3 Keys to Operational Efficiency

Operational inefficiency could be costing your company 20% to 30% of your yearly revenue. In other words, more efficient business administration equals more money in your company’s pockets.

But what does operational efficiency look like? Three basic elements combine to create operational efficiency (or inefficiency): people, processes and tools.

1. The Right People

People are key to your business, but they have to be the right people. And you have to take care of them and keep them around.

Without true professionals at your company, your overall work quality will be lower, production may be lower, yet errors may be higher. It’s vital to find, hire and retain highly qualified employees who make your company better.

The American Institute of Certified Public Accountants (AICPA) has said that accountants today need skills that they didn’t need a few years ago, particularly in the areas of information technology and automation. Not only do they need comprehensive knowledge of accounting fundamentals, they also need skills merging accounting and information technology systems.

So, an already specialized profession is getting even more specialized. This is something your HR people will need to know if you want to hire accountants who are using the latest and greatest strategies.

And then there’s turnover…

The exact costs of turnover are hard to pin down because they go beyond on-boarding costs, salary, benefits, payroll taxes and the rest, but the costs are significant. According to the Society for Human Resource Management, research puts direct replacement costs at 50% or more of a position’s annual salary and total costs (including indirect costs) at 90% to 200%.

Beyond the costs, you’re also losing productivity, especially if there’s a steep learning curve for the position you’re replacing. It’s simply inefficient to lose someone you’ve already trained and invested time in.

2. Solid Processes

Good processes make it easier for your people to do their jobs efficiently and save you money in very real terms.

Let’s say you don’t have any formal communication lines set up in your company and your employees have to go on wild goose chases every time they need some information. That’s not only time-consuming (wasteful), it’s also demoralizing. And a drop in employee morale may result in a drop in personal investment, performance quality and productivity. You need to keep communication lines open all across the company, all the time.

Next, let’s say you’ve got a tax problem…in that you don’t like to do taxes. Truth be told, not many people like to do taxes even once a year, let alone all year long. But that’s exactly what your company has to do to make tax season more efficient.

Compare these two scenarios…

  1. You keep your receipts in a shoebox somewhere until tax season, hope you remembered to put all your receipts into the shoebox and either sift through the receipts yourself or have your accountant do it (at great cost). You or your accountant faces tedious hours of fumbling in a grab-bag of receipts and then manually entering data.
  2. You enter your receipts into spreadsheets or accounting software as you go through the year. So, you spend a couple minutes putting a receipt in whenever you have an expense. When tax season comes, you have all your receipts compiled and entered for either you or your accountant. A little effort on your part saves you paying your accountant for hours of extra work.

3. Proper Tools of the Trade

Proper tools of the trade are crucial, considering how fast technology is changing and how extensively technology is used in business these days.

According to the Wall Street Journal, companies are using automation to reduce time spent on tasks and also staffing costs. In fact, the average number of full-time employees in finance departments at larger companies has dropped by about 40% since 2004. Verizon, for example, reduced finance department costs 21% by closing about 100 locations dedicated to business administration, citing automation as a key factor.

Keeping your technology up-to-date isn’t just a convenience thing, it’s a competition thing. Old technology is usually slower and less functional than new technology, which means your company overall is operating slower and with less functionality compared to your early-adopter competitors.

Mobile technology adoption is a good example of how companies are using new tools for efficiency. With mobile apps, employees can communicate with each other instantly whether they’re at their computer or not. That saves time, which saves money.

Constant updates to the tools your employees use should be standard operating procedure. You should always be looking at new tools and how you can leverage them to either catch up to or surpass your competitors.

At the same time, you should be looking at your company’s tech in a holistic way. Standardizing technology across the board creates a more unified system overall. Also, planning updates well in advance and rolling them out in a strategic way helps reduce the loss of productivity that usually comes with an update.


People, processes and tools are the three pillars of your company’s operational efficiency. With the right people, solid processes and up-to-date tools in place, your company can hum along with the best of them.

You probably spend a fair amount of time thinking of ways to make your company more profitable. By finding ways to make your company more efficient, you can do just that.

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