Discover how to systematically increase operational efficiency by implementing process excellence initiatives that directly impact your bottom line. This comprehensive guide walks through six proven steps that help organizations increase operational efficiency.
In brief:
- Increase operational efficiency to avoid costing your organization five to 25 percent of sales revenue. Companies with strong operational efficiency achieve 25 percent higher growth and 75 percent higher productivity than competitors.
- Systematically identifying bottlenecks through value stream mapping and cross-functional collaboration creates immediate opportunities to eliminate waste and streamline operations.
- Strategic implementation of technology solutions like RPA and AI can dramatically reduce manual work while increasing accuracy.
- Establishing relevant KPIs and continuously monitoring process performance creates a framework for sustainable improvement.
There are tangible, quantifiable financial impacts derived from a process excellence regime and increasing operational efficiency. For example, inefficient administrative and unproductive processes can cost a business five to 25 percent of sales with the potential to reach as high as 30 percent revenue loss.
But there is hope. A process excellence regime inproves a business’s financial performance with tangible, quantifiable results.
While many companies focus on market adaptability and product innovations, the most significant financial gains often come from optimizing existing operations through structured process improvement. Harvard Business Review research shows that companies with strong operational efficiency can attain 25 percent higher growth and 75 percent higher productivity than competitors.
In this blog post, we’ll walk through six steps that systematically eliminate waste, streamline operations, and improve financial performance through smarter processes.
What Is Process Excellence?
Business process excellence is a strategic approach to increasing operational efficiency by continuously improving the effectiveness and quality of an organization’s processes. It directly translates to improved financial performance by reducing waste, expediting work, and cutting expenses across labor, resources and operations.
Process excellence focuses on several areas, including process improvement techniques, problem-solving, change management, productivity and performance, and culture.
By finding out where sloppiness and disorganization impede processes, and then eliminating those faults, process excellence saves money on labor, error reduction, resources, and operational costs — all to the benefit of profitability.
To improve financial performance through operational efficiency, you can follow these six steps.
How to Increase Operational Efficiency: 6 Components
As an ongoing strategy, process excellence is always looking for opportunities to streamline processes, increase efficiency and, in doing so, improve results continuously.
To improve your organization’s financial performance through operational efficiency, follow these six steps.
Step 1: Identify Process Inefficiencies
Start by comprehensively reviewing your key business processes to identify which existing processes are inefficient. You can employ methodologies such as value stream mapping and process mapping to help you pinpoint bottlenecks, redundancies, errors, and areas where you can better use resources.
To find out what and where your process inefficiencies are, ask yourself these questions:
- Why do you use this process, and how does it serve overall organizational goals?
- Are there clearly defined roles and responsibilities that support the process throughout its life cycle?
- What redundant or unnecessary steps, if any, including manual tasks, could you automate?
- What barriers do employees face in carrying out the process, including bottlenecks that unnecessarily slow down process performance?
- Do you communicate processes through documented procedures or a single source of truth?
- Do certain errors repeatedly pop up, and if so, why?
- Do employees have the resources, skills, and training to effectively perform their assigned tasks?
A successful use case involves a long-term care pharmacy that adopted more efficient workflow techniques to enhance its productivity and speed. We spent time with them to understand their current state process and pharmacy layout and recommended improvements. By reworking their pharmacy footprint and workspaces, they achieved productivity improvement of 15 percent, 34 percent, and 52 percent across their top three tasks.
You can identify the inefficiencies that may plague your processes in multiple ways. You can develop valuable insights by examining every aspect of process performance, including:
- Process training gaps among your employees
- Repetitive motions you can eliminate
- Potential opportunities for process automation
- How process knowledge is conveyed to stakeholders
Step 2: Streamline and Redesign Processes
Once you identify process inefficiencies, you can move on to streamlining and redesigning the related processes. This has three parts:
- Define goals and objectives that align with the organization’s overall strategy.
- Seek solutions. Challenge existing assumptions, established norms, and traditional ways of doing things.
- Design your approach. Combine lean management principles and agile methodology to create a dynamic and flexible approach.
