Measure efficiency through inputs and outputs
You can measure efficiency by comparing your operation’s inputs and outputs.
Inputs can be recorded by stocktakes, or you can find them on your financial statements.
Look at the money your business spends on expenses such as raw materials, power, people and time (operational expenditure or OPEX) - and on long-term equipment and assets (capital expenditure or CAPEX).
Outputs include the amount of product or service you produce, and attributes such as product quality and customer service.
Efficiency boosts make a business more productive.
They can help you:
- reduce costs (making the same output from less input)
increase output (making more output from the same input) - grow the business (making much more output from a little more input).
Efficiency can:
- free up time to spend elsewhere – like working on the business, family time or a holiday
- help your business meet customer demand faster – for example, the more quickly a lunchtime café can make sandwiches to order, the more customers they can serve.
Improving operational efficiency is about incremental changes, not radically changing the operation: doing the same thing, but better.
Innovate to create radical change
Innovation is about more radical change than efficiency – doing a task in a new way or even finding a whole new approach to reaching your goals. Operational innovation can involve completely new ways of making your product, fulfilling your service promise or managing orders and customers.
Operational innovation can benefit your business by:
- better matching customer needs or demand, resulting in more market share or better customer retention
- creating a competitive advantage to improve or defend your place in the market.
Pay close attention to understanding customer needs and communicating new opportunities, and you could become a leader in customer value.
Process, product and service innovation
You can innovate by changing either your business processes or the products and services you offer.
Process innovation
With process innovation you reach the same result in a completely new way. For example, you might:
- outsource production of a component to save time and money
- bring packaging and delivery in-house to fight quality problems
- collaborate by communicating with video or augmented reality in real time.
You can plan for process innovation by identifying room for improvement in business areas where the current processes are already optimised or can’t be incrementally improved.
Product and service innovation
Product and service innovation creates a new product or service to better meet customer needs. The product or service could be entirely new or significantly improve on what’s already available. This means focusing on customer needs, rather than improving processes to meet your needs as a business.
For example, the first cordless drill was more user-friendly than normal electric drills with cords. Battery power made the drill usable further from a power source and replaced having to manage awkward power cords.
You can plan for product and service innovation, for example by working with customers to identify the downsides of current products or the opportunities of adopting new technology. Innovation can also come from noticing advances in other products or services and adapting them to yours.
When to focus on efficiency and innovation
Is the product category mature?
The product category is a specific part of your industry where your products sit next to competitors’. The product category is mature if there is a dominant design – products are generally similar and customers know what to expect.
If you have a healthy market share for a mature product category, you may want to invest in process efficiency or innovation to fine-tune performance or cut costs.
The product category is not mature if either:
- it’s fragmented (competing products or services look very different)
- there is constant technology disruption (with products or services evolving rapidly).
A focus on product or service innovation is often a better fit for this situation.
Are your customers’ expectations well-understood and stable?
If you understand what customers need, and they know what to look for and want similar and predictable things, you can respond confidently with the right product or service. Once you have developed your product or service to meet these stable customer expectations, you are safe to focus on process efficiency or innovation.
Does your customer value come from your processes or from your products and services?
You get customer value from your processes if you rely on them for qualities like efficiency and reliability, and those qualities are important selling points. Processes are also one way you can drive down cost and beat competitors’ prices.
Your product needs to be well-defined and comparable to others in the market for your processes to be the main source of customer value. And a process focus is typically less flexible than a product focus. If your product or service is unusual or unique, or the market is evolving rapidly, more of your customer value comes from your products and services.
Are your processes mature?
Your processes are mature if they are well-defined and easily repeatable without the business owner. This typically involves documenting processes, teaching people to follow them and monitoring whether they are followed correctly.
Staff holidays or changes should not disrupt the processes if they are mature.
Your processes are not mature if, for example:
- the product or service isn’t yet stable because customer needs are changing
- the market is fragmented so you need to react to a wide range of customer needs in different ways
- you’re still discovering how to provide the product or service effectively and efficiently
- you depend on a particular person’s skills and cannot provide the product or service without them.
If your processes are not mature because you lack documentation or people with the right skills, you can either fix those problems or focus more on your products or services to establish a stable, successful offering first.
Steps to innovate and be efficient
- Step01
Find market-driven opportunities
Researching competitors’ business models and innovations can be inspiring. You might:
- find an emerging new benchmark that you need to keep up with to stay competitive
- notice something that could transfer from a different industry or business setting to yours.
Suppliers and other people in your supply chain can also be a good source of inspiration – for example, a new supplier might offer something your current suppliers can’t match, or your existing supplier might improve their offering to keep your custom.
- Step02
Find opportunities in your business
Take a step back and define the overall metrics that are important to the business. These should fit what your customers find valuable – for example, if price is important, focus on cheaper ways to do things or if speed is important, focus on faster ways to do things.
Identify:
- what makes you unique (such as an iconic brand)
- what you’re good at (such as excellent customer service).
Ask yourself if you’re exploiting these things fully or if you could make them even better. Use activities like process mapping to study the detail of how your business works, triggering insights and defining the changes you want to make.
Standards for better business
Standards are voluntary or mandatory best practice guidance written by committees of volunteers who dedicate their time, knowledge and unique perspectives to developing them. They are the result of industry users coming together to agree on what is good practice and should shape the way people work.
Using standards can help you with things like:
- boosting the efficiency of your operation
- improving product or service quality and IT security
- cutting costs and increasing profits
- managing complaints
- vetting potential employees
- giving customers peace of mind.
Standards New Zealand provides access to standards and standards-related solutions, for every Kiwi business.
Benefits of using standards
Using standards can offer a set of powerful business and marketing tools for organisations of all sizes. You can use them to:
- fine-tune your performance and demonstrate quality
- set you apart from the competition and drive down costs
- boost productivity and improve profits
- manage the risks you face while operating in more efficient and sustainable ways
- inspire confidence in your business.
Standards can help open doors to new markets where some contracts and supply chains are only open to standards-compliant businesses.
There are standards to help:
- become more sustainable using AS/NZS ISO 14001:2015 Environmental management
- improve performance and resilience using AS/NZS ISO 9001 Quality management and AS/NZS 10002:2014 Guidelines for complaint management in organisations
- protect customer data using AS/NZS ISO/IEC 27001:2023 Information security, cybersecurity and privacy protection
- plan for business continuity using AS/NZS IEC 31010:2020 Risk management - Risk assessment techniques and AS/NZS 5050(Int):2020 Managing disruption-related risk.
Learn more about