Every business, no matter how successful, wants to boost efficiency. When processes aren't running smoothly, it can lead to a host of problems. Operations slow down, errors become more likely, and both employee morale and customer experience take a hit. And guess what? All of this directly affects your bottom line.
Efficient processes bring more value to your business, especially during times of major growth. In this article, we explore what process efficiency is, share best practices, recommend useful tools, and highlight KPIs that can help improve your business’s efficiency.
What is process efficiency?
Process efficiency measures how much effort is needed to produce a product or outcome. This process efficiency definition considers the time and resources a project or initiative requires, and how it directly or indirectly impacts company revenue.
There are four main types of process efficiency:
- Overall efficiency: Evaluates whether your business earned more than the value of the total time, cost, and labor that was put in.
- Throughput: Gauges the average production and rate of output during a specific time period.
- Labor productivity: Assesses how much was created or developed against the amount of labor needed to complete the work.
- Resource efficiency: Minimizes waste to maximize the use of things like raw materials, people or money.
When you understand and can measure these areas, you reduce costs, increase profits, and boost overall productivity.
Benefits of improving process efficiency
It’s important for any business to have efficient processes. Why? It creates a strong foundation and positively impacts business growth.
Here are five main benefits of process efficiency.
Improved productivity
More efficient processes improve productivity by reducing unnecessary steps, bottlenecks, and redundancies. Over the last 25 years, the median economic productivity levels increased sixfold, showing marked growth opportunities for businesses. Being more productive allows for more time to focus on work that drives value.
Cost savings
Process efficiency optimizes resources, like labor allocation and the production pipeline. Cost savings from this optimization can be reinvested in areas like research and development, new growth initiatives, or competitive pricing models. By reducing resource waste (overproduction, wait times, and defective products) you can optimize the use of resources to experience significant cost savings.
Better customer satisfaction
To increase satisfaction, loyalty, and positive customer reviews, you must deliver products and services faster and with higher quality. Customer satisfaction is table stakes for business success and many businesses contend with the Amazon effect. Delivering quality service within a faster timeline increases how satisfied your customers are with you.
Fewer errors
Manual processes have a high risk for error. It’s easy for human workers to miss things. On average, human errors result in an estimated annual loss of $1.8 million for businesses and 30% of supply chain disruptions. Using technology to automate tasks like data entry and document filing can significantly reduce the risk for human error.
More agile time management
Project delays create inefficiencies. For your business to deliver better outcomes it’s critical to adopt a more agile approach to time management. This may mean breaking projects into smaller parts with set timelines for each. Streamlining communication between teams or departments and regularly assessing processes helps adapt process to be more efficient.
Related Read: Transform your business with AI workflow automation
Best practices to increase process efficiency
How can you improve process efficiency and maximize on the benefits outlined above? By following these best practices.
Collaborate with stakeholders
You’ll likely need stakeholder buy in to implement new processes or business practices.
Get ahead of any questions or concerns they may have early on. Asking for their input fosters a sense of ownership, leading to strong stakeholder support and advocacy.
Be transparent and communicative — bring stakeholders in on planning meetings, get them involved with implementation, and seek their feedback as you refine processes.
Identify opportunities for improvement
Can every process be more efficient? Certainly! First, you need to find areas for improvement.
Take stock of your key processes. What’s the current timeline these are completed in? Is the timeline optimal or can you make adjustments so the process is faster?
Next, think about the actions or steps within your processes. Are the steps manual or repetitive? You want to execute on actions that bring value to the process, so get rid of anything that doesn’t.
Identify what teams are responsible for an operation. Is the project staffed appropriately or could it benefit from either more or less hands on deck? From there you can decide what to simplify or scale. With these improvements, you can set a strategy for moving that forward.
Align with business goals
Before implementing specific process efficiency strategies or changes, you need to understand what you are trying to achieve.
Whether your goals are cost savings, faster production times, compliance, customer satisfaction or a combination — get aligned first. This may mean a phased approach where you tackle stages of a process over time. It may be a change that’s done all at once.
Whatever the situation, your goals set the tone for the outcomes you want to achieve. Spend the time on this up front to avoid lengthy delays later on.
Prioritize training
When a new or updated process is rolled out, the first order of business should always be to train your workforce. And this means anyone expected to use the process.
It does take time to stand up a training program, but it saves time in the long run as all stakeholders will be up to date on process.