A national nonprofit health/wellness organization, whose lifeblood involved planning and executing membership events, was struggling to maintain the support necessary for an increased demand in the number of annual events conducted.
The nonprofit increased efficiency and effectiveness by working cross-functionally within the organization, to communicate processes and roles across events, identify and improve key decision-making and communication responsibility, and develop standardized event execution playbooks.
By streamlining their processes, they move from a planning cycle of two to four months per individual event to a 1.5- to 2-year, integrated planning cycle — all without needing additional resources to maintain the increased demand.
A systematic approach to streamlining and redesigning processes will clarify your goals and give you the agility and responsiveness needed to adapt and upgrade your processes for ongoing excellence.
Step 3: Implement Technology Solutions for Existing and New Processes
Organizations can further streamline processes — and thus improve financial performance — by strategically implementing innovative tools and technologies such as robotic process automation (RPA), artificial intelligence (AI), and data analytics.
Automation eliminates repetitive and mundane tasks while freeing up your resources for more value-added work. Data analytics provides valuable insights into performance metrics, so you can make data-driven decisions and target specific processes for improvement.
New and emerging AI technologies can provide greater consistency, efficiency and adherence to standardized processes.
For example, a healthcare liability insurance provider was struggling to meet its customers’ expectations and the demands of its sales and marketing team to provide and maintain timely information. Throttled with processes that required intensive manual manipulation, the company was beset by inefficiency and ineffectiveness.
Through implementing an RPA, they were able to automate many of the manual processes, increasing their throughput while simultaneously reducing errors, and saving hundreds of hours — the equivalent of 1.5 FTE.
Step 4: Foster Cross-Functional Collaboration to Drive Process Excellence
Cross-functional collaboration — bringing together individuals from different departments and areas of expertise — gives you diverse perspectives and knowledge to drive process excellence and increase operational efficiency.
In our consulting experience, we’ve observed that the larger an organization is, the more important cross-functional collaboration becomes. We helped a 30,000-person company with lean resource capacity transition from a waterfall to an agile methodology.
Afterward, the company was able to focus some team members on project workloads while others focused on support. This led to incremental benefits for customers and team members alike. Collaboration between team members supporting all project activities was key to the resulting success.
Cross-functional teams can demonstrate communication synergy and generate innovations that transform processes in many industries, like:
- Sales and marketing working together to improve lead handoff processes
- Manufacturing floor managers and procurement staff collaborating to reduce inventory issues
- Healthcare teams optimizing for on-time appointments
- Customer support, engineers, and website developers improving ecommerce experiences
Take, for example, the experience of a large insurance company that had experienced significant growth and found itself creating and executing ad-hoc processes and activities for each individual department and function to support the new business. Through pulling together all the various functions, creating a full organization hierarchy, and identifying common pain points and opportunities — the cross-functional teams were able to develop and craft improved processes.
These processes were then maintained in a shared technology, ensuring consistent accessibility and applicability across the entire company. The cross-functional teams created the foundation to begin, and continue, realizing improved performance and building a process excellence culture.
Through collaborative problem-solving and brainstorming sessions, teams can put siloed isolation behind them to collectively address challenges, generate innovative ideas, and implement effective solutions that benefit the entire organization.
Step 5: Continuously Monitor and Improve Process Excellence
Process excellence is an ongoing journey rather than a one-time destination. By integrating continuous monitoring practices into initiatives, your business can completely optimize, uncover new opportunities, adapt to changing circumstances, and drive sustainable improvements over time.
This involves:
- Setting key performance indicators (KPIs)
- Regularly measuring process performance
- Conducting periodic reviews
When we say KPIs, we’re talking about business performance metrics that reflect an holistic approach to measuring business success that is based on two prime factors: your people and your processes.
A typical approach to metrics is to focus entirely on results: revenue generated, customers satisfied, assets accrued. However, such performance metrics neglect to consider how you achieved these results and who these results affect.
Making these metrics pertinent to performance assessment requires a business to ask itself how it defines and measures success, how it makes decisions that are informed by those decisions, and whether those decisions are influencing employees to act improperly.
The answers should impel an organization to apply a process excellence framework to business performance metrics. Before you adapt your processes and redesign your performance metrics, you must assess your current situation.
