28th July, 2020
Four keys to optimising operational efficiency
For the most part, bigger businesses have taken the pandemic as an opportunity to invest and in some cases grow. But as the knock-on effects of the pandemic begin to hit, managing costs by seeking operational efficiency will be of increasing importance.
With a varying degree of lockdown restrictions in place across Australia and New Zealand, the business landscape continues to suffer ongoing disruptions at the hands of COVID-19. If you haven’t started already, now is the time to manage costs and take a close look at your operational efficiency.
While bigger businesses in some sectors have been somewhat shielded from the direct impacts of the pandemic, but even for them, the knock-on effects are beginning to be felt. And the longer the pandemic wears on globally, the more business managers will begin considering their costs.
According to McKinsey, 79 percent of all companies have cut costs in response to the global economic crisis, but only 53 percent of executives think doing so has helped their companies weather the storm. This is indicative of the general sentiment that approaching operational efficiency with a view to shrink costs doesn’t represent a holistic strategy.
The concept of cutting costs through operational efficiency initiatives is further undermined by data from PwC, which revealed less than 30 percent of cost-cutting programs achieve their goals, and less than a fifth of these are able to garner consistent results over the next three years.
Instead, executives should be implementing a whole-of-business operational efficiency strategy that not only helps contain costs, but also seeks to enhance workforce utilisation and grow your margins.
Your operational efficiency strategy will likely focus on the following four key areas:
1. Process refinement: The foundation of operational efficiency
The most fundamental element of any discussion around operational efficiency is a thorough appraisal and review of existing processes.
That’s because processes lie at the core of operations, and any improvement to the way your company operates won’t be effective without a deep knowledge of them.
Studies show the biggest barrier to operational efficiency in services businesses is repeated non-billable work and a lack of structure. These organisations are notorious for not only hemorrhaging capital, but they also tend to struggle to stay nimble in the face of change. If this sounds like your business, it’s time to build a plan of action to quickly turn things around.
One clear solution to process refinement is the adaption of automation technologies that can reduce or eliminate the burden of non-billable work hours and other low-value, labour-intensive tasks.
Automation not only has an immediate cost-reduction benefit, it’s also scalable, which puts your organisation in a better position to handle whatever the future throws at it.
2. Your people will determine the success or failure of your strategy
Workers are also a critical piece of the puzzle, and your organisation’s ability to appropriately engage and allocate labour resources will also form a major theme in operational efficiency.
But this concept goes much further than any simple discussion around resource planning. How your employees are managed will have direct impacts on team morale and the company culture as a whole.
Review your resource planning, hiring processes and employee engagement initiatives while planning any organisational efficiency initiatives and you’ll find the journey is simpler and less painful for all. The more change that’s required, the more this layer of work will benefit the initiative in the long run.
3. Good financial management can’t be overstated when seeking efficiencies
Good financial strategy underpins everything an organisation does if it wants to be successful in improving operations.
For bigger businesses, the knee-jerk reaction of shrinking labour costs is no longer seen as an effective control lever. Instead, executives are better off considering other alternatives for increasing margins.
While the path to revenue growth isn’t necessarily clear in the current environment, there are some fundamental tenets of financial management – particularly in service-based businesses – that can help you maintain, and grow, your position.
- Cut clients before staff – As the pandemic hit, many business advisors were caught in a spiral of offering free advice to struggling clients, many of whom would inevitably go out of business regardless. Don’t let this happen to you! Review your client lists to make sure your organisation is spending the appropriate amount of time on each client for the value you receive.
- Assess resource allocation for each job – Following on from the above, you’ll also want to consider optimising for the various jobs and tasks your staff do for clients. Which are the most labour-intensive? Are you appropriately charging for the amount of time or effort?
4. Improved technology means better processes, people and profits
No matter what business you’re in, the technologies you run on impact everything you do and have a significant influence on operational efficiency as a result.
While there will be technological questions and assessments required for each of the elements of your strategy mentioned above, there are also some more general approaches to be made in this area and these are more important than ever to consider in the current context.
Work to improve data flow and business intelligence
In the rush to move many operations to a remote working framework and scale cloud services, as well as all the additional technology challenges that surround these initiatives, many large businesses have invested heavily in IT architecture over the first half of the year.
Now, as efficiency becomes of increasing importance, the question of cost savings and efficiencies looms. But any move in this direction has to be preceded with a clear insight into company data.
If you don’t have transparency on key business intelligence data, then your first priority should be to work towards it. All other decisions will then stem from the insights you glean.
Redesign your core IT capabilities
The rush towards remote working has led many organisations to shift their IT infrastructure to the cloud, with 83 percent of enterprise businesses expected to make the transition by 2023 according to Forbes Magazine.
Deloitte research indicates that the appetite for cloud-based services is primarily driven by organisations’ desire to enhance security and data protection, data modernisation and to improve the cost and performance of IT operations.
But a cloud migration comes with a learning curve, and some companies may find it difficult to track what software assets they own, as well as how and when to deploy them. A lack of historic data and management insights can also make it difficult to get the most out of the new systems.
To solve these issues, organisations should work closely with software partners and providers to make sure changes are incorporated smoothly, and also to provide learnings from others to help optimise for best fit.
Building out an organisation’s IT capabilities in the cloud can lead to better business intelligence, which can then lead to greater operational efficiencies. Once achieved, leaders will have a better understanding of their objective costs and allow them to forecast how any efficiency gain may benefit them in the future.
Redefine your IT service delivery model
Another approach to seeking organisational efficiencies through technology is to review and redefine your service delivery model – that is, the method by which your core IT services are delivered to the end user.
With cloud-based delivery options, outsourcing and offshoring has become a common feature of IT service delivery models in the past, and this approach may have become more or less efficient under COVID-19.
Given the shifting nature of the current environment, it may be time to review IT infrastructure contracts. KPMG suggests CIOs and other tech execs should consider the following areas:
- Location strategy: Have certain remote working locations been more effective than others? Were you operating out of secure or approved facilities that are no longer accessible? Model the implications of a distributed or regional model on general and administrative costs like real estate, your business continuity requirements across centres, security and contractual issues, and set a baseline of required modern infrastructure.
- Outsourcing agreements: Are your contractual obligations with offshore or remote providers able to be met? Has there been a significant drop in productivity or signs of lost expertise from your providers? Perhaps there is an opportunity to re-negotiate or change service level agreements in exchange for price concessions or changes in payments terms.
- Resource productivity: There may be work types and functions that can be immediately removed, augmented or automated in an effort to reduce costs and increase speed. Targets like customer contact centres, testing and QA, event management and monitoring, should all be reviewed. Consider AI-enabled bots and machine learning to help continuously improve data and deliver results at scale.
From your key processes to your workforce, and financial strategy to IT, every element of your business should be taken into account when seeking true efficiency gains.
Each of these core elements are tightly interrelated, so any initiative or strategy to improve operational efficiency should take them each into account, including the impacts changes in one area may have on another.
And, at a time when the only true constant is change, business leaders can’t afford to sit tight. Taking an ‘always and ongoing’ attitude to optimising for operational efficiency will stand your company in good stead for the future.
Take the first step in assessing your tech’s efficiency and see how it stacks up against MYOB’s cloud-based business management software, MYOB Advanced.