The complete guide to increasing operational efficiency in 2024

Operational efficiency increases profit margins and reduces costs. But it’s not just about money. Find out how to increase your service company’s productivity, profitability, agility, sustainability and satisfaction levels by optimizing your operational efficiency.

In the fast-moving field of professional services, the ability to deliver outstanding results is just as important to success as having a high level of knowledge.

Operational efficiency is the key factor distinguishing successful businesses from those left behind in the wake of fierce competition. Improving operational efficiency is essential for any professional services company, including law firms, consulting firms, accounting firms and marketing agencies.

In this guide, we’ll define operational efficiency, discuss its objectives and offer suggestions for improving it without necessarily cutting costs.

What is operational efficiency?

Operational efficiency is about making the most of available resources – including people, time, money, inventory and equipment – to produce goods or services profitably.

An organization that functions efficiently is more streamlined, adaptable and profitable.

While this may seem to be the case, operational efficiency and productivity are not the same thing.

Productivity is the quantity of work accomplished. Efficiency is the quality of the work produced. It’s possible for your company to be productive without being efficient.

You can have two equally productive businesses. However, one of them is likely to perform better if it operates more efficiently. It’s also more likely to meet quality and customer satisfaction targets, which can lead to greater success and sustainability.

To clear up any confusion, let’s look at an example of operational efficiency before moving on to the benefits.

Example of operational efficiency

Customer applications are developed by an IT company. The project manager estimates that a project will take four weeks, but due to delays and double-booking of developers, it actually takes eight weeks and requires the hiring of more expensive contractors.

• Delays in projects lead to increased expenditure and delayed revenue.
• Financial planning is compromised by differences between forecast and actual costs.
• For contingent projects, differences between planned and actual schedules have repercussions.
• While some employees are overworked, others have been underutilized.
• The company has to pay for expensive additional resources when using contractors.
• It is unlikely that the consumer will be satisfied with the delay.

The raison d’être of operational efficiency

Reducing the amount of time employees spend on repetitive tasks or inefficient procedures is the goal of adopting an operational efficiency mindset. This strategy can significantly boost a company’s competitiveness and profitability by focusing on value-added work, making it more adaptable and successful in the marketplace.

While there is much to explore, this is just one example of how worker engagement is not living up to what employers would like to see. What’s more, additional daily tasks that add no value to the business divert their attention.

While employees benefit from downtime, you want to reduce the amount of unnecessary, non-value-added work that takes up everyone’s time in order to increase operational efficiency.

In general, this is divided into two types:

• Activities that are necessary but don’t add value: these include administrative responsibilities and other tasks that are necessary but don’t add value.
• Totally unnecessary activities: some of the tasks in the first category can be automated, but you need to find and eliminate those that are totally unnecessary.

The benefits of operational efficiency

Beyond the financial savings, operational efficiency has many other benefits. What’s more, operational efficiency can increase employee engagement and loyalty, boost customer satisfaction and enhance your company’s agility.

Reduce expenses 💸

By making better use of resources, operational efficiency reduces expenses. Staff are your biggest expense, for example, if you run a professional services company. You can get more results for the same input if you can streamline their workflow and workload so they can do more work in the same amount of time, for the same pay.

Increased earnings and profitability 💰

You can deliver the same items at a lower cost, which translates into higher profits by reducing waste in your processes. You can also increase your production while maintaining the same cost, which will improve your income. You could use the extra hours to produce a new project B, for example, if you can save 100 hours on the current project A.

Reduced lead times and time-to-market📄.

Working smarter means working faster, which is what we mean by operational efficiency. This means you can complete projects faster, or bring new products to market sooner. The benefits are numerous: you can, for example, surprise your customers with the speed of your service, or get ahead of your competitors with a new product.

Customer superiority and satisfaction⭐

The quality of a product or service can be improved through operational efficiency. Take automation, for example. Manual, monotonous work can be a waste of time and creativity for your staff. Tasks are always completed (usually to a higher standard and with fewer human errors) if these processes are automated. What’s more, your staff have more time for more interesting tasks. Instead of using spreadsheets and entering data, you can consider developing a strategy or product. This can improve product quality without increasing your company’s expenses.