The following performance checklist we created will help you do that. Ask:
- How do you currently measure business success?
- Does this measurement align with your corporate mission, vision and strategies?
- Do you have a performance review governance to ensure you achieve your desired results?
- Do you have governance to review initiatives expected to drive performance improvement? If so, how often do you use that review process?
- Is every project relevant to your performance measurement plan?
- How would you react to the information gleaned from your current performance metrics?
- Does every employee know how their work ties into your overall business strategy?
- How does measuring business performance change the actions of your colleagues? Does it drive the right behaviors?
KPIs that support process excellence can’t remain static — your definition of success must evolve with business changes and market fluctuations.
For example: Look at the procurement function of a global manufacturer of metal that supplies the industrial and defense industries. Through a series of mergers and acquisitions, their growth inadvertantly created location and system specific procurement departments, with no ability to see the overall picture of how they were performing.
The manufacturer identified and built a common set of metrics, crafted a data integration network across their disparate systems to harvest the information, and established a standard dashboard. By doing this, the global procurement leadership was able to see, for the first time, how the organization was performing as a whole. This allowed them to take a strategic approach to select and monitor specific actionable projects tied to discrete metrics and helped them improve the overall efficiency and effectiveness of the function.
One midsized retail firm discovered this when their traditional store metrics became misaligned with growing online sales. They updated their KPI structure to include digital metrics and implemented proper tools to track them. This gave them more precise insights and achieved significant increases in online sales and customer engagement.
By cultivating an evolutionary mindset to process monitoring, organizations can achieve long-term objectives through well-designed KPIs that consistently gauge process performance.
Step 6: Provide Ongoing Training and Skill Development to Support Initiatives
Continuous training and skills development give employees the means to effectively contribute to process improvement initiatives. By fostering a learning culture and investing in employee development, you can build a capable, empowered workforce that drives continuous improvement and achieves sustainable results.
Perhaps no better example of this philosophy is Toyota’s Kaizen (Japanese for “continuous improvement”) culture, which has employees at all levels collaborate to create regular, gradual improvements in manufacturing, business management, engineering, and other processes.
Toyota’s production system demonstrates the principle in practice. All line personnel must stop a moving production line if an anomaly happens. Then the staff and their supervisors suggest how to fix the problem. Later on, when the project is completed, all the stakeholders meet to analyze the whole process, including any abnormalities that occurred along the way.
The mainstays of Toyota’s training regimen — the Toyota Production System (TPS) and On-the-Job Development (OJD) — are intrinsic to Kaizen. They stress viewing one’s own work as a part of the entire system (TPS), and then analyzing tasks, and subsequently proposing and implementing improvements (OJD).
Tom Yamada, a former operations manager for Toyota, testifies to a result of these practices: “During my time at Toyota, I witnessed an inspiring example: A team member on the assembly line proposed a minor tweak to a tool placement. The result? A 15 percent reduction in cycle time for that process. The worker not only received recognition but also a platform to share this success across global teams.”
Training and skill development require intentionality. It cannot be simply a byproduct of project execution and osmosis from being a part of the effort. Recognizing this, a large asset management firm with a broad portfolio of services, initiated a strategic effort to foster and grow their internal ability to train and develop their employees.
By creating a center of excellence (CoE) for internal operational excellence (OpEx), they were able to standardize their OpEx model, create a common OpEx vocabulary, and create and deliver a common training curriculum. This approach resulted in over 1,700 trained employees and captured savings of over $200 million in their first five years.
Organizations that live a philosophy of continuous improvement ask their employees are, as a matter of course, to obtain more knowledge about the processes they run. This establishes the foundation for perpetual training and development to sustain and refine process excellence.
Put It All Together: Improve Your Business’s Financial Performance With Business Process Excellence
Whether you use process excellence to remove cost from the system or increase operational efficiency so you can do more with less, achieving it is a critical driver of sustained financial performance for organizations.
By striving for efficiency, productivity, quality, adaptability, and customer-centricity, your organization can continuously improve your processes, drive financial results, and create a culture of excellence that fuels long-term success.
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