What Is Operational Efficiency? Examples & Strategies

Lucija Bakić

April 19, 2024

A screenshot of an operational efficiency software interface showing a project management timeline for the 'ACME Project.' It details tasks and allocations for team members such as Carmen Williamson and Robert Robertson over weeks 22 to 26, highlighting design, development, and rebranding phases with color-coded bars.

Operational efficiency helps your business reduce operational costs and become more profitable.

In the manufacturing industry, the operational efficiency rate signifies the output of a machine vs waste produced. In professional services, it mainly includes optimizing the management of employees and their time making time tracking software for professional services invaluable.

This includes strategies such as capacity planning, workflow automation, and managing capacity metrics and performance metrics.

Companies of all shapes and sizes, including consultancies, marketing agencies, law firms, and creative companies, can benefit from improving processes for more successful business operations.

Key Takeaways

  • Operational efficiency helps product and service-based businesses drive process improvement for reduced costs and increased profit margin.
  • The benefits of optimized efficiency include reduced operational expenses and increased profits, a more satisfied workforce, and increased sustainability and flexibility.
  • The main operating strategies include setting goals and tracking key performance indicators, supporting collaboration and transparency, and utilizing PSA tools for automation, time management, and more.

What Is Operational Efficiency?

Operational efficiency is a process used by businesses and professional service firms to ensure the optimal use of resources, such as employees, facilities, and finances.

The operational efficiency ratio is the difference between what goes into your daily work (costs and time) and the result (projects or products, revenue).

By reducing bottlenecks and gaps in the processes, the amount of effort that goes into your operations can be reduced, and the results can be improved.

Efficiency Vs Productivity

Efficiency and productivity are often seen as the same thing, but there are differences.

  • Efficiency refers to ensuring that a result is achieved with the fewest resources possible while producing minimal waste.
  • Productivity focuses less on the process and more on the output — producing as much as possible in a given timeframe.

For example, a productive design agency might create a certain amount of designs within a week. However, an efficient design agency will use the best process available, such as utilizing skilled employees and the best tools to minimize inefficient processes.

Consider that two companies can be equally productive, but the more efficient one will be more profitable. We also have an article that covers the difference between a cost effective vs cost efficient business.

Operational Efficiency Examples

  • A marketing agency centralizing creative assets and client feedback in one location to reduce hours spent searching for information
  • A website development company standardizing best practices and create project templates for easier kick-off and streamlined data analysis
  • A consultancy ensuring that its resource pool is equipped to handle various types of tasks to allow for easier resource allocation (it may also find significant value in investing in software for consulting)
  • A creative agency implementing an end-to-end tool for project management to improve collaboration and project oversight

A standard QA/UAT phase was taking us around 120-180 hours. We’ve been able to launch a really big enterprise site on the same level, and that went through a testing phase of 60-70 hours. Obviously, there’s a lot of different factors that go into that, like technology and processes, but having all that centralized has made managing those phases remarkably quicker.

brendon nicholas,
Co-founder and Technical Director at DotDev

The Goals of Operational Efficiency

  • Cutting unnecessary waste: In agencies, waste includes the hours employees spend on non-productive work. Remember that non-productive work doesn’t necessarily correlate with non-billable work; some non-billable tasks, such as pitching for new projects or employee upskilling, are crucial for your business functions.
  • Streamlining processes: Streamlining processes can include strategies such as aligning project management practices with internal collaboration to reduce bottlenecks. It’s not only about making your workflows faster but also improving the quality of the output and employee engagement (see more: best operations management software).
  • Getting a competitive advantage: Operational efficiency allows businesses to deliver better value to clients more consistently and at reduced operating costs. It can include using employee expertise and technology to provide tailored client services faster. It also involves initiatives to attract and retain top talent for sustainable growth.

Achieve Operational Efficiency

Productive is the all-in-one tool agencies need to optimize daily operations and run a more profitable business.

Book a demo

The Benefits of Efficient Operations

In the 2023 State of Organisations report, more than one-third of surveyed professionals chose operational efficiency as a top three organizational priority.

Deploying resources more effectively to where they matter the most promises substantial benefits, including improved organizational health, higher shareholder returns, and better and faster decisions. Being efficient often means placing more trust in your organization and empowering employees.

Source: McKinsey

Some specific benefits include:

Reduced Operational Expenses

Optimizing production processes means reducing expenses across the board. In professional services, this could include ensuring you have the perfect ratio between resource availability and demand. In simpler terms, this means that none of your employees are overburdened with work or sitting on the bench — or having a balanced utilization rate.

Another key part part of reducing expenses and increasing profitability is understanding which of your projects are your most profitable. It involves not only managing your resources wisely but also strategically selecting which engagements to prioritize.


Utilization and Forecasting in Crisis Times

Learn all about managing your agency’s utilization rate with Productive and The Agency Collective.

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Streamlined Manual Tasks

Streamlining manual tasks involves simplifying, automating, or entirely redesigning workflows to eliminate the need for manual work. This leads to faster and more reliable processes. For example, a budgeting report being sent at a specific day and time to a particular project stakeholder.

