How to improve operational efficiency in a small business

Key takeaways

To improve operational efficiency, work in a fixed order: measure, remove, standardise, automate, then relocate. Most small businesses start at step four by buying software, and automate a process that should have been simplified first. Efficiency is output per hour of effort, so every step should raise output or lower hours.

• 5 steps in order: measure, remove, standardise, automate, relocate.
• Remove work before you speed it up.
• Efficiency is output per hour of effort, not busyness.
• One process improved properly beats five started.

What is operational efficiency?

Operational efficiency is the amount of useful output a business produces for each unit of time, effort and money it puts in. An efficient operation delivers the same orders, replies or invoices with fewer hours and fewer errors. It is a ratio, so it can improve by raising output, lowering input, or both.

• How BPO can help businesses reduce operational costs
• How to measure productivity in a small business

Why do small businesses become inefficient?

Small businesses become inefficient by growing without redesign. A process invented for 20 orders a week is still in use at 200, with extra steps added after each mistake. People switch between tasks all day, and research summarised by the American Psychological Association suggests task switching can cost as much as 40% of productive time.

• The hidden costs of doing everything in-house
• The cost of manual processes, and what to fix first

What are the five steps, and why that order?

The five steps are measure, remove, standardise, automate and relocate. The order matters because each step makes the next one cheaper. Measuring shows where time goes. Removing shrinks the process. Standardising makes it teachable. Automating then handles a simple, stable routine. Relocating moves what is left to the lowest reliable cost.

• 1. Measure: time, volume and errors for two weeks.
• 2. Remove: steps, approvals and reports nobody uses.
• 3. Standardise: one written way of doing what remains.
• 4. Automate: the rule-based, high-volume steps.
• 5. Relocate: move the rest to the right team at the right cost.

• Cost baseline: measure today's cost before you change it
• The eight wastes of lean in an office, and how to cut them
• Process standardisation: one best way, lower cost per task

What does the gain look like in numbers?

Take an illustrative quoting process that takes 45 minutes per quote, at 60 quotes a month, or 45 hours. Removing a duplicate approval saves 5 minutes. A standard template saves 10. Pulling customer details from the CRM instead of retyping saves 5. The quote now takes 25 minutes and the month takes 25 hours.

That is 20 hours a month returned, about 44%, before anyone has considered who should do the work. If the remaining 25 hours then move from a £23.20-an-hour employee to an indicative £12 managed rate, the monthly cost falls from about £1,044 to £300.

• Work out your cost per task before you outsource
• Double data entry: what rekeying costs and how to stop it

Where does a managed team fit?

A managed team fits at step five, and it helps with step three, because a process must be written down before anyone else can run it. Handing over a process that has not been through steps one to three still saves on rate, but it locks in the waste. The best results come from simplifying first and relocating second.

• The cost lever scorecard: find savings process by process
• AI versus BPO: what to automate and what to staff
• Document your processes before you outsource
• How outsourcing can improve business efficiency

What are the common traps?

The common traps are optimising a step that is not the constraint, measuring activity instead of output, and treating efficiency as speed alone. A team that replies faster but resolves less is not more efficient. Pushing efficiency too far also removes the slack that absorbs a busy week.

• How to find the bottleneck that is capping your growth
• How to cut costs without hurting customer service

What does this look like in practice?

A pattern we see in UK service firms: a new system is bought to fix a slow process, and six months later the process is just as slow inside the new system. The old steps were rebuilt screen for screen. Mapping the work on one page and deleting a third of it before choosing any tool is usually where the time comes back.

• See client work
• BPO Solutions for UK businesses

Operational efficiency checklist

Apply these checks to one process at a time.

• Measure time per item and items per week.
• List every step and who does it.
• Delete steps that no customer or regulator needs.
• Write the remaining steps on one page.
• Automate only the stable, rule-based steps.
• Decide who should run what remains.
• Re-measure after 90 days.

• Value stream mapping for service and admin processes
• A 90-day plan to reduce operational costs

Next step

Pick the process that frustrates your team most and tell us roughly how it runs today. We will walk through the five steps with you and show where the first hours can come back.