To remain competitive, businesses continually need to boost their operational efficiencies. Why? Because “sooner or later, any company not operating efficiently will be out of business,” says Laurie McCabe, co-founder and partner of SMB Group, a technology industry research, analysis and consulting firm.
Operational efficiency is the capability of an enterprise to deliver products or services to its customers in the most cost-effective manner possible, while still ensuring the high quality of its products, services and support. Essentially, operating efficiency is the output to input ratio. Inputs can be operational, capital, and resource expenditures. Outputs can be revenue, customer count, growth, quality, and/or customer satisfaction.
Starting a new year is a perfect time to start thinking about how to improve your organization’s operational efficiencies. It’s an opportunity to step back and look at your organization’s operations holistically. Identifying areas of your business that need improvement informs your strategic planning for the year. Also, with a new budget, you can gauge the benefits of taking actions to improve efficiency, which can make a big difference, even with the smallest of efficiencies.
At its most basic, operational efficiency is about doing the same things you usually do but doing them with less in an attempt to improve profitability.
Benefits of operational efficiencies are:
- Cost reduction: However, it’s not just about reducing costs to improve operational efficiency. Cost reduction is not the same as efficiency.
- Process improvement: With automation, an organization can improve how quickly tasks are being completed, eliminate manual activities, and improve quality.
- Simplification and standardization.
The best ways to improve operational efficiency are to:
- Eliminate or reduce manual processes
- Find ways to reduce costs throughout your operations
- Outsource mundane tasks so your company can focus on core activities
- Streamline business processes
During this time, don’t forget about evaluating your operating cash flow as well. Operating cash flow is a measure of the amount of cash generated by a company's normal business operations and indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations. It is a way to measure the efficiency of your operation.
Measuring and tracking cash flow from operations is crucial to the overall health of the organization. Cash flow indicates an organization’s ability to pay current expenses, as well as its ability to generate cash from its core operations.
Improving operational efficiencies can reduce costs, but it needs to be tracked and measured in order to provide full visibility across the organization and to ensure peak performance.