This helps reduce the chance of an employee forgetting to send a report or sending one with inaccurate data.

Automating routine and administrative tasks gives staff more time to focus on strategic, value-adding activities. This enhances productivity and quality of work, as employees can dedicate more energy to complex issues requiring critical thinking and creativity.

More Satisfied Workforce

According to research by Zapier:

  • 3 out of 5 employees spend 50% or more on work tasks they don’t enjoy
  • 79% believe they could work more efficiently
  • 81% are willing to stay in their current position if they could focus on work they enjoy

Operational efficiency contributes to employee satisfaction and engagement by improving work-life balance and freeing employee time for more engaging tasks. This helps people feel more valuable, supports their professional growth, and helps them perform their work more efficiently.

All of this leads to lower attrition rates and a more motivated workforce.

Increased Agility and Resilience

Enhanced operational efficiency supports agility and resilience, enabling organizations to respond swiftly and effectively to internal business challenges or changes in market demand.

Operational efficiency means having a reliable way to analyze data and make quick decisions for sustainable growth. For example, being able to forecast how additions to project scope or changes in resource availability affect the budget management process.

A screenshot of operational efficiency software displaying a 'Rebranding Campaign' with graphs tracking time, budget, and invoicing across weeks 23 to 27. Bar charts show increasing funds allocated and hours worked, with a dotted line predicting future trends.

USE your resource scheduling to forecast key FINANCIAL indicators LIKE REVENUE OR PROFIT MARGINS

This allows businesses to adapt their strategies without significant disruptions, maintaining continuity and stability. A resilient organization is better positioned to seize new opportunities, address challenges, and sustain long-term growth.

Competitive Business Advantage

Operational efficiency helps companies increase their market presence by outperforming peers in key operational metrics such as cost, speed, and service quality.

Efficient management helps companies offer products and services at competitive prices while maintaining healthy profit margins, attracting a broader customer base. Moreover, these businesses can react more swiftly to market trends and customer needs by being proactive rather than reactive.

Such capabilities are crucial for sustaining market leadership and attracting strategic partnerships and investment.

How to Pinpoint Operating Problems

To detect potential issues in your business workflows, ask yourself the following questions:

  • Are your time estimations misaligned with actual completion times?
  • Are there any particular bottlenecks during the task or project delivery?
  • Are delays occurring due to miscommunication or lack of information, whether externally or internally?

To be able to pinpoint issues that are holding your business back, you’ll need to be able to perform a historical and comparative analysis of your project. This should include a thorough review of past performance data against current processes to identify discrepancies or patterns that may suggest inefficiencies.

Additionally, comparing your project timelines, resource allocations, and output quality with industry standards or previous projects can reveal areas of improvement.

A screenshot of an operational efficiency software showcasing 'New budgets insights' with a bar graph comparing revenue and margin percentages for different projects, including ABC Company, Cupcake Project, and Website Redesign. The interface includes an option to 'Group by' with 'Company' selected and a feature to 'Show only totals' highlighted.

Group and filter your data to compare metrics across multiple projects

Finally, engaging with project stakeholders at all levels, especially those directly involved in daily operations, can provide valuable insights. Employees can sometimes find solutions to issues that operations managers do not have the time to focus on but are critical to better internal processes.

Additionally, consider holding feedback sessions with clients to get their point of view.

8 Steps to Operational Excellence

Critical strategies for enhancing operational efficiency involve:

  • Establishing clear business objectives and monitoring key performance indicators
  • Fostering collaboration and transparency across the organization
  • Leveraging agency management software to automate processes, manage human resources and their time efficiently, and facilitate various other functions.

1. Understanding Business Goals

Before developing your operational strategy, you’ll need to specify what your pain points are, how you want to address them, and how these strategies are aligned with overarching business goals.

For example:

Pain point: An agency has an issue with overservicing clients and unprofitable projects.

Solution: Implementing a tool that can provide real-time data on time tracking and finances.

Alignment with business goals: Ensuring that the chosen software can support the agency’s growth to ensure continuous improvement.
This includes defining long-term strategic and short-term targets to be used as checkpoints toward achieving them.

The process starts with senior leadership ensuring that each department understands and adopts the new strategy to keep everyone aligned on business goals. Another essential part is setting realistic objectives and knowing which performance indicators to monitor.

2. Setting Realistic Objectives

Whether it comes to internal initiatives or client work, realistic objectives are essential for maintaining motivation and progress toward achieving goals.

When developing your strategy, consider using a framework such as SMART:

  • Specific: Goals should be clear and precise to eliminate potential ambiguities.
  • Measurable: Set criteria for measuring progress and success.
  • Achievable: Ensure that a goal is aligned with your available time and resources.
  • Relevant: The goal needs to be relevant to your broader company objectives.
  • Time-bound: Set a timeline for achieving the goal to improve focus and resource allocation.

