Back when McDonald’s started it had a skimpy menu. Later, even after witnessing a rise in competition and diminishing sales, they decided to keep a more Operationally Efficient lookout and did not succumb to their temptation to increase menu items. They kept it simple and concentrated on good taste and ensured that quality of food was always cost efficient. Such examples can be useful for many startups that almost always have a lean budget.
Many startups make the simple mistake of focusing strictly on revenue and believing that revenue would be enough to balance their expenses. On the other hand, as a business matures, so do the related costs. It is imperative for startups to start from scratch and become cost-effective, they need to ensure that their business is more than just money and is working with optimal efficiency. It’s predominantly vital for small businesses that have restricted access to resources.
What is Operational Efficiency?
Operational efficiency is based upon the ratio of input/output. Input refers to all that goes into the production like money, time and labor while what we get as an end result is known as output. In order to increase operational efficiency, one needs to only input the indispensable amount of resources to get the preeminent output. This would mean rationalization of business processes to guarantee optimal efficiency.
This could also be mistakenly interpreted as cutting corners. Subsequently, that will be disadvantageous to customer intimacy and lasting viability of one’s business. The other possible way is to eradicate a few expenses without foregoing the excellence of service/product.
How to Increase Operational Efficiency?
How to attain maintainable efficiencies in business operations, which cuts cost off the business, without affecting the customer intimacy or the start up’s capability to invent and produce more? Here are few points to remember:
1. Evaluation of one’s efficiency
Evaluating your own efficiency in the market is a vital step and the key is to estimate one’s performance in decisive dimensions and keep it as a point of reference when comparing to other existing companies. This is a simple and operative method to get an idea of where you stand in terms of cost cutting, production and service. In India itself, where innovation is on its peak and entrepreneurs with similar or opposing ideas with better funding are present, one needs to assess his/her capabilities and plan accordingly.
2. Cutting back
Cost cutting is a crucial step in order to define the category of every expense. Expenses can be classified into two categories namely: fixed and variable that depends on production and other resources present, or direct and indirect that depends on how cost is related to production. Cost cutting in two or three of these categories can be helpful according to your line of work. Many new entrepreneurs wear a lot of hats to save valuable capital by doing most of the jobs or take up classes.
3. Enhancement of technology
Enhancing technology means that startups can mechanize several tedious tasks. Doing jobs the outdated way is a waste of the worker’s time and energy. Automating as many chores as possible can improve operational efficiency, this enhances business output. Just as manpower requires to be functioning at an optimum rate, so does the software or hardware that the employee relies upon.
For example, GPS systems installed in Application based cab services like Uber and Ola have even helped unequipped drivers which also helps customers in tracing cabs in real-time as well as handling booking requests for drivers.
4. Outsourcing
Startups generally begin as small businesses; they tend to overload themselves with work in order to cut costs, which can undermine production. Appointing work that does not fit one’s job description can lead to wastage of time and energy; hiring freelancers for external work could be beneficial.
5. Planned production
To make the most of productivity, every startup needs a thorough production plan. Production planning should be a balanced approach of management and tools. Production planning can comprise of normalization of processes, methods and time; evaluating risk factors and considering modifications throughout.