Greater business agility 🤸

You can seize new opportunities and become more agile when you work efficiently. Expanding on the previous scenario, let’s say your company has the opportunity to provide a quote for a new project. However, you don’t have time to determine the capacity and availability of resources for subsequent projects because your project managers are very busy with the manual tasks involved in managing your current projects. So you miss the opportunity.

Employee involvement and loyalty 📈

Inefficient procedures are time-consuming and tedious, which can leave your employees feeling overworked, demotivated and undervalued. Improving operational efficiency enables your team to devote more time to projects that interest, stimulate and enrich them. As a result, they’re more likely to give their best and less likely to look for other job opportunities. Think they’re not observant? Think again. According to Microsoft, nearly 40% of employees plan to leave their current workplace in the next 12 months.

Taking initiative rather than reacting 🤓

Truly efficient operations save time and effort, promote greater transparency within the team, and improve data flow. This means your managers can make better decisions because they have more time and access to information. They have time to be proactive and strategic, rather than feeling overloaded and continually behind. All aspects of your business will improve as a result.

How is operational efficiency determined?

Numerous quantitative and qualitative measures are available to gauge operational efficiency. Strictly speaking, operating efficiency is expressed in the form of a ratio known as the operating efficiency ratio.

The cost of providing your services or goods, plus operating expenses, is added to the operating efficiency ratio, which is then divided by your net sales. The result is a figure representing the percentage of your net sales absorbed by expenses, which can be expressed as a number.

However, there are other ways of assessing operational efficiency than this ratio. To get a more complete picture of their success, companies will use different indicators. For example, in the case of a company that provides services, you should also consider key performance indicators relating to :

• Use of resources
• Billable and non-billable hours
• Turnover.

Obviously, statistics and data only provide part of the picture. You also need to consider qualitative indicators of operational efficiency.

Do the procedures seem efficient? Are staff impatient and irritated? Do they run the risk of burning out by working long hours to meet deadlines? Are customers satisfied with your offer? Or do they have complaints about deliverables, procedures and deadlines?

Ways to increase operational efficiency

In a service business, your employees are both your greatest asset and your greatest expense, since they do the work that produces results. Consequently, improving your human resources management will have a major impact on your company’s efficiency.

Here are 10 strategies for improving and coordinating your data, technology, people and procedures to increase operational efficiency and reduce expenses, while making your colleagues and customers happier.

1. Make the most of your resources

The process of allocating and managing resources in the most efficient way possible is known as resource optimization. By reducing direct labor expenses, resource optimization aims to maximize productivity. Using lean approaches can also help you respond more effectively to customer requirements and improve performance.

Resource optimization encompasses a wide range of methods.

Putting the right people on the right projects at the right time

This ensures that you have the skills you need to complete a job satisfactorily and on time. However, because you only use the precise people (with the precise degree of seniority and expertise) you need, you avoid spending too much money on staff. What’s more, you ensure that they work to the best of their ability, rather than leaving them on the sidelines for important tasks.

Avoiding under-utilization

Not making the most of your resources to optimize your return on investment is known as underutilization. Using a senior software engineer, for example, when a more junior employee could have done the job just as well. In this case, you could earn $100 an hour instead of the $50 needed for the assignment. or have employees spend their time on low-value administrative tasks rather than billable tasks that benefit the business.

Preventing excessive use

Over-utilization is the opposite of under-utilization. It’s the sign of excessive staff utilization. The result can be a number of problems for your project, your workflow and your financial gains.

Firstly, excessive use leads to burnout, which in turn causes problems with attendance, performance and health. In 2019, the World Health Organization included burnout in the International Classification of Diseases as an “occupational phenomenon”. As well as being the main reason for employee resignation, burnout also leads to costly employee turnover.

Secondly, a highly sought-after person can block the progress of a project. This means that their availability can delay the schedule of entire projects, or force the use of an inappropriate resource for the task in hand, affecting costs and/or deliveries.

As you can see, optimizing resources helps to increase margins, project performance, budget and quality control, employee satisfaction and so on. To maximize your resources, you need to understand these mechanisms:

• The people and skills you have at your disposal
• How much their use costs the company
• Their current level of use
• When available
• Appropriate replacements for privileged personalities.

