Efficiency of Business! Business performance management.
Now more than ever efficiency of business is key to success. If you are looking for ways to improve the efficiency of your business you are in the right place!
In this article we will show you:
- The 1 catastrophic efficiency mistake too many Business Owners make that costs them thousands of dollars! Beware!
- How to get started with Business Performance management in your business.
- Simple, typical efficiency analysis and the Massive opportunities it presents.
Why is Business Efficiency Important?
The current challenges:
- Staff shortages
- Increased wages bills
- Supply chain issues
- Interest rate increases
- Increased cost of materials
- Increased cost of living
And more.. Have led us to where we are now.
Some might say businesses simply increase their prices to cover costs. If you provide a unique product or service that may be possible (electric, gas, staple food items), but for many businesses, there is only so much they can pass on.
Demand for products and services will reduce and the business suffers (your costs don’t necessarily go down just because you sell less stuff).
The efficiency of business starting right now will play a vital part in the future success of your business. Business Performance Management is the key!
Before we get deep into this let’s review the definition of business efficiency:
Business Efficiency Definition
Efficiency is a ratio of cost. It measures how well you manage the cost to achieve a predetermined outcome (e.g. produce at a certain level of quality). The cost may be money, time, energy or any other resource that you dedicate to run your business.
Pretty broad huh?
What about Business Productivity Definition?
There are some technical differences between these terms in economics, but essentially for our discussion, they mean the same thing.
I like to measure the Efficiency of Business with a simple formula:
Output/Input = Efficiency (per input)
E.g. If I install TV antennas and I can yesterday I installed 10 antennae over a 5 hrs shift I would have installed 2 antennae per hr.
(for more information on how to set up KPi check out the KPI Masterclass article )
That was my efficiency of business score – but was it efficient?
Well to understand that we must engage in Business Performance Management.
Business Performance Management
To perform effective business performance management we must understand where we want to be, where we have been, and where we are now.
Is our current efficiency of business score good? How long is a piece of string?
The goal of any business owner should be to the business efficiency by making lots of small and perhaps some big improvements over time.
Therefore we want to track efficiency overtime on a daily, weekly, and monthly basis.
Ideally, you will also have a target.
Often Business Owners get hung up on how to set targets. There is no need to get it perfect it’s just the starting point.
Here is an easy way to get started – you can start by simply choosing the best score you had in history or if you feel that was just a lucky shot then the best score that happened more than once. The goal will be to beat that score.
Cost vs Opportunity
When looking at efficiency there is one massive mistake that most Business Owners make, and it costs them thousands of dollars every single year!
DO NOT assume Efficiency gain should be taken as a cost saving.
All too often I see businesses only focus on efficiency when they want to cut costs. This is a massive mistake. Instead:
- Embed efficiency into everyday life (we use our Active Management™ System.
- View each efficiency gain as an opportunity. Can you use that time, money, and energy gained to refocus on sales, or invest in uncovering more efficiency opportunities. This will further increase your gains.
- Assess the long-term strategic benefit for efficiency gains to choose how best to use them.
Businesses that don’t just survive, but thrive in any economic environment understand the long-term strategic value of efficiency gains and they use them wisely.
You should too!
Massive Opportunity Available
Can you see the massive opportunity these two graphs represent?
These are 2 simple graphs based on a real client that provides logistics to the construction industry. We simply plotted the deliveries and pick-ups over time.
What do you see?
In Figure 1 above S2 has good and smooth capacity use of around 80%. S1 on the other hand is more volatile and consistently below S2.
Closing the gap by bringing S1 closer to S2 will increase revenue by up to 30% with almost no additional cost.
In this (Figure 2) Scenario we see even more opportunity with a gap of 61%. Filling that capacity would provide almost 100% more revenue with no additional cost.
Important – don’t make this mistake:
Whilst we have been focused on efficiency here it is extremely dangerous to focus on efficiency of business in isolation. It can have catastrophic long-term consequences (more info on that here). Please don’t do it!
Other things to consider:
- Consider getting help to develop your business performance framework
- Considerations before engaging with a business coach or advisor
- Make sure you have the Perfect Pricing Strategy for Profit
Want some Help?
Book your free 15 Min clarity call. We’ll see if we’re a good fit to help you. If not we will try to recommend someone who can.
Other topics you may be interested in:
- How to develop your successful Business Strategy
- https://lucrature.com/what does a business growth consultant do?
- Business Advisor in Sydney
- How KPI can increase your Business Performance
About the Author:
Hi I’m Brad Horan, I’M THE BUSINESS GROWTH CONSULTANT.
I’m not your typical Accountant. I’m creative, I’ve more than 10 friends, and people (sometimes) laugh at my jokes.
Over the last 2 decades, I earned a reputation for solving complex business problems by applying both analytics and creativity to identify simple, successful solutions.
I’ve always been focused on helping businesses succeed but about 13 years ago something remarkable happened…
Before this remarkable event, I helped businesses around the globe and got great results, but it always seemed so hard. Something was missing…
I was working on a profit growth solution to free up staff time and improve efficiency. We set the solution in motion but it just wasn’t working.
I was lost. Why wasn’t it working?
We tried everything but just couldn’t figure it out…
Then I reached out to a friend who was an expert in the use data to drive manufacturing decisions. I called him and we put our heads together.
Ahh huh, we realized the solution was sound, the data was good.
What we needed was a framework to manage the decision-making process.
It hit me this is the “missing link”!
So simple! I can’t believe I’d overlooked this.
We knew we were onto something and we started working together consulting to major businesses across the world with phenomenal success…
Today I use the framework to help Business Owners like you get more profit, more time, and more flexibility from your business.
If you want to learn about how the framework might help you and your business Book an appointment.
We’ll see if we’re a good fit to help you. If not we will try to recommend someone who can.