By: Liz Sheffield
Organizational efficiency is one of those terms that often gets tossed around by business leaders, industry experts, and innovators. While the concept of organizational efficiency seems like a good idea in theory, does it really make a difference in practice? The simple answer is: yes.
Let’s start by looking at an example of how a well-known brand uses organizational efficiency to impact results. As one chartered financial analyst described, the sportswear giant Nike has used efficiency as a method to increase its value. Some examples of how Nike has implemented organizational efficiency include:
- Creation of its “express lane” mechanism to reduce the time between design and a product being on the shelves, from a few months to just a few weeks.
- Development of a “rebound facility” to accept product returns and quickly redistribute to shelves.
In Nike’s case, streamlining design and distribution processes created greater efficiency and speed. These benefits in its supply chain gave Nike a competitive advantage, which laid the groundwork for better operational and financial performance.
What is Organizational Efficiency and Why is it Important?
In simple terms, organizational efficiency examines how to increase the output an organization can achieve, using a specific amount of resources. The more output delivered using those same resources, the more efficient the organization is. Any discussion of organizational efficiency begs the question, what’s the difference between efficiency, productivity, and effectiveness. These simple definitions help:
Organizational productivity: Capacity of a business to produce desired results with a minimum expenditure of resources (time, money, human resources).
Organizational efficiency: Process of using fewer resources, as well as less time and less money, to achieve the same goal.
Organizational effectiveness: Ability to attain the goal by doing the “right things.”
Or, as Peter Drucker is quoted as saying, “Efficiency is doing things right; effectiveness is doing the right things.”
According to Bain, improving organizational effectiveness through organizational efficiency has numerous benefits. When they surveyed companies, they found those who had deployed organizational efficiencies were:
- Four and a half times more likely to report improved customer experience
- Four times more likely to say their cost efforts enabled growth, rather than hindered it
Efficiency makes a difference not only for the business, but also for employee engagement. When aiming to “do the same with less,” organizations must understand the various types of efficiency so that appropriate methods, including those which influence employee engagement ideas, can also be selected. These not only improve business results, but also enhance the employee experience.
Types of efficiency
For companies looking at how to improve efficiency, there are several ways to examine efficiency so you can drive change. We will look at four types in this article: management, workforce, production, and communication.
“Strong executive sponsorship is the single most important factor for success and the most cited reason for failure when things go off track,” when it comes to organizational efficiency, according to Bain. In contrast, management’s commitment to efficiency ensures that everyone, from the executives to the frontline embraces a commitment to increasing efficiency. With this commitment, it’s possible to achieve organizational agility and efficiency in everything from organizational structure to decision making to change management.
Cross-functional teams are an example of a place where efficiencies can be leveraged. As collaborative partners, cross-functional teams have the power to develop well-informed strategies that address all elements of the business, and which are based on the unique needs and perspectives of each group. These teams also help maximize workforce efforts by eliminating redundancies that occur when departments don’t communicate.
Nike’s example is the perfect illustration of how production efficiency can improve processes in a way that allows an organization to produce more using the same resources, or in some cases, by using less. By reducing the time required between design and production, Nike made it possible to get products to consumers more quickly. Similarly, by creating a return center, they were able to streamline the process so that inefficiencies in the return process didn’t delay products.
Communication efficiencies are an essential way to gain alignment and ensure the adoption of your major programs. Efficient communication is based on employee demographics, tenure, and roles. When your messaging is personalized and segmented, it allows for a unique employee experience. Efficient messaging provides clear direction about how employees can take action and empowers decision making throughout the organization.
The correlation between organizational efficiency and culture
Organizational efficiency may seem focused solely on the bottom line, but it’s not. Efficient operations, policies, and procedures contribute positively to employee engagement. Researchers consistently make the connection between employee engagement and organizational performance.
Unengaged workers cost employers in many ways, one of which is an inefficient use of their time and resources. The degree to which employees are engaged determines how effective they will be. Something as simple as the organizational structure can make or break how engaged an employee is and, in turn, how efficiently they’re able to perform their necessary duties.
Bain cites an example of an Indian consumer goods company that successfully built an efficiency-focused culture that added to their competitive advantage.
“They encouraged calculated risk-taking and tolerating failure as part of their process. One team delivered significant savings by working with research and development to experiment with value engineering of packaging.”
As you look at ways to deploy employee engagement solutions, create a culture that values effectiveness. Find tools that increase efficiencies and reassure your employees that they’re making an impact. A culture that appreciates and inspires organizational efficiency is one way to show employees you care about how they spend their time and how you’re focused on making the most of their contributions.
Organizations that successfully embed efficiency in their culture enjoy a competitive advantage. Instead of focusing on making budget cuts to “gain efficiencies,” leaders must focus on how to remove obstacles, thereby enabling the organization to improve output using existing resources. This approach will serve to enhance efficiencies and inspire their workforce in a way that drives results and growth.