In business, operational inefficiency in startups is the inability to produce desired results with available resources. It’s a measure of how bad an organization functions. Operational inefficiencies can slow down productivity and incur unnecessary costs. https://www.activtrak.com/operational-efficiency/#:~:text=Operational%20efficiency%20is%20the%20relationship,as%20few%20resources%20as%20possible.
In this article, I will delve into the meaning of operational inefficiency in startups, the factors that cause operational inefficiency, areas where inefficiency is hurting your company and affecting your bottom line, cost of operational inefficiency. Afterwards, i will explain how to identify and eradicate operational inefficiency in your startup.
For startups, operational inefficiency must be checked constantly and it is especially important for early stage and growth stage startups. This is because they often have limited resources and need to make the most of what they have. Also a startup can’t afford to waste time or money on inefficient processes. They need to be able to quickly adapt and change course as needed.
If the goal of every startup is to streamline processes and reduce waste, operational inefficiency causes startups to waste resources and as a matter of fact fail to achieve the desired result. For startups, operational inefficiency must be avoided because they operate with limited resources and need to make the most of what they have.
Are you losing revenue because of inefficient back-office operations? Given the statistic above, it’s a good bet you are. You’re not alone. Most, if not all, companies are losing at least some revenue because of inefficient business administration.
What are the areas where inefficiency is hurting your company and affecting your bottom line?
If inefficiency didn’t have a direct negative effect on your company’s balance sheet, we wouldn’t be talking about it. Inefficient processes alter and slow workflows and dam up your revenue stream. Losing nearly a third of your revenue every year is not a recipe for success. For startups, the impact is even greater because they have less room for error.
Time is money: If every little task your employees have to do takes longer than it should, your company is losing money. No matter what industry you’re in or how big your company is, you have to keep your processes and systems up-to-date to remain competitive with other companies that are doing the same.
3. Work Quality
The efficiency of your operations directly impacts the quality of work your company does. If things take longer, there are more errors. If employees struggle with morale because of frustration, the work quality of your entire company falls.
As an entrepreneur, you need expertise in certain administrative areas to avoid risk. Failure to comply with laws and regulations regarding employment practices and business operations can be expensive. Simply put, you need the expertise in place to stay in compliance.
Informed, intelligent strategic decisions require an accurate picture of your entire organization. They also require time. But you can’t make those decisions if you don’t have the time to step back and see the entire forest instead of just the trees. The time you spend on bookkeeping or other administrative tasks is time taken away from strategic planning that can ensure your company’s success.
Cost of operational inefficiency
We’ve done the research to discover just how high the costs of inefficiency are. The results are shocking. Inefficiency costs companies anywhere from 20 to 30% of their revenue every year, and many of these costs go unnoticed. That’s right. Almost a third of your business’ total revenue can be lost because of inefficient practices and processes. Wasted employee time and not effectively utilising your employees creative force are the main driving factor behind inefficiency, stealing almost a third of your revenue. But you also need to remember that you’re spending good wages on employees and experts who are handling tasks that are significantly below their pay grade. Let’s look at the factors that contribute operational inefficiency to get a deeper understanding of the role employees play in hindering or increasing your operational efficiency.
Factors that contribute operational inefficiency
There are many factors that contribute to operational inefficiency, such as Lack of collaboration across the team, lack of diversity, equality and inclusion, poor data management, inadequate supervision and quality control, overly complex processes, unassigned tasks, lack of forecasting and a poor level of real time active management routines, poor training and development, dependency on out-dated legacy systems, and poor scheduling. Company culture is also a critical component. A company’s culture can also cause operational inefficiency.
Let’s look at one of the factors that cause inefficiency and increase the cost of operational inefficiency in startups. It is poor training and development in DEI. Employee management can make or break a startup. When your employees feel isolated and misunderstood, it can result in a loss of faith in the startup for a successful future.
Losing talented employees due to a lack of diversity is bad for business on so many levels. This often causes a loss of interest in their job. If employees are not trained properly in diversity and inclusion or given an equal opportunity for both male and female employees to thrive or develop their skills, this can lead to inefficiencies in business operations.
In 2018, female employees in a company spoke out about the male-dominated culture that fostered harassment and discrimination in the workplace. It started as an anonymous survey by a group of women at the company’s headquarters about their experiences. The disturbing results were delivered to the founder.
Rather than the founder taking dramatic steps to fix these issues by firing C-Suite executives, including the head of diversity and inclusion, implementing mandatory management training, a commitment to a more inclusive culture, and an overhaul of their HR procedures and internal reporting processes.
