Operational efficiency is a frequently, but loosely, used phrase in business consulting at large. But what it really means? Just like other trade jargons it could mean different things to different people and in different contexts. This article elaborates on the elements of operational efficiency which we believe are critical to business success.
We discuss the link between organizational and operational strategies. Then provide an overview of how best operational goals and metrics should be set, and the use of KPI dashboards for effective monitoring and controlling of progress. Finally, we close by offering our opinion of how operational efficiency is achieved.
Operations Efficiency in the Service of Organizational Strategy
Undoubtedly, the function of operations falls at the core of every organization. After all, it is where value is created in the form of goods and services. Operations lock-stepped with other key functions such as marketing, finance, HR, etc. form the body of activities that are performed within an organization. In our view, every activity performed by the operations function should support the organization’s vision, either directly or indirectly. Otherwise, it is considered waste!
Operational Goals & Metrics
Ideally, the operations function should develop an operational strategy aimed at achieving operational goals that are aligned with and contributing to attaining the organizations’ strategic goals. From our pragmatic perspective, goals must be SMART, with M as measurable. Care must be given to selecting appropriate metrics to measure the progressive achievement of quantifiable targets on a monthly, quarterly and annual basis. One aspect of an appropriate metric is the ease of measurement. Why? Because the process of collecting data to measure progress is also subject to scrutiny for efficiency in and of itself.
Monitoring & Controlling Progress; The KPI Dashboard
How do we know we are making improvements in the operational efficiency metrics? Recall that we set the metrics to support achieving our strategic goals. The proof is in the pudding, as they say! Key performance indicators play a critical role in directing and driving sensible action at the process level. Experience suggests that characteristics of a good KPI dashboards include
- Careful selection of KPIs that represent the realities on the ground
- KPIs that tell what needs adjustment at the process level
- KPIs that support management decisions
- Almost effortless, but steady supply of current data
- Frequently updated to allow for near-real-time responses
- Free from clutter and redundancies
How Operational Efficiency achieved?
Operational efficiency is planned from the top-down with sustained management commitment. Sustained management commitment is critical to a critical factor to success. While the planning initiative is management responsibility, but tangible change is bottom-up and is rooted in the process level. Not infrequently, we came across changes that looked brilliant on paper but never saw the light of day. This is where the socio-cultural side of management comes into play. The side that requires planning, patience, effective communication and the diligent managing and execution of a “change” process. We have intervened in several scenarios to generate breakthroughs in stagnant situations. Often times it helps to bring in someone from the outside to help in breaking an impasse.