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38 Actionable Ways to Improve Operational Efficiency in Your Business 

By  Jack

Are you looking for ways to improve operational efficiency in your business?

As a business owner, you’re likely always looking for ways to get the most out of your team and internal resources. But where do you start?

In this post, we’ll outline 38 of the best actionable strategies to improve operational efficiency. Implementing even just one or two of them can make a sizable difference in your bottom line and make your business run more smoothly.

Read on to learn how you can improve operational performance while working smarter, not harder.

What is Meant By Operational Efficiency?

Operational efficiency refers to the ability of a company to produce goods or services in the most cost-effective way possible. The overall goal is to be able to minimize the amount of resources (e.g. employee labor) needed to produce a given amount of goods or services.

Operational efficiency can also refer to the effectiveness with which a company’s management and processes are able to convert inputs, such as raw materials, into finished goods or services. In other words, operational efficiency is a measure of how well a company is able to use fewer resources to produce the maximum amount of output.

Why Is It Important to Improve Operational Efficiency?

Improving operational efficiency is important for a number of reasons. Let’s walk through five:

  • First and foremost, it can help a company reduce its costs and improve its profitability. By producing goods or services in the most cost-effective way possible, a company can save money on labor, raw materials, and other resources, which can ultimately lead to higher profits.
  • Improving operational efficiency can also help a company improve its competitive position in the market. By producing goods or services more efficiently than its competitors, a company can offer its products at a lower price, which can give it a competitive edge and help it win more business.
  • Improving operational efficiency can also help a company improve its sustainability and reduce its environmental impact. By using fewer resources and minimizing waste, a company can operate in a more environmentally friendly way, which can help it meet its sustainability goals and reduce its carbon footprint.
  • Finally, improving operational efficiency can also benefit a company’s employees and customers. By streamlining processes and making them more efficient, a company can create a better work environment for its employees and improve the quality and speed of its services for its customers. This can lead to a strong company culture and improvements in customer satisfaction and customer loyalty.

Reduce Wasted Time

According to PPM Express, only 45% of worker time is spent performing their primary work duties. This means in a typical 40 hour work week, over half of their time is eroded away with administrative tasks, email, and unnecessary meetings.

There are a number of ways you can work to save time and improve operational efficiency and effectiveness.

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Don’t try and gather 100% of the necessary info to make a decision. Aim for 70% and make a decision with imperfect information.

This is often referred to as the “70% Rule” (popularized by Colin Powell) and can be helpful when you’re feeling stuck. Be willing to make decisions when you have 40-70% of the information that would ideally be available in any given situation.

So, if you’re trying to gather information in order to make a decision, don’t aim for perfection. Aim to get enough of the way there to make a call. You can always refine it later.

Have Employees Prioritize Their Activities Daily

Train your employees to consciously prioritize their ‘to do list’ around what actually drives business results, not whatever crosses their desk.

I’d recommend you have your team focus on the below four activities (in order). The key is being intentional with how time is spent, with a keen focus on what actually makes a difference (and makes money!)

If you run this process for 30 days, you’ll find a tremendous amount of focus from your employees is spent in the wrong places. You’ll quickly uncover ways to improve employee productivity.

  1. Revenue generating activities – what actions can move the needle for additional revenue or profit?
  2. Cost reduction activities – what actions can reduce cost (or improve operating efficiency)?
  3. Maintenance and normal course of business operations – actions to keep internal operating systems working, so you can continue providing quality services
  4. Everything else – prioritized by business value. There are likely activities here that can be crossed off completely without any downside risk

Limit Meeting Time

  • Limit the amount of time spent in meetings. Make sure meeting times are efficient and that there is a clear purpose determined beforehand.
  • Be intentional about how you use meeting time – can you shorten to 5-10 minute meetings focused on making decisions (not brainstorming options)?

Tighten Decision Making Timelines

  • Aim to reduce leadership decision making timelines to 1 week or less.
  • Keep Parkinson’s Law in mind – if you have less time to make a decisions everything will move with a greater sense of urgency and speed (without a negative impact on results)

Simplify Ongoing Reporting

Conduct a deep dive on standard reports within your business operations – err on the side of elimination for all reports, make the team provide justification around why to add them back. This goes for everything from financial reporting to HR reporting.