2. Process review

The PPT framework, the golden triangle of people, process and technology, is the means by which business transformation is accomplished. Work is done by people, made reproducible by procedures and made more efficient by technology. So it’s essential that your procedures are functional and fit for purpose.

The first step is to check your current procedures and understand each step. What role does each action play in achieving the main objective? Is it the most effective way of achieving this objective? Is it set up to achieve the objective effectively?

Process realignment and redesign

A process audit can uncover systematic inefficiencies in your processes. It can also show that once-adapted procedures no longer meet your company’s changing needs.

This once-efficient procedure now presents risks in terms of operational efficiency. In addition to consuming unnecessary execution time, it prevents managers from easily accessing the information they need to make sound decisions. Automation would be beneficial for this procedure (see next section).

In addition, you need to confirm that your existing strategic objectives are in line with your procedures. If procedures were put in place, for example, when you were looking to save money, they may no longer be appropriate now that you’re trying to grow.

Once your procedures have been modified and optimized, write Standard Operating Procedures (SOPs) for your staff to use. SOPs are documented guidelines that provide step-by-step instructions for routine tasks so that they can be performed consistently and efficiently every time, by anyone.

3. Make procedures automatic

Inefficient manual procedures are a major obstacle to operational efficiency. These laborious, time-consuming tasks have no place in the modern age of automated technologies.

According to Ajay Agrawal, Professor of Entrepreneurship at the University of Toronto, automation and digitization will be the top priorities for ambitious companies this year. “Traditional companies will continue to invest in digitization,” he asserts in an interview with McKinsey as part of its Technology Trends 2022 panel. High-tech companies will spend money on automation.

Manual procedures rob employees of their time and morale by forcing them to perform laborious tasks that don’t really require human intervention. As a result, you’re wasting your team members’ skills and time by making them work on tasks that software could complete in seconds, hours or days.

Let’s take the example of resource allocation. All your resources are devoted to the initiatives that concern them. At the right time, the right people are in the right place. Life is harmonious. Later, however, the project scope or schedule may change, requiring you to reallocate resources.

If your program manager were to carry out this procedure by hand, it could take several hours. With resource allocation software, it would only take a few minutes. This means your program manager can get back to tasks where his or her creativity and human input add value to the business, such as stakeholder management, innovation and strategic planning, and you can make changes with confidence and speed.

Process automation boosts operational efficiency:

• Reduce the time your employees spend on unnecessary tasks and increase capacity without increasing costs
• Reduce the time needed to complete specific tasks, such as decision-making, workflows and time-to-market.
• Free up funds for projects that really need them, such as improving standards and achieving better results for customers.

4. Strengthen cooperation between teams

As your business grows, it becomes increasingly difficult to communicate and share information. Perhaps you started with a small team communicating via Slack or shouting across the office to provide information on finance, operations or hiring. But as you expand, each of these business operations now has its own teams, each with its own procedures and systems.

Your business depends on these teams working together, exchanging information quickly and cooperating for the common good. But this isn’t always the case. In many cases, this can compromise operational efficiency.

Relying on data or suggestions from other groups can lead to delays and bottlenecks.

To improve cooperation between teams and, consequently, operational efficiency, consider the following strategies:

• Establish a collaborative culture in which people strive to achieve the organization’s objectives rather than their own interests.
• Examine the team’s structures to see if they are still meeting the desired objective, or if they are producing conflicts.

Rather than having multiple silos, get everyone working in the same system.

5. Improve data accessibility

Siloed data is a major obstacle to operational efficiency, because timely, well-informed decision-making depends on access to reliable data. All departments will be working with the same data thanks to the standardization and centralization of data in a single source of truth, giving managers 360-degree visibility of company-wide performance.

Take resource utilization, for example. To avoid over- or under-utilization of resources, managers of project-based businesses need to be able to measure and control the use of these resources. To enable them to make the best choices for individuals and projects, all project and resource information needs to be centrally stored, updated and displayed in real time.

Another example is the tracking of projected versus actual budgets. Managers can identify effective practices and communicate them to under-performing teams if they have access to data on the differences between project projections across all teams. In addition, by improving planning procedures, data can help make future estimates more accurate.