To ensure that your objectives are realistic, you can consider historical data on your agency’s performance, as well as industry benchmarks. For example, if you want to increase employee productivity, you might want to focus on your resource utilization rate.

Then, you could consider reputable resources for how other agencies are doing. According to the 2023 Benchpress Report, agency-wide average utilization was around 65%. This varies significantly from role to role — juniors and mid-level (75%), seniors (63%), and directors (33%).

You can use this data to guide your utilization expectations across different company roles.

Try to find data as relevant as possible to your particular circumstances, such as agency type and industry. Joining a community of professionals can also be a great way to connect to like-minded individuals and get first-hand insights on the pulse of the industry.

Connect With Agency Peers

Access agency-related Slack channels, exchange business insights, and join in on members-only live sessions.

3. Managing Key Performance Indicators

Operational efficiency metrics are essential for measuring your processes. Some examples of potential KPIs to track are:

  • Cycle Time: This metric measures the total time to complete a single process cycle from start to finish. Reducing cycle time can indicate improved efficiency and faster service delivery.
  • Capacity Utilization: This metric evaluates how effectively an organization uses its resources. It compares actual output to potential output if resources were fully utilized.
  • Cost per Unit: This measures the cost of producing a single unit of product or service. This metric helps businesses understand how process, production, or procurement changes affect costs.

Once established, these KPIs need to be monitored continuously to provide real-time feedback on performance and help identify trends over time. This helps managers maintain a proactive approach to process optimization.

Sharing these KPIs with the broader team encourages transparency and accountability, motivating employees to focus on key areas that drive business success.

4. Process Automation

Process automation helps reduce the potential for human error, speeds up task completion, and allows employees to use their valuable hours on high-value activities.

Automation can be applied to various stages of an agency’s workflows:

  • Financial transactions — by automating the process of fetching time tracking data and generating invoices
  • Project management — by using notifications for status updates and comments
  • Reporting — by regularly updating and sending reports to stakeholders via email or Slack

The benefits of automation include improved speed, accuracy, and consistency. However, implementing automation requires careful planning to align technology with company needs and current systems.

It’s also necessary to include human oversight to ensure the system functions as intended or to drive further process improvements.

A screenshot of an operational efficiency software displaying 'Custom automation' setup, with a step one 'Trigger' for task updates on 'Pink Flamingos Rebranding & Website' project, followed by a step two 'Condition' requiring either more than 1 hour of remaining time or more than 2 hours of worked time to proceed.

Use Productive to create no-code automations — for example, sending a message to Slack when a task is updated

5. Human Resources Management

Effective human resources management ensures that the right people are in the right roles, are well-trained, and are motivated to perform at their best.

This involves several critical activities, such as:

  • Strategic hiring ensures the organization has the necessary skills and talent to meet its operational demands.
  • Ongoing development programs are essential to educate the workforce on the latest industry trends, technologies, and methodologies.
  • Performance management ensures that employee goals are aligned with organizational objectives and provides a way to recognize and monitor professional progress.
  • Fostering a positive workplace culture supports transparent communication and helps maintain operational efficiency through open and continuous feedback.

For professional services businesses, human resource management is one of the most important business activities. Learn more about developing the best capacity building strategy.

6. Optimizing Time Tracking

Time tracking for agencies is another essential process for managing employees and promoting efficiency gains. However, it’s often not the favorite activity among agency teams.

The best way to promote time tracking is to encourage teams to track their actual hours, including hours spent on non-billable work such as internal meetings or brainstorming sessions.

This helps create more realistic estimates for task completion, allowing managers to get real visibility into their business efficiency.

A screenshot of an operational efficiency software interface titled 'Track time for today,' showing two marketing tasks within the Business: Content category. The first task for 'Social media posts' has 4 hours logged, and the second for 'Customer success - interview questions' and 'Creative brief' has 1 hour and 3 minutes tracked, indicated by a running timer.

Get reliable billable hours data and manage project performance with Productive

Another good way to encourage effective time tracking is to provide employees with various ways of creating their entries. Some user-friendly features (from Productive) include:

  • An in-built timer and manual entry
  • A desktop widget for the timer for easier management
  • Pinned and recently used services
  • Time tracking directly from tasks
  • Integration with Google Calendar
  • And more

Time tracking helps managers identify inefficiencies or bottlenecks in workflows and provides a factual basis for making informed decisions about resource allocation. Furthermore, accurate time tracking is essential for cost accounting, helping the company understand the actual cost of projects, which is critical for pricing, billing, and budgeting.

Achieve Operational Efficiency

Productive is the all-in-one tool agencies need to optimize daily operations and run a more profitable business.

Book a demo

7. Supporting Communication and Employee Feedback

According to research by The Economist, the consequences of poor workplace communication include:

  • Added stress (52%)
  • Delay or failure to complete a project (44%)
  • Low morale (31%)
  • Missed performance goal (25%)
  • Loss of client (13%)
A screenshot of an operational efficiency software focused on 'Blog posts' with a task named 'