What Are Operational Efficiencies? (And How to Achieve Them)

By Indeed Editorial Team

Published June 17, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

There are many factors within a company that can affect the way it uses its resources, ranging from its business strategy to its method of managing inventory. If a company can deliver its goods and services with minimal waste of financial resources, time, or activities, it may be operating efficiently. Learning more about operational effectiveness can enable you to enhance several processes within a business and lead a company toward improving its effectiveness.

In this article, we discuss what operational efficiency is, determine its importance within an organization, and explain the steps a company can take to become operationally efficient.

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What are operational efficiencies?

Operational efficiencies entail an organization's ability to use its resources to conduct its business activities while wasting a minimal number of them during the process. These resources comprise funds, inventory, employees, volunteers, equipment, patents or methods, facilities, and time. The organization's activities include its primary functions but also any task that may require any type of resources. A high degree of operational effectiveness makes an organization more profitable and agile, which allows it to expand operations faster, gain more market share, and affect its industry. This also attracts more investors, as they know the organization isn't wasting financial resources.

Any type of organization can be operationally efficient, as this isn't only for manufacturing companies and their ability to improve their processes and produce goods faster. For instance, firms, non-profit organizations, or businesses focused on customer service or sales can also identify their processes and resources to operate efficiently. You can even apply this concept internally across an organization, as project managers can work with their teams to complete all their tasks without wasting resources. Usually, the factors that can help a team better manage their resources are monitoring their activities and expenses, sharing information, and implementing new technology.

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How do companies become more operationally efficient?

For companies, becoming operational efficient may imply offering more value to customers and avoiding wasting resources. Operational wastes comprise activities that require any type of resources but don't add more value for customers. There are two types of activities that may generate operational waste: essential business tasks that don't add value and tasks that don't add value and aren't essential or important for a company. The objective for executives, managers, and supervisors is to focus on efficient processes and methods and limit or cut all non-essential and unimportant activities that may be consuming money and employees' productive time.

For example, if employees are spending several hours in meetings every week, but those gatherings aren't improving processes, or encouraging attendees to share more information, a manager may limit these encounters. The manager may also instruct their coworkers to focus more on their duties and use short and supervised meetings to report advancements. By doing this, the manager is reinvesting labour hours into more productive activities and using the meetings to report achievements, which may encourage team members to compete with one another in a healthy way. Focused employees may also create more value for the company's customers.

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Why is operational efficiency important?

Creating more value for customers usually boosts the company's sales, which implies more profits and possibly more investors that can increase the business' capital. More capital can generate new opportunities for operational expansion, which may help the company gain more market share and influence its industry. There are other benefits a company may see by becoming operational efficient:

  • Clear business objectives: To improve the company's operations, its upper management usually ensures that each employee knows and understands its business objectives. For example, to produce high-quality sneakers, it's essential for a manufacturing company to ensure that its employees understand the degree of excellence customers are expecting in each product.

  • Better work environments: Highly efficient companies usually have happier employees that perform their activities knowing that the company and its customers appreciate the value their adding to each product. For instance, employees may think they're working in an excellent company if customers consider its products as the best in the market.

  • More flexibility: Operational efficiency usually allows companies to forecast changes within their industries and adapt to sudden fluctuations. This is possible because these types of companies tend to attract and raise more capital that enables them to hire more employees or acquire new technology or facilities.

  • Reduced costs: To achieve operational efficiency, it's crucial for companies to reduce expenses and redirect resources to more productive activities. For example, an accounting firm can redirect the financial resources it's expending on third-party legal services, to create a legal department and hire some professionals, reducing these costs in the future.

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How to become operationally efficient

Improving efficiency usually is a component of a company's business strategy, as this is the first step in reducing costs and improving operations. Can be challenging for businesses to calculate revenue or return of investment (ROI) if they have some activities that are consuming a great number of resources and without adding value to their operations. Typically, to become operationally efficient, a company organizes its activities, defines each role, diagnoses its problems, allocates funds to new projects, invests in its employees' careers, and analyzes its industry. Follow these steps if you want to help your employer reach effectiveness:

1. Evaluate the company's current status

Assessing the company's status means registering all its components, including vision, mission, objectives, short- and long-term plans, business strategy, and ongoing projects. It can also imply inventorying policies in place, the number of employees, assets, primary activities, and organizational structure. It's beneficial to collect current and old reports that can help you evaluate the company's performance over time.

By visiting the company's facilities, you can better understand its processes and interact with different team members who can give you insight into the way some operations require resources. It's also a good idea to discuss your findings with the upper management, as this can help you evaluate how well they know the business operations.

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2. Diagnose operational problems

The second step a company may take to becoming operationally efficient is to identify where its problems are and how they're affecting its operations. To do this, companies can instruct their managers to review each step within every process, reporting time, employees, and financial resources needed to execute each activity. Managers can even record these processes in videos to evaluate later with team members their performance and identify any potential operational issues. It's also essential to revise past data and look for processes that have been requiring more resources over time without producing more value for customers.

3. Prioritize the company's projects

It's a good idea to list the ongoing, outstanding, and future projects the company has, as this can help you understand what projects are urgent, important, or disposable. You can prioritize the projects according to the company's business objectives and vision, which means evaluating how each one affects the business progress.

You can also consider how the culmination of each project might impact the work environment, as some employees might have been working on projects they consider very important. If you find that type of situation, it's necessary to address the issue and explain why you're prioritizing, pausing, or cancelling the project.

4. Activate key performance indicators

Establishing KPIs allows you to evaluate each process while the company is operating and to compare your findings to those registered before. You can also research data related to the most efficient companies within the industry and compare your findings to that information. You can establish KPIs to measure:

  • time needed

  • funds required

  • quality delivered

  • health and safety policies needed

  • labour required

  • objectives accomplished

5. Implement new technologies

Automating some processes or employing new digital technology requires training and financial resources, so it's crucial to evaluate how the implementation of these technologies may benefit the company over time. New software may save the company millions in terms of salaries, but it can also affect its work environment as new technologies usually require fewer employees. Evaluate what technologies you can implement across the company to improve its operations, how the business can provide training for its current personnel, and how you can reassign staff to other existing projects.

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