is to automate those repetitive administrative functions that are important but extremely resource-consuming. The business landscape is constantly evolving, and operational efficiency strategies must evolve with it. Executives should regularly evaluate their strategies, benchmark against industry standards, and adapt to emerging trends and challenges. Technology is a key enabler of operational efficiency. Executives should invest in tools and systems that streamline processes. Many cutting-edge technologies, such as automation software, enterprise resource planning (ERP) systems, and customer relationship management (CRM) platforms can enhance operational efficiency. Leveraging data analytics also provides valuable insights into areas that require improvement.
The Return on Investment (ROI) of PSAS is phenomenal. According to a study, the $200,000 investment in a PSAS can give a $23 million return as revenue over the next 5 years. Therefore, it’s not only a smart move to reduce cost it’s also a smart investment and revenue generation tool as well. A perfectly designed PSAS works as a one-stop solution for the business. It ensures higher productivity with complete transparency in the system. During the COVID-19 pandemic, many organizations pivoted to remote work models, demonstrating adaptability and resilience in maintaining operational efficiency. A Gartner survey found that 74% of CFOs plan to shift some employees to remote work permanently, recognizing its cost-saving potential. According to PwC, companies that adopt AI-driven automation report a 20-40% increase in efficiency.
Reduce Painstaking Administration
Executives with vicious micromanagement can be a real curse for the system. Often, these types of managers waste too much time in meetings and presentations and too little on actual execution. These types of managers also waste huge resources on those activities which are not that important. At the end of the day, they are nothing but resource wasters and they also demotivate their subordinates to a great extent. In the practical world, any sustainability initiatives contribute to long-term operational efficiency. Reducing energy consumption, minimizing waste, and adopting eco-friendly practices not only cut costs but also enhance brand reputation.
According to a recent study conducted by MIT, employees always offer their best under the best supervisors. On the contrary, they hesitate to perform or even take any decisive steps under incompetent managers. Such types of managers can be a great discouragement for the employees and every system should get rid of them as soon as possible. Unilever’s Sustainable Living Plan helped the company save €1 billion through waste reduction and energy efficiency while improving its environmental footprint.
Customer-Centric Resource Allocation
Perhaps the most challenging task at the executive level is resource allocation. At the same time, that resource allocation has to be 100% customer-centric. In a service-based industry, the manifestation of the smartness of any manager is how well they allocate resources without compromising customer service. At the executive level, it simply cannot be overlooked. Every manager must address that with a unique level of excellence. Executives must analyze resource utilization and ensure optimal allocation to high-priority projects. This includes financial resources, human capital, and technological tools. Regular audits can identify underutilized assets and reallocate them to areas where they are most needed.
As per a study post-2018, industries have suffered from poor resource allocation in the UK. It has been the second-most critical business issue in the United Kingdom alone. In another study conducted by McKinsey Worldwide, 83% of managers find resource allocation as the most critical aspect of the business. In this same context, PwC – UK conducted another study among businesses and they found only 30% of businesses had achieved their operational efficiency within a 12-month window period and the rest of the 70% of businesses simply surrendered. All these studies show in real time how difficult it is to achieve the utmost operational efficiency! Research by Deloitte shows that 72% of executives who prioritize resource optimization experience higher operational efficiency.
Uncompromisable Employee Engagement
Another critical aspect of businesses is developing an employee engagement program that is irresistible for employees. However, in the service-based sector where employees deal with people instead of products employee attrition is a vicious waste of resources. In general, here employees work under tremendous pressure and sometimes even under life threats as well. As a direct consequence now and then even skilled employees just give up and move on. Retention of those employees is a challenge and a smart team of executives always develops that perfect employee engagement plan which customized, employee-centric, and absolutely out of the box. Effective communication is vital at the executive level to ensure alignment across all departments. Regular updates, open forums, and the use of collaboration tools like Slack or Microsoft Teams can bridge communication gaps and foster transparency.
Marianna Virtanen of the Finnish Institute of Occupational Health has found a really strong link between overwork and various health problems. All these health problems include stress, anxiety, depression, substance abuse, insomnia, poor memory, diabetes, high blood pressure, heart disease, and that list just goes on. As a consequence, a business pays the price in the form of unstable attendance, unstable revenue, customer complaints, the rising cost of health insurance and even that list also goes on. A smart team of managers never overlooks these issues and always offers something that is in favor of both employees and businesses. Harvard Business Review reports that organizations with strong communication practices are 50% more likely to have lower employee turnover rates.
Uncompromisable Customer Service
The heart of any business is the customer and a clever team of executives always put their best foot forward to introduce unique customer service. It is especially difficult if they are dealing in a service-based sector, where each customer is a potential critical reviewer for your business. In modern days when the digital world records and openly displays all those reviews vividly to the world then customer service has to be uncompromisable.
According to thought leader and entrepreneur Steve Glavenski, a whopping 80% of your revenue comes from your mere 20% of regular customers. Therefore, gaining new customers is important for business. At the same time, a smart manager always identifies that crucial 20% of customers are going to contribute the most. Not only identifies them but also develops path-breaking plans to retain those customers.
Be Open To Feedback
Finally, despite all the above initiatives the ultimate litmus test comes in the form of feedback. A successful business never hesitates to receive feedback. They not only receive feedback, in fact, they also work relentlessly to improve the system without any compromise. Implementing a successful operational efficiency is impossible without a robust feedback system. Generally, a business must have internal feedback systems where employees and vendors can lodge complaints or leave feedback. Any business must have a strong and highly effective external feedback system as well for clients and customers. Executives not only have to develop a transparent internal and external feedback system, rather they also have to resolve every one of those feedback.
A study conducted by Google over two years has proven the system that allows open feedback from every stakeholder always excels in the long run. Stakeholders need psychological safety so that they would not be punished for their honest feedback. They also need to know their feedback would bring positive changes to the system.
In conclusion, achieving the highest level of operational efficiency is a continuous process. Achieving operational efficiency at the executive level requires a strategic and holistic approach. It must evolve with time and that evolution has to be stakeholder-centric. In both manufacturing-based and service-based sectors, operational efficiency can make or break the fate of the business. Therefore, a smart executive team never compromises operational efficiency, and they also never give up on that issue under any pretext. They just set their goals one after one and achieve them with persistence. Remember, operational efficiency is not just about reducing costs but also about creating value for customers and stakeholders. By implementing these ten steps, executives can position their organizations for sustained success in an increasingly competitive market. As business environments evolve, staying proactive and adaptable will remain the cornerstone of operational excellence.