Take an 80/20 approach (only focus on what matters) and stop creating reports just because it’s “always been done this way.” As a byproduct, you’ll likely be able to eliminate 50-75% of reports.

Eliminate/Automate Low-Value Activities

There are always menial tasks and administrative duties that need to be carried out in every business. See if there are ways you can eliminate, simplify, or create process automation for repetitive tasks.

  • Reduce email overload by implementing an email management system or utilizing tools like unroll.me to unsubscribe from unwanted emails.
  • Eliminate distractions in the workplace by creating a distraction-free zone or designating specific times of day as “no electronics” periods. How can you create an environment conducive to getting more done?
  • Outsource or Automate Wherever Possible – There are many tasks that can be outsourced or automated, so consider doing this where it makes sense. You’ll free up time for urgent projects and high-value deliverables.
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Formalize/Streamline Processes

Review processes around everything in your business. Having processes is key to efficiency, but they need to be streamlined and formalized in order to work properly.

  • Look to create standard operating procedures for every recurring task. Do you have operational inefficiencies that exist in your current processes? Cleaning this up will lead to time savings along with a decreased risk of key person dependency.
  • Do you have a formal customer service management system? You should have a consistent, standardized process to handle customer complaints to handle issues and limit churn. On the flipside, in the event of a positive experience, make sure you’re requesting reviews and referrals.
  • Encourage employees to batch tasks together and work on similar items in one sitting. This will help them improve efficiency on tasks and avoid disruptions.

Encourage a Culture of Feedback and Continuous Improvement

Make sure you have a feedback loop in place so you can make improvements an ongoing process. Encourage your team to suggest improvements and make this a combined effort.

Make it easy for employees to give feedback, and make sure you act on that feedback.

Encourage a culture of continuous improvement across your business operations so your team can work smarter, not harder.

Reduce Wasted Resources

  • In a post-pandemic world, there is over 2X more office space than actually needed. People have proven the ability to work productively in a remove environment, so it’s worth considering reducing office space or relocating to less expensive suburbs.
  • Lean towards cutting every possible cost. Will there be a profit or revenue impact? If not, look to cut it. Over the years, a lot of fluff is built into almost every business, so you likely have a lot of opportunity here.
  • It’s likely that you have a tremendous amount of unnecessary expense in the following areas: ongoing subscription costs, office supply budget (including FedEx express mailings), and new technology. You’ll likely be able to cut 25-50% without any negative impact.
  • Review your benefits plan and provide only what employees value. Gather feedback and give them what they want, while removing the rest.
  • Understand features of your product or service that customers really care about. Lean into making those world-class while ruthlessly eliminating the others. Studies have proven that 5% of product features deliver 67% of value to customers. Getting on the same page as them and eliminating unnecessary features can result in big-time savings.
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Reduce Wasted Labor

  • Keep staff lean and look to prevent labor creep (only add when absolutely necessary)
  • Put controls in place around hiring new employees, temps, or contractors (require senior leadership approval).
  • For employees heavily contributing to revenue and profit margins, be willing to pay 20-30% above market rates. These are the rock stars who you don’t want to lose, it makes sense to pay them in excess of what the marketplace is currently willing to.
  • Be willing to make periodic headcount reductions, particularly those not in revenue generating or customer experience roles. You can likely eliminate 10-15% of low performers, which will drive significant cost savings.
  • Reduce staff size of functional areas (e.g. legal, accounting, project management, finance, HR, IT) only to those that are essential for profitability.
  • Eliminate at least 25% of outside contractors, keeping only those that are absolutely essential.

Reduce Supplier Expenses

Stats show that supplier costs account for 75% of total business costs (on average), so there’s a ton of opportunity here for savings.

Consolidate Purchases

  • If you purchase from multiple suppliers, you may be able to get a discount by consolidating your orders with one supplier. This is one of the easiest financial strategies to implement and gives the supplier more business, which may allow them to offer a lower price.
  • Make sure to compare the prices of all the suppliers before consolidating to ensure that you are getting the best deal possible. Find who competitors buy from and quote them. Shop their best prices against your suppliers to get more competitive rates.

