Competitive athletes and businesses share common goals—they both want to maximize performance while minimizing waste. For athletes, that means having a strict training routine and consistent nutrition plan. Activities and food choices that don’t align with their game-day goals are nothing but waste.
In the business world, better performance means increasing revenue while spending less. A misallocation of funds or a delay in production could spell big problems. In both scenarios, this min/max concept is commonly known as operational efficiency.
What is Operational Efficiency?
Operational efficiency is the pursuit of earning greater revenue while simultaneously reducing costs. Creating products and services requires more than just money: Time, technology, employees, resources, and inventory are all inputs that affect a business’s bottom line. Operational efficiency is the result of appropriately balancing these inputs.
Some businesses view operational efficiency as a metric or calculation. A simple formula looks something like this: Take all of your operating expenses (x) and divide the sum total by your total revenue (y). Starting with a numerical number as a result of x/y is a good way to create a tangible benchmark for success.
Other companies view operational efficiency as more of an ethos or mindset that sets a precedent for all initiatives. According to Bain & Company, “companies that successfully embed efficiency in the DNA of their organization reap great rewards.”
Whichever path you take, operational efficiency means the same thing: reducing costs and waste while increasing revenue and output. Businesses with better operational efficiency tend to experience more benefits than just higher revenue and lower costs. Some of these indicators include:
- High customer satisfaction
- Increased product demand
- Sustained competitive edge
- Flexible internal operations
- Happy employees
There’s no one-size-fits-all solution to achieving operational efficiency, and every business seeks that goal in a different way. Ultimately, it requires a shift in priorities, a change in thinking, and a commitment to flexibility.
3 Basic Tactics to Make Your Business More Efficient
Make Customer Satisfaction Your North Star
If your customers aren’t satisfied, or they struggle to see value in your product, finding operational efficiency will be much more of a challenge. Improving your business will require change, but those changes need to reflect your customers’ best interests.
Perhaps your company is experiencing an inefficiency in product availability. Customers want your product, but it’s always sold out when they go to the store to find it. What’s the empathetic play that creates a win-win? You could double production or find more inventory space, but what if you simply sell directly to the customer online? This reduces transportation costs, saves the customer money, and gives them greater visibility into your inventory.
Being efficient doesn’t mean being successful. According to Microsoft CEO Satya Nadella, “success depends on my customers’ success. That’s the essence of business.” By focusing on how to make your customers’ lives easier, you have a better chance at becoming more efficient.
Create a Strategic Framework, Track Progress, and Stick With It
PwC found that less than 30% of efficiency initiatives hit their cost-cutting target. This can often be the result of poor planning in the short and/or long term. To make your company more efficient, you’ll need to develop a strategy that’s informed by the key components of your business. For example, an e-commerce company will likely focus on costs and revenue surrounding manufacturing, online shopping, and customer service.
Although each business is different, the blueprint for your operational efficiency strategy might look similar to this:
- Audit costs and revenue of your core components such as financials, processes, employee productivity
- Identify any costs that don’t directly create value for your customers
- Differentiate between quick wins and long-term goals
- Decide which key performance indicators are relevant to success
In the digital world, there are endless data points to track. Key performance indicators (KPIs) are different for every business. For SaaS companies, an important KPI might be cost per acquisition. For retail, it might be average customer spend. The most important thing about tracking metrics is establishing a baseline so you can track progress.
Improvements don’t happen overnight, and employee morale could fall before it gets better. The differentiator is a leadership team that keeps the train on the tracks. Bain & Company found that the more committed executive leadership was to efficiency, the better the chances of achieving the goal. 70% of survey respondents cited a lack of leadership commitment as the reason for a lack of success.
Improve Internal Processes and Workplace Culture
Operational efficiency is only as good as the processes that are needed to sustain the business. Processes are made up of standard operating procedures (SOPs). Standard operating procedures are the methods or workflows performed by your employees. An easy way to start introducing more efficiency into your business is through automation.
Basic routine SOPs can be automated to increase operational efficiency. Manual tasks like data entry or record keeping can easily be automated. Benefits of automated SOPs include greater revenue potential and, of course, more efficiency.
Perhaps the most important benefit is gaining a deeper insight into how your company gets things done. Understanding what to automate forces you to investigate your business operations. This awareness drives more clarity to what an improved future state might look like.
When you improve your processes, you’ll also take the pressure off your employees. If your business enjoys a healthy work culture, your happy employees will be motivated to work harder. According to BI Worldwide, you can create a strong culture by motivating “through meaning, trust, individualization, recognition, accomplishment, and positive reciprocity.“
3 Examples of Operational Efficiency in Action
The best way to understand operational efficiency is to see how it’s done. Although each of the following examples has vast differences in industries, they all share one thing in common—they became more efficient by solving a problem for their customers.
Omnidian: Better Processes Lead to Happier Customers
Streamlining processes for customer service teams is a significant step in becoming more efficient. They represent a direct link to a business’s customers. Omnidian, a solar panel company located in Seattle, began growing at a rapid rate. Soon its customer service team had outgrown an outdated process.
Omnidian automated its workflows using BrightReps Sidekick—an application that conveniently houses SOPs within customer relationship management (CRM) tools. This greatly enhanced Omnidian’s ability to help more customers faster. In addition to standardizing and streamlining customer communications, it was able to increase efficiency in onboarding and training.
Carvana: Convenience Disrupts an Entire Industry
Carvana is transforming the auto industry simply by selling cars online. It sounds like a no-brainer, but its vision is much deeper than taking advantage of online shopping. It developed its disruptive model by thinking about the pain points of the car buying experience and making them better.
No more spending the entire day at a dealership or getting shocked by hidden fees. According to Carvana, you can buy a car in 10 minutes right on your phone. Customers are no longer limited to a narrow selection of cars—they can choose from more than 14,000 models. And the kicker—customers are saving an average of $1,000 compared to traditional dealers. By removing the fluff from the purchasing experience, Carvana is much more efficient and profitable than dealerships.
Discover: Customer Service Brought to a New Level
Discover achieves operational efficiency by keeping its customer service department all under one roof. Call centers are located in the U.S. and are available 24/7. Many companies try to reduce costs by outsourcing customer service, but this can damage relationships with hard-earned customers and cost more in the long run.
By satisfying customers on the first touch, it increased satisfaction and retention—both of which mean higher revenue. Discover also maintains an active and reputable customer service branch on social media. This low-cost, low-effort initiative is not only making the company more efficient, but it’s also driving business.
Customer Satisfaction Should Be Your Ultimate Metric
If we learned anything from the examples above, it’s this: Becoming more efficient should start as an empathetic pursuit to satisfy customers. At first, it may seem like it’s impossible to control costs while addressing customer demand, but it’s not just wishful thinking.
According to a study that looked at customer satisfaction in Scandinavian banks, “we can confirm that customer satisfaction and loyalty have a significant positive influence on banks’ profitability and can be considered as a predictor for future profitability.”
Ultimately, what’s right for your customer will be good for your operation. By turning the perspective externally to the needs of your customers, you’ll reach the internal goals that operational efficiency can bring you.