Business Development Bank of Canada (BDC) — Operational Efficiency Imp

This article discusses operational efficiency, which involves optimizing the use of resources like time, people, equipment, inventory, and money to improve business performance. Efficient companies are leaner, more agile, and more profitable. Operational efficiency isn't just for manufacturing; service and distribution businesses can also benefit significantly. The first step is often to better manage teams, processes, and information to reduce waste and create more value for customers. By some estimates, only 15% to 20% of an employee’s workday is spent on purely productive activities in the average Canadian small and medium‑sized business. The goal of an operational efficiency mindset is to cut or limit the amount of time spent by workers on non-value-added activities or inefficient processes. By maximizing the amount of value-added work employees do, an operational efficiency exercise can make a business much more competitive and profitable. Benefits of operational efficiency include reduced costs, lead times, and rates of accidents and errors, happier customers and workforce, more clarity for the team about how the business works, and greater adaptability to new business challenges and opportunities. Improving efficiency can be a key part of a company’s business strategy, elevating organizations to a level of business maturity that many Canadian businesses struggle with. To diagnose operational efficiency problems, businesses should look for signs such as leaders constantly fighting fires, a lack of focus on fixing the fundamentals, and operational problems accumulating over time due to haphazard growth. Improving operational efficiency involves understanding the current state, developing priority projects and an action plan, establishing the right performance indicators, implementing the change and continually improving, and introducing digital technologies. To improve operational efficiency, businesses should follow these steps: understand the current state by reviewing financial performance, calculating employee productivity metrics, conducting site visits, interviews, and workshops, analyzing areas of waste, scorecarding the company’s efficiency, and studying the main underlying reasons for problems. Develop priority projects and an action plan by identifying quick wins and additional projects to be done over a longer period. Establish the right performance indicators by setting ambitious but realistic objectives. Implement the change and continually improve by getting buy-in from employees, holding regular team meetings, updating the plan, and encouraging employee participation. Introduce digital technologies such as digital manufacturing dashboards and daily management systems.

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