Operational efficiency describes an organization’s capacity to minimize its expenditure of time, effort, and materials while increasing its profitability. From a financial standpoint, operational efficiency is measured in the relation between the company’s input and output. Input, in this case, refers to the organization’s resources needed for ongoing operation, such as time, money, and employees. Output, on the other hand, refers to the gains made by the company, including revenue, customer acquisition, quality, and time.
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Keeping track of the level of efficiency in an organization is essential for several reasons. Primarily, it is critical when it comes to maintaining and improving the company’s level of financial proficiency. Becoming aware of an organization’s level of operational efficiency can help a business to optimize the use of its money, effort, and time. In addition, tracking operational efficiency adds tremendous value as it allows for effective decision-making, transparent strategizing, and comprehensive evaluations of where a company stands. Improving operational efficiency will ensure that a company stays profitable in the long term.
For anything to be improved upon, it must first be measured. One of the ways to continuously measure the level of operational efficiency in an organization is to track performance with metrics and measurable data. Automated tools such as ERP software, including NetSuite have proven indispensable in elevating a company’s level of control over measuring performance metrics. By making use of automation in the overall operational strategy, a company is better able to make the necessary changes to create success and optimize its level of operational efficiency.
After using automation to track and report on the current level of efficiency within an organization, there are various ways in which operational efficiency can be influenced. Some of the critical factors that directly impact and affect operational efficiency include:
One of the most common hindrances to operational efficiency that an organization can face is having redundant or ineffective processes in place. Many times a company will keep a process in place simply because they have always done so. These processes may be outdated, but they remain a part of the company’s modus operandi and can seriously inhibit a company’s growth potential. An organization needs to perform periodic audits on its systems and processes to highlight the current value that they are adding. By eliminating redundant processes, a business can improve operational efficiency and streamline its operations with only value-added systems and practices.
Consistent implementation of effective practices and procedures over time yields increased productivity, enhanced profitability, and more efficient results. By utilizing consistency in operational procedures, a business can better establish a more cohesive structure that can be easily replicated across departments. This keeps everyone on the same page and eliminates redundancy, errors, and loss caused by lack of communication and confusion.
One such way to maintain consistency in an organization is to decide on a method for dispersing information and sticking with it. Financial technology tools that align a company’s goal of operational efficiency with practical means of implementing these goals are instrumental to establishing efficient operations.
Removing bottlenecks in an organization’s workflow is one of the primary ways that operational efficiency can be influenced. Bottlenecks can show up in many different areas of a business’ workflow and hinder tasks critical to the company’s profitability. A bottleneck operation is any step within a process that limits the system’s ability to produce the desired result. When bottlenecks are frequent in an organization’s systems and processes, then profitability, productivity, and overall expansion suffer. Eliminating these blockages ensures increased operational efficiency in the long term.
Performance benchmarks, also known as key performance indicators (KPIs), help a business measure its level of operational efficiency. Consistently measuring KPIs over time can help an organization determine its operating efficiency. Low-performing KPIs will indicate a need for adjustments in one or many different areas. While high KPIs will demonstrate that a company is effectively using its resources, including time, labor, and materials, to control costs and increase productivity which is the backbone of operational efficiency.
During operations, every business will have relationships that assist with everyday tasks, managing, and producing its products and services. For example, in manufacturing, there is a relationship between the suppliers of materials and the organization itself. Likewise, there is also the relationship between department heads and employees. These strategic relationships are critical to the functioning of the business as a whole. With effective management of these strategic relationships, an organization can be assured of improving its level of productivity and ultimately enhancing its operational efficiency.
Creating tactical goals encompassing current and long-term priorities is essential when considering a company’s level of operational efficiency. For a business to continue growing and expanding, there must be clear and definable goals to work towards. Establishing current and long-term priorities when developing a strategic, operational efficiency plan will help a company achieve increased growth and profitability.
Effective planning can take an organization from lackluster results to outstanding growth and profits. With strategic implementation plans that feature clear-cut goals and actionable steps, a company is guaranteed to increase its level of operational efficiency while reaching its goals in a stable and achievable way. Implementation plans are future-oriented and can include short-term due dates and long-term targets for immediate and continued success. Implementation plans are critical for operational efficiency to be sustained within a company. From assigning due dates to tasks to reporting issues that arise along the way, creating and executing plans can be the defining factor in whether or not an organization achieves and maintains continued operational efficiency.
As an organization strives to accomplish its goals and objectives towards achieving operational efficiency, it is helpful to explore how fintech platforms can tie into these goals. One such financial technology platform is PayEm, a revolutionary global spend and procurement platform that provides robust and dynamic solutions for creating operational efficiency in any organization. PayEm has many different features, from the built-in insights dashboard to the analytics function that offers admins data and forecasts for effective decision making.
Some of the key benefits of using PayEm to influence operational efficiency include:
PayEm's many features and integrations provide the structure and versatility needed to take an organization to the next level of success in operational efficiency planning. Contact PayEm’s experts for a commitment-free, no-cost demo of the platform.
To understand what makes finance teams more efficient, it is helpful to consider the various factors involved.
There are different metrics to consider regarding operational efficiency within an organization that indicate if a company can operate without a significant loss.