If you are the owner of a business, either big or small, maximizing your company’s income and having the work run as efficiently as possible is likely foremost among your concerns.
If that is the case, you may be thinking about your business’s operational efficiency without even realizing it. Putting business language aside, lowering the cost of a business’s day-to-day operations, and optimizing workflows are core tenets of operational efficiency.
Now is when you might be wondering what operational efficiency is, how it can affect your business, and how you might improve it going forward. Here, we will do our best to explain both the concept and how to use operational efficiency to your advantage.
In its simplest terms, operational efficiency measures how much work you and your business can produce in a given time weighed against how much money it costs to create that work.
Generally speaking, regardless of what product or service you are offering, your business has good operational efficiency if you can produce a high amount of it while keeping the costs of production low. Inversely, if the amount of money it takes to deliver a service is equal to the amount gained, your operational efficiency is considered to be relatively poor.
While the two concepts might sound similar at first, operational efficiency means something slightly different than the idea of general productivity. Productivity in a business sense primarily involves how much of a product or service you can produce. In other words, it concerns not so much the cost it takes to make said product or service but, rather, the measurable volume of one thing you have made.
Operational efficiency is more concerned with specific profit margins rather than general production. For example, producing less of a service might look bad through the lens of the overall output. Still, if that service was delivered cost-effectively, it bodes well for operational efficiency.
Managing the overall efficiency of a business can be the difference between a thriving company and a struggling one. Most business owners know that first-hand, but not everybody considers the full extent of what efficiency means in a business setting.
While minimizing workplace distractions and keeping a tight, orderly personal schedule might be among the first thoughts when considering efficiency in general, they also play a significant role in operational efficiency from a financial perspective.
To be sure, those principles of business efficiency will impact a company’s overall production, but only operational efficiency is designed specifically to shift a company’s gross income.
Think about it. A business can work hard to produce at a higher level, but if the dozens, if not hundreds of factors that go into making a product or service have reached an untenable cost, that extra effort placed into production will not bear fruit financially.
Therefore, it is essential to think about the ways that you can work smarter within your business.
The art of improving a business’s operational efficiency is a delicate balancing act, and good business managers are wise to handle it carefully.
While creating a lower-quality product or service with worse tools, materials, or resources would cost less, this is simply unsustainable for a business. And while the cost of production would go down, so would the profits received, thus maintaining low operational efficiency. However, smart strategies can be put to use to help improve operational efficiency the right way.
To learn more about Chekhub and our operational management tools, schedule a demo.