The following elements need to be taken into account when trying to increase data availability:

• The crucial data you need to track and measure to increase operational efficiency
• centralize and standardize data systems to break down data silos
• Use software that streamlines data processing and visualization to obtain information quickly and easily

Better data availability helps more than just decision making. According to a McKinsey study, improving data architecture, governance and management can eliminate waste and manual labor, resulting in a 5-15% reduction in annual data spend. So it makes sense to save this time and money.

6. Make time management a priority

Time is literally money in service companies, which is why controlling the use of time is crucial. Studies show that employees spend only 27% of their daily working hours on tasks directly related to their talents, whereas they spend 2.8 hours on productive tasks.

Time control is a method of monitoring and improving time management, and ensuring that your resources are used efficiently. It doesn’t mean that your employees have to work billable hours or be 100% productive. That’s not practical. It simply means assigning employees to tasks where their expertise and abilities will benefit your business most.

Imagine you’re in charge of a graphic design company. You discover that your head graphic designer actually spends three hours a day answering customer emails about the approval process and exchanging PDF proofs. You should therefore introduce approval automation software or assign this task to an administrator to increase your operational efficiency. This way, your designer can get back to using the skills you paid him for when you hired him.

7. Describe project controls

Even with experienced project managers, nothing ever goes according to plan. Tracking and evaluating project progress is essential for making any necessary adjustments. In order to control costs and results for the customer, project control helps manage the risks associated with unforeseen events, such as the absence of a team member due to illness, or their transfer to another project.

Project controls include, but are not limited to, the following:

• Description of project scope
• Structure of work distribution
• Risk management plans
• Change management procedures

Project controls can dramatically increase operational efficiency by preventing projects from drifting off course and costing you more money and time, by providing a framework for measuring, controlling and correcting project performance.

8. Plan ahead

It’s clear that planning ahead is the key to long-term operational efficiency. You need to think about how you’re going to achieve your goals in three, five and ten years’ time.

There are some things you can do now to increase your productivity later.

Capacity planning

The aim of capacity planning is to ensure that you have the resources you need to achieve your objectives effectively, by looking ahead to the future.

For example, do you have the right number and type of employees – such as senior developers – to carry out the types of projects you intend to undertake? Do you have the space and equipment to expand your business if you intend to do so? In the short term, at least, you risk encountering obstacles and bottlenecks that will result in efficiency losses if you don’t have the necessary capacity when you need it.

Developing capabilities

The aim of capacity building is to make your company more capable of achieving its long-term objectives. It involves determining your company’s desired destination, assessing your current ability to reach it, and filling the gaps that will prevent you from getting there. Skills range from good meeting management to leadership ability. Over time, skills development can significantly increase operational efficiency.

Innovation and automation

Operational efficiency is increased by automating time-consuming manual operations, which frees up resources. This is a no-brainer. However, putting technology into practice is an ongoing process. Technology develops in response to new problems, and has the capacity to render entire procedures and solutions instantly obsolete. You need to be constantly on the lookout for innovative solutions to ensure that your company makes the best possible use of technology.

9. Set objectives to empower staff members

As we’ve already established, your employees are both your greatest asset and your greatest expense in a service-based organization. Therefore, improving their productivity will increase total operational productivity.

It’s essential to set objectives and give staff members the freedom to achieve them. Key performance indicators and objectives are necessary for employees to :

• help them convert strategic initiatives into achievable timeframes.
• Recognize the relationship between their work and the company’s overall direction.
• Recognize and honor their achievements and contributions.

We suggest the following to managers:

• Divide global objectives into more manageable sub-objectives.
• Frequent individual follow-up to assess progress and overcome obstacles.
• Employees must be given the necessary resources and asked what they need to accomplish their KPIs.
• Foster an atmosphere of transparency and innovation.

10. Try new approaches to work

It’s the perfect time to try new things, if there ever were any. A growing number of companies are experimenting with new strategies for involving remote and hybrid teams, as well as new working models.

Resource management software is one of the tools that service and project companies can use to increase their operational efficiency. It enables companies to allocate resources, plan projects and supervise them in the most practical way possible.

Try the demo now or sign up for a free trial.