Reduce Waste/Inefficiencies in Your Supply Chain

  • Waste and inefficiencies can add up quickly, especially if you have a long supply chain. By streamlining your process and reducing waste, you can save money.
  • One way to do this is to use just-in-time inventory management, which reduces the amount of inventory you need to keep on hand.
  • For improved cash flow, extend account payables timeline and test tolerance of suppliers (i.e. extend to 30 days, 60 days, 90 days). Most will not push back and you’ll have more flexible cash flow.

Negotiate Terms with Suppliers

  • Ask for more favorable (longer) payment terms. This could involve extending the payment window to 45 or 60 days. This gives you more time to generate revenue and keep cash on hand.
  • Negotiate better credit terms and prices: if you have a long-term relationship, you might be able to get additional discounts or flexibility
  • See if you can get a discount for entering a long-term contract, which likely could get you lower prices and more favorable terms
  • You might be able to get a discount for paying early. If your vendor doesn’t offer a discount, pay when it’s most advantageous for your business (i.e. pay on the last allowable day).
  • See if you can purchase inventory in bulk for a discount
  • You can also work with them to improve their processes so that they are more efficient and cost-effective. This may require some upfront investment, but can pay off in the long run.

Send Suppliers Letters for Price Freezes

  • Send your suppliers a letter from your CEO saying that times are tough and that you’ll not be able to absorb price increases for the next 12-18 months (or request a 10% decrease). You’ll be surprised how many agree to these terms.
  • Be willing to collect competitive bids frequently, especially for your top 25 charges. Having more choices always gives you greater leverage and ensures optimal prices.
  • Don’t be afraid to go out to bid – I’d recommend exploring the competition and collecting supplier proposals frequently. Typically several cost drivers will make up the bulk of your supply chain cost and it is worth getting bids from multiple suppliers to get the best deals.

Additional Strategies

  • Take some time to examine your existing contracts. If you have contracts that don’t reflect your current needs, lean towards canceling them (especially any long-term contracts). Be careful about breaking contracts that have early termination fees —but if you’re able to, this could be an excellent way to create cost savings in your supply chain.
  • Cancel office equipment maintenance contracts (99% of the time it will be cheaper to self insure)
  • Review all expenses once a month. Regularly monitoring your expenses is key to understanding where and how you’re spending money. If you review every check you’re paying at least once a month, you’ll find quite a few that aren’t justified and not essential. Determine what can be cut and take action.
  • Reduce phone and internet contracts (just use what’s necessary and being utilized today)
  • Look to eliminate all long-term contracts – if it’s not essential, get rid of it
  • Reduce travel if at all possible (limit off-sites and in person meetings; Zoom and WebEx as great alternative options)
  • I’d recommend creating a formal process that standardizes the way large purchases are made and reduces ad hoc purchases. Build controls around technology purchases, furniture, and other high-ticket items. Make employees create a business case to defend the value and productivity improvements.
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Small Savings Compound Into Big Profits

While many of these strategies might seem fairly minimal on the surface, executing them can have a profound effect on your bottom line. The cumulative impact of small reductions in costs can have a big impact on profitability.

For example, let’s say you successfully implement one of these strategies and are able to save $100 per day (equals $3K/month and $36K over the course of a year). While these might just feel like routine maintenance, these numbers can quickly add up.

As an example: For a $2M business with a 10% margin, this increases your profit margin by 18%.

If you are able to incorporate just a handful of these savings efforts across the categories we covered (office supplies, labor savings, time efficiency etc.), you could quickly improve profits by 10X to 20X within a matter of weeks.

And as your profits grow, so does your ability to reinvest in the business and drive even more future growth. 

Wrap Up

I hope you found this list helpful and that I was able to spark some additional ideas for you. By taking some time to review your options, you can quickly find ways to save money and increase operational efficiency.

Keep in mind that all of these strategies are actionable and can be implemented relatively easily across your entire business.

So don’t be afraid to get creative with your cost-cutting strategies. Every little bit counts. And over time, these seemingly small savings amounts can compound into big profits.

Which strategies to maintain operational efficiency have you tried in your business? Let me know in the comments below – I’d love to hear if you have any other ideas.

Jack


Investor & Mentor

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