Maximising operational efficiency has become a pervasive mantra that is carried throughout the planning and budgeting process, in practically every business organisation across the economic spectrum. However, many rush to equate operational efficiency with a short-term based quest which relies solely on the desire and ability of management to cut costs.
Despite its simplistic allure, the act of cost-cutting does not automatically translate into operational efficiency. Efficiency isn’t just about reducing costs; other business objectives, such as the delivery of products or services which meet customer needs and requirements, including quality, still have to be achieved in order to retain existing customers and revenue.
It is a fact that because of market pressures, reducing the cost of delivering your product or service will often be the main driver for improving operational efficiency. However, it is also worth keeping in mind that although you can reduce the costs necessary to deliver a service or to operate a process, should your customers leave because the quality of your product or service has dropped, then you are still in danger of going out of business.
I often find that while many organisations are overly concerned with costs, they are either not aware or tend to ignore the fact that real business value can be eradicated if a problem is approached purely as a cost-cutting exercise. At the end of the day, the goal of operational efficiency is to achieve a higher return on expenditures through a combination of expense reduction and efficiency enhancements. In other words, to be efficient, an organisation must also be effective.
Various tools are available for managers in this regard. Resource optimisation, for example, is utilised to ensure that resources deployed at any point in time match the demand being faced at that juncture, thus contributing to eliminating waste. This can be accompanied by a review of all activities being performed, following which management can decide to eliminate those not adding value.
The act of cost-cutting does not automatically translate into operational efficiency
Duplication of work is a common issue which would also need to be addressed. An example would be ensuring that invoices are inputted only once within a system, rather than having both the finance and procurement departments posting the same information twice.
Business simplification, on the other hand, is a strategic imperative for today’s companies if they wish to unlock innovation and position themselves for future success in an increasingly complex world. Yet, many organisations are not aligning their actions effectively with their stated goals of simplifying business processes, decision-making and IT functions – and therefore risk falling behind nimbler competitors. Business process re-engineering can prove critical towards simplifying business processes, with a view to improving workflows and ensuring that an activity or task is completed with the least number of steps possible.
Business process automation (BPA) has become a highly strategic enabler of business control and agility, and a vital management tool. Its importance is linked to the trend to maximise automation rather than to re-engineer it. Technological advancements, and the success of cloud computing, have accelerated the evolution of business processes from ‘re-engineering’ to ‘automation’. As demand increases for businesses to perform complex, labour-intensive tasks, the goal is to automate as many manual processes as possible.
The benefits of business process automation are many and applicable across business sectors and size of companies. Primarily, process automation reduces the time it takes to achieve a task, the effort required to undertake it and the cost of completing it successfully. Automation thus allows you to accomplish more by utilising fewer resources. It also leads to quality and consistency – and we all know that delivering consistently high quality products and customer service means happier, long-term customers.
BPA also results in time savings, since automation reduces the number of tasks done manually. Meanwhile, the adjustment of processes as a result of automation distils your operational performance and reduces the turnaround times for both staff and external customers. Finally, BPA also gives you access to timely and accurate information which allows you to monitor, evaluate and modify your business strategy.
The major risk of a cost-cutting debate is that not enough attention is focused on the opportunity to improve operational performance by being smarter about the way one does business. There is no shortcut to operational efficiency, and certainly, rampant or sporadic cost-cutting exercises without any reference to value offer little guarantee of survival, let alone success.
The basic principle of business is essentially quite simple. If you deliver services or products which meet your customer’s needs at an acceptable cost, you are likely to stay in business. Get the balance wrong and the consequences for your organisation may be fatal. Get it right and the benefits will be substantial.
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David Galea is the chief executive officer at BEAT, a Maltese niche-based consulting firm specialising in the provision of project management, strategic advice and business transformation solutions.