You can do this a number of ways — one-to-one training, demo videos, and training modules are all good examples. Additionally, training should be continuous. Share quarterly updates with all who need it and make sure new team members are trained as part of their onboarding.
Invest in technology
Automation is a big part of process efficiency, so tech investment is valuable (pun intended). Data shows automation in the workplace boosts employee productivity by 41%. If you are already using a technology platform, consider if it’s the right tool based on your goals. If not, this should signal the need to either increase your current investment or invest in something else. Be sure the budget for tech investment is part of your initial strategy.
Implement continuous improvement strategies
The Kaizen approach can work well here. Kaizen encourages businesses to embrace incremental and ongoing change. The changes and improvements are small, but can yield major gains. This also helps avoid a set-it-and-forget-it approach. What makes processes efficient will change over time. As your business grows, revisit various processes to reassess efficacy and if new changes or improvements need to be made.
What are the KPIs for process efficiency improvement?
How do you measure process efficiency? Tracking progress is the best way as it shows whether goals are being met, and how.
There are a number of key performance indicators (KPIs) to measure the success of your process efficiency. Here are six common KPIs to track.
Cycle time
Cycle time is the time it takes to complete a process from start to finish, including delays or waiting periods. It’s an important measurement because shorter cycle times usually mean higher efficiency.
To measure cycle time, record how long it takes to get from start to finish on a process. Test it multiple times, then analyze the results to find patterns, variations, or bottlenecks. Use this data to make adjustments and improve processes further.
Throughput rate
Throughput measures how fast a process produces outputs or completes transactions over a given time. Higher throughput rate equals better efficiency.
To understand your throughput rate, consider all inventory or products and the time each item spends in production. Dividing your amount of inventory by the production time tells you how many products you made, usually in hours or days depending on the time period you are looking at.
Lead time
Lead time is how long it takes to deliver a product or service once a request is received. Reducing lead time improves efficiency. To calculate your lead time add up the time it takes for planning, production, wait times (period between procurement and production), storage, transportation, and inspection.
Defect rate
Defect rates tell you how many products or services are defective. It is usually a percentage or ratio. You want defect rates to be lower, meaning better process quality and efficiency. To find a defect rate you would divide the number of defective units by the total number of units you’re producing, then multiply that by 100%.
Utilization rate
Utilization rate evaluates how effectively resources like equipment, labor or facilities are used. High utilization typically means resource allocation is efficient. To calculate this rate, divide the actual output you or your team achieved by the maximum output possible, then multiply that by 100%.
Productivity level
Productivity KPIs assess the output generated per unit of input. For example, hours of labor, resources used or monetary costs involved. High productivity output leads to higher process efficiency. It’s a simple formula — divide total output (how much was created) by total input (how much time or resources it took). Adjust this formula based on any specific considerations for your industry.
What common tools are used in process improvement?
Many business processes benefit from improved efficiency — from supply chain to customer service to financial management. To help, here are some popular tools to consider.
Workflow automation software
This tool helps streamline business processes by finding and eliminating redundant tasks. It automates steps in a process and provides a collaborative cross-functional platform to work from. Different types of these tools include business process management (BPM) software, workflow management systems, and process mining and analytics.
Project management tools
Project management tools streamline process improvement by enhancing planning, execution, monitoring, and collaboration. These tools give structured approaches for improving processes in each of these areas. Project planning software, risk management tools, communication platforms, and performance dashboards are important parts of project management tools.
E-signature solutions
E-signature solutions are valuable for streamlining processes and making them faster. It’s beneficial for industries like construction, real estate, and finance where contracts are a big part of the work being done. Allowing customers or stakeholders to sign documents from anywhere cuts down on the need for in-person meetings. This makes getting final approvals much faster so work can begin or projects can close.
Performance tracking tools
This software solution monitors, measures, and analyzes KPIs and metrics relevant to your business processes, projects, and goals. It provides deeper insight into performance and efficiency trends over time. You can identify areas for improvement and optimize processes with data-driven decision making.
Start improving process efficiency today
Organizations cannot ignore the need for more and better efficiency. Emerging technologies, changing business models, and increasing needs for agility and adaptability make process efficiency critical for business growth.
The benefits, best practices, KPIs, and tools outlined in this article can help you set your business up for success. Consider implementing the best practices and tools shared above to support your process efficiency efforts, boost productivity, and uplevel your business today.
