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Business Efficiency: How to Measure It and How to Improve It

Efficiency is one of the most important things to consider when running a business, but what counts as efficiency can vary from one industry to the next. Some businesses may focus primarily on ROI or financial efficiency, but for other companies, labor productivity and operational efficiency may be more important.

No matter the size of your business or your business model, there are plenty of options for improving efficiency through solutions like business process automation. By using the right tools to streamline your internal processes, you can optimize your business operations and improve your profit margins.

Whether you’re a small business owner or a startup founder, here’s what you need to know about business efficiency and how to improve it at your workplace.

What Is Business Efficiency?

Business efficiency is all about getting the most value out of your available resources, whether that’s time, money, labor, or something else.

If you’re throwing out surplus products at the end of the day, or if your employees are getting bogged down on time-consuming tasks that don’t directly impact your bottom line, then chances are you could stand to improve your business efficiency.

The most efficient businesses use benchmarks to track their progress so they can have a clear idea of which initiatives are working and what’s achievable over time.

By focusing on the least efficient areas of your business, you can reduce costs, spend less time on administrative tasks, and develop a more streamlined workflow.

Types of Business Efficiency

Before we get into strategies for improving efficiency, let’s get clear on what types of business efficiency you might encounter.

Return on Investment (ROI)

Return on investment is one of the most common measures of business efficiency. It’s simply a calculation of how much profit is derived from an initial investment.

ROI can be used to decide which projects to approve, which to cut back on, and how much time or money to invest in them.

ROI can be calculated before starting a project (anticipated ROI) or afterwards (actual ROI) and can result in either a positive or negative value.

Labor Productivity

Labor productivity is a way to measure business efficiency by focusing on the amount of labor that goes into a project in relation to its output. You can measure labor productivity by determining the amount of time it takes for employees to complete certain tasks or how many tasks get completed in a specific timeframe.

In the old days, you might have had to calculate this data manually, but these days, the task management tools you use may already provide useful metrics.

Operational Efficiency

Operational efficiency concerns things like equipment, infrastructure, real estate, and other costs that are associated with core business activities.

A manufacturing business may be primarily concerned with operational efficiency, but for other businesses, this may only be a small piece of the puzzle.

Operational efficiency is closely related to process efficiency, which includes things like shipping and receiving costs.

Financial Efficiency

Financial efficiency is distinct from ROI in that it’s focused specifically on cash flow. How quickly are invoices paid and what percentage of revenue is spent on expenses?

Things to look at in this category include accounts receivable turnover, inventory, and benefits administration.

Energy Efficiency

Finally, there’s energy efficiency, which is a way of assessing a company’s sustainability or environmental impact.

This could start by assessing the energy efficiency of the immediate work environment — such as the cost of heating or cooling the office — but it could extend to measuring the environmental impact of the entire lifecycle of your product.

Business Efficiency vs. Business Effectiveness

Business efficiency and business effectiveness are two different things. Effectiveness simply means that you’re able to achieve your primary business objectives, such as delivering a product to customers or providing a digital service.

In the short-term, being effective may be more important than being efficient, as you expend resources to develop your workflow or product.

But once you’ve achieved effectiveness, you can focus on efficiency by eliminating unnecessary steps and achieving a more streamlined workflow.

How to Improve Business Efficiency

Team analyzing business efficiency data together

Here are five strategies you can use to improve business efficiency:

1. Use technology to automate tasks.

Automation is one of the best ways to improve business efficiency, with benefits in areas such as labor productivity and financial efficiency.

For example, by creating templates for invoices and sending out automated reminders to clients, you can cut down on the amount of time and effort it takes to get paid.

Likewise, low- and no-code platforms can reduce the amount of human input needed to perform repetitive tasks — such as posting on social media — and free up employees to focus on more energy-intensive business activities.

2. Use the right communication tools for the job.

The best collaboration tools for your business will depend on your work environment, such as whether your team comes into the office every day or works from home. Some conversation topics call for face-to-face meetings, but an internal messaging app may be more efficient for remote employees or asynchronous teams.

Consider doing a daily stand-up meeting — in-person or remotely — to make sure that everyone’s on the same page. But don’t overdo meetings during the workday or they can have the adverse effect of reducing your team’s overall productivity.

3. Improve morale and workplace conditions.

Some of the biggest contributors to business efficiency can be the hardest to measure, such as employee morale and job satisfaction. By improving workplace conditions and workplace safety — and by providing a more flexible work schedule — you can increase labor productivity and operational efficiency.

No-code automation tools like Pulpstream make it possible to streamline the complaints process and ensure regulatory compliance across your business.

4. Foster good productivity and project management habits.

Inefficient workplaces encourage poor productivity habits such as doing too many things at once. Employees may feel pressure to deal with interruptions as they happen, rather than turning off notifications to reduce distractions while they work.

Encourage employees to try “single-tasking” instead of multitasking, and to put up a “do not disturb” sign (or the digital equivalent) when they need to.

A good project management system can help by reducing the cognitive load on team members who have to keep track of multiple tasks at once.

5. Streamline your HR department.

The human resources department is one of the most important areas to look at when it comes to improving business efficiency. That’s because everything from the recruiting process to leave of absence requests can take up a huge amount of overhead.

By digitizing and automating common HR tasks, businesses can reduce the amount of time it takes to fill out and process paperwork. Employees can manage their own LOA requests, while the return to work process can be shortened and streamlined.

By getting new and returning employees to work as quickly as possible, your business can ensure its continuing operational efficiency and labor productivity.

Improving Business Efficiency in a No-Code Workplace

Entrepreneur analyzing data

Most business efficiency solutions, such as business process automation, require some degree of customization. This can be a challenge for small businesses that don’t have an in-house software development team to create a custom workflow or app.

Fortunately, no-code solutions like Pulpstream make it possible to automate key tasks, even without any prior coding experience. You can use it to eliminate inefficiencies in your HR department, cut down on errors in legal and finance, and automate risk and safety management to ensure OSHA compliance.

Contact us today to get a free demo and see if Pulpstream is right for your team.