The CEO decided to do a training program that the purpose, timing, and content of training is flawed and doesn’t reflect the problem at hand. The founder who is also the CEO mandates that all female employees attend a training session on “business writing skills”, and “conflict resolution”, and some other such courses with little alignment to their needs.
Every startup faces operational inefficiencies that can impede productivity, hinder growth and waste resources. Taking time to identify and manage it properly can help the startup to succeed by 65%.
DEI practices increases operational efficiency
Around the globe, businesses must adopt more efficient practices. DEI practices are a typical example because businesses are managed by people. It makes the benefits of diversity, equity, and inclusion (DEI) in the workplace to be a key factor in ensuring that a startup is operating efficiently.
Though these benefits are well known, however many leaders may not realize the extent to which a diverse, equitable, and inclusive work environment can impact performance in organizations.
DEI improves performance in organizations because it creates a positive employee experience for all by fostering a work environment where employees feel valued, feel they are treated equally, and feel a sense of belonging with their peers. When these three needs are met, employees consistently perform well.
The knowledge, experience and skills of such a diverse workforce can bring a range of innovative ideas and solutions to the table. This collective creative power can help your organization to streamline processes and create new, more efficient systems.
How can I eradicate inefficiencies from my operation?
Every organization faces operational inefficiencies that can impede productivity, hinder growth and waste resources. Operational inefficiencies usually have multiple root causes, and a diagnostic of your operations will quickly reveal diverse opportunities to deliver improvements in performance and service.
As a leader, it’s your responsibility to identify these inefficiencies and streamline processes to make your organization more efficient and effective. However, identifying the biggest operational inefficiencies can be a challenge, especially if you don’t know where to look.
The first step to understanding where the inefficiencies lie within your operations is to ask some simple questions:
1. What are the tasks waiting to be done or are not getting done?
2. How does your company’s goals and objectives align with the team’s workflow and public relations with partners?
3. How often do you talk to your employees about the tasks waiting to be done or are difficult and complex for your team?
4. Do you constantly ask questions about the tasks that are waiting to be done or are difficult for your team to do, and listen to your complaints?
5. How do you collect data and effectively utilize the data to increase your workflow?
6. Do you leverage data from observation efforts and employee feedback to improve your business operations?
7. How do you simplify complex processes within your business operations?
8. Do you often implement key performance indicators to check your business operations?
9. How deep do you dig into tasks and problems facing your team and employees?
10. How do you use available data to stay focused on the core aspect of your business?
11. Are you involved in day-to-day operations of your business? If not, are you having roundtable discussions with managers in charge of the day-to-day operations?
12. Do you bring in professionals to help with employee training, task completion or reskilling employees?
13. Do you engage and allow tests and trials to see how you can effectively streamline your business operations and reduce waste?
14. Do you often rank and categorize tasks among your employees and team?
Questions for operations
15. Do you use benchmarks based on similar companies to check your workflow?
16. Can you accurately measure the workload in the operation?
17. Do you have defined times for all tasks what’s the range of performance achieved and when were they last reviewed?
18. How is work controlled and distributed and aligned to the skills set?
19. What are the busiest and what are the quietest days of the week and how are resources scheduled for under and over capacity?
20. Do servicing transaction volumes seem disproportionate to the in force portfolio?
21. How many times is a piece of new Business touched / transacted?
22. How do you measure resources/tasks received, completed and outstanding?
23. How often do you engage in new idea exchange and discussions with your team or look for these situations in the operation?
24. Is work controlled by a spreadsheet in the back office?
25. Is work targeted by SLA date or are staff targeted by volume of items per day?
26. Is the operation tracking measured by the percentage of hand off volume from the CC to the Back Office or the level of rework?
27. Is the Contact Centre Grade Of Service (GOS) being constantly achieved daily?
28. What is the hourly achievement of your GOS each day ?
29. Is your GOS erratic or is it a consistent 90%+?
30. How often do you calculate your carbon footprint in your business operations?
Once you have successfully identified the main challenges, a combination of process redesign, break through thinking in management frameworks and active performance management software will deliver rapid change and sustainable operational excellence.
If you and your team are wasting time in fundraising, which will affect your operational efficiency over time, I’m here to take the task off your hand so as you can focus on building and scaling a resilient company. You can book a meeting with one of our 100, 000 business experts that covers all sectors and industries to help you streamline your business operations in order to reduce waste. https://christopheclark.com/