Improve Performance by examining
Efficiency

Is your business performing at its best?
Discover the answer by taking a look at your processes.

Efficiency and effectiveness are major factors in running your business well.
It seems easy to assess them by simply asking:
A. Are we doing the right things? (are we being effective?)
B. Are we doing things right? (are we being efficient?)
Unfortunately, as with most things, the devil is in the detail.

What is Effectiveness?

Last week’s post discussed effectiveness – Are we doing the right things? And looked at setting up process Objectives and Outcomes for each part of your business.

What is Efficiency?

Efficiency is a measure of how economically resources are transformed into benefits. The efficiency of any process lies in being able to produce the largest number of desired outputs using the fewest possible inputs.

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Efficiency versus Effectiveness

What’s the difference????
If you want an easier way to memorize the difference, remember this sentence:
“Being effective is about doing the right things, while being efficient is about doing the things in the right ways.”[/box] There are plenty of ways to assess efficiency, in large manufacturing businesses this usually boils down to stop-watches and defects-per-million…
Such a granular approach is often too Costly and time-consuming for smaller SMEs and service driven businesses. BUT, Any perceived difficulty shouldn’t be an excuse to simply avoid looking at how well your business is performing; by starting with a higher level approach you can achieve some really worthwhile results.

There is one simple way to Improve Efficiency

– Ask: ‘Are we doing things right?’

Real life is usually not quite that simple; so firstly narrow it down and focus on just one ‘thing’ to look at – choose a part of the business you want to assess and over what time-frame examine.
There are three parts to ‘Doing Things Right’; the inputs, the process and the outputs. For each of these three parts examining the quantity and quality is the key to assessment and improvement.

Quantity

Measuring ‘How Much/Often?’ is usually pretty easy to understand. An overview can quickly be gauged by either:

  1. looking at your accounts and orders to establish how much
  2. and/or

  3. keeping a diary record for a short time to establish how often.
Quality

Measuring “How Well” is a bit more difficult, and often more subjective. Using this can help!







I’m going to continue to use last post’s example – assuming I am a shoe mail-order business with my stock close-by, and look at the process of Goods Delivery per Week throughout the rest of this article. As before, this shoe business has a guarantee – We will deliver your purchase person-to-person within three days of full payment!

How to Improve Efficiency
– ‘are we doing things right?’

Step 1. Look at Inputs

Establish what resources you provide, pay for, and contribute to each part of the process. Remember to include time, plant and equipment, staffing etc as inputs, not only the raw materials.
The better the process the fewer resources are needed to sustain outputs; so consider where inputs can be reduced or purchased for less.

eg Delivery per week – my inputs could include:

* completed Customer Order form (with address)
* shoes in their box/es with
* envelopes/post-packs/brown paper
* labels
* string / sticky tape
* pens / printer
* time to stuff envelopes/wrap package/ and address
* time to take and lodge packages at the post office
* tracking register

Step 2. Examine Process

Understand what activities are required to produce the expected outputs.
The better the process the quicker and less wasteful are the activities; so consider how things can be done faster, how rubbish and defects can be reduced, and where reworking or recycling can be beneficial.

eg Delivery per week – I need to examine:

* where my stock, envelopes etc are located
* how long it takes to collect everything needed, confirm the goods match the order to the address, package it, label it etc
* how to reduce the number of mistakes made in terms of errors when addressing envelopes, ruined envelopes, and wasted label etc

Step 3. Assess Outputs

Check the goods and services created/provided meet the specifications.
The better the process the more quickly and accurately the outputs are produced.

eg Delivery per week – here we need to check that all the packages contained the right goods, were properly addressed, and got to the post office with enough time to ensure every delivery was received within 3 days.

Assessing if I am “Delivering Things Right” therefore involves looking at the quality and cost of inputs, process, and outputs to establish how to:
– Consume the fewest resources and to purchase these for the lowest price,
– Use the resources most quickly and without mistakes that cause waste and rework
AND still ensure this Delivery Process can be completed to meet my service guarantee We will deliver your purchase person-to-person within three days of full payment!

 

Remember improvements in performance will only occur if you follow the feedback cycle of:

  1. Plan
  2. Assess/measure
  3. Study and understand the issues
  4. Decide on a course of action
  5. Take Action to deliver change
  6. Back to Step 1. Planning

 
Feel free to comment and share your examples of improving efficiency or effectiveness – so we can all benefit.
 
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About the Author

Why own a business post - Eve Blackall Smart Accounting image
Eve Blackall the small business answer to The Supernanny.
At Smart Accounting you work one-on-one with Eve who has already assisted hundreds of business owners increase cash-flow, grow profits, also ensuring those businesses fetch the highest price when it comes time to sell.[/box]