For small businesses, improving business operations often boils down to day to day survival. Leaders run from department to department, putting out fire after fire, with little time to look at the bigger picture which slows long-term growth by stunting operational efficiency.
Research by McKinsey shows 79% of all companies have cut costs over the last year in response to the economic uncertainty, but only 53% of executives believe that this approach actually helped the business weather it.
At the same time, research shows only 4% of companies measure and manage their documented processes. This suggests a huge amount of businesses are struggling to focus on improving operational efficiency as a means of increasing business productivity and profitability.
If operations management in small businesses reviewed their operating efficiency they could improve business operations and in turn, improve business productivity and profitability; making them more competitive and maximising business resilience.
We all need to rethink business. That’s why in this article we’ll be looking at what operational efficiency is and how to improve small business operations to achieve it and how that can be a part of a continuous business improvement programme.
What is Operational Efficiency and How Can it Increase Business Profitability?
Before we can dive into how to improve business operations in a small business, it helps to understand what the goal is. That goal is simple on paper — to improve operational efficiency.
Often operational efficiency is a term thought to only be used within the manufacturing industry, with little regard for the 6 million SMEs in the UK which make up 99% of all businesses. But it’s not so.
Business operational efficiency simply refers to an organisation's ability to deliver a high quality service or product through the most streamlined processes and effective use of resources.
Therefore this approach is a great strategy to increase revenue and business growth internally by enabling businesses to generate larger profits with the same resources, as opposed to looking for external sources like a new sales or marketing campaign.
How to Improve Small Business Operations to Maximise Business Productivity
Business operations are not merely a means of cost management. All aspects of your business relate to business operations. Broadly, there are eight categories to focus on in business operations where improvements can be made:
- Organisation operations
- Sales and marketing operations
- Supply chain operations
- Sourcing and procurement operations
- Financial operations
- Business process management
- Research and development
- Outsourcing operations
Of course, not all of these categories will apply to every business. But it goes to show the broadness of which aspects can be addressed in the process of operational improvements.
For most SMEs, the following strategies can help to improve small business operations:
- A business improvement programme
- Reviewing and refining processes
- Improving employee well-being
- A more developed financial strategy
- Utilising the best technologies available
- Measure overall performance and set goals
A Business Improvement Programme
A business improvement programme will ensure that the right problems are fixed in the right order, that the operational issues that are having the most significant impact on the business need to be addressed first.
Reviewing and Refining Processes for Continuous Improvement
Business process management (BPM) speaks to the statistic we referred to in the introduction; that only 4% of businesses measure and manage processes.
Process refinement is at the heart of improving business operations
BPM gives businesses a better understanding of the drive behind day-to-day operations. Without documented and measured processes, you’re just making guesses as to where operational improvements can be made, which is why so often large changes driven from the top-down cause such chaos for frontline workers.
Though the brand is known as a global success now, Taco Bell used a business process management strategy to save their brand from going under back in the 1980s. In 1983, while the rest of the fast food industry was seeing an average 6% year-on-year growth, Taco Bell’s annual revenue growth was negative 16%. The newly appointed CEO, James Martin focused on completely redesigned business processes as a means of growth, transforming them into the $3 billion company we know today.
All this to say, processes must be documented and measured within businesses, so that they can be reviewed and analysed. This shouldn’t be a one time review, but a continuous process of improvement.
This can allow businesses to automate in new areas and better allocate resources to more productive activities.
Improving Employee Well-Being Improves Employee Engagement
Employee engagement is at the heart of business productivity.
The picture in the UK for employee engagement currently is bleak. Gallup research reveals only 27% of UK employees strongly agree that their workplace cares about their well-being.
While many companies have an employee well-being programme in place, many of these bring lacklustre results when it comes to increasing employee engagement.
There are no end of ways to improve employee engagement, but in short:
- Creating a robust company culture with a clear vision and purpose
- Transparent and open communication
- Investing in employee development
- Setting clear, attainable goals
- Supporting the mental and physical health needs of employees
- Empowering employees with decentralised decision making
- Building stronger teams through better, selective recruitment for behaviours
Developing a More Robust Financial Strategy
Businesses need to make a profit and your financial strategy is at the heart of this. Particularly within the hospitality industry, but across many industries, margins have dwindled as the markets have become more and more competitive.
Low margins not only impact your financial viability, but they also impact employee morale. Wages stagnate and employees move onto greener pastures. Yet the approach of cutting margins to increase sales remains a common one.
Instead, we suggest competing on the customer experience instead. 86% of customers are happy to pay more for a better customer experience. So instead of continuously eating into your margins to survive, increase them and justify it by delivering a better customer experience than anyone else on the market.
Utilising the Best Technologies Available to Improve Operating Efficiency
Technology is an undeniable part of working life in the Fourth Industrial Revolution. Automation is expected to increase across industries, freeing up your employees time to be better devoted to more creative tasks which machines cannot do.
This isn’t to say technology alone is the solution for improving business operations, but ensuring you stay ahead of the curve (and competitors!) by keeping up to date and investing in the technologies you need to streamline and improve processes is a key characteristic for small business operations management.
Measure Overall Performance and Set SMART Goals to Unlock Business Productivity
So many SMEs only focus on the bottom-line financial metrics. Of course these are important, but it’s vital to measure your operational metrics if you want to improve small business operations.
There are no end of operational metrics to pick from to measure your overall performance and operational efficiency, but common operational metrics include:
- Total tickets vs open tickets
- Mean time between failures
- Mean time to repair
- Mean time to recovery
- Mean time to resolve
- Mean time to respond
- Mean time to failure
- Lead time
- Average handle time
- Return on advertising spend
- Customer acquisition cost
- Time to payback
- Marketing originated customer percentage
- Employee efficiency
- Adherence to values
- Customer satisfaction
- Revenues per employee
Once you’ve measured your performance, set new SMART goals to achieve them, to allow you to continuously develop and improve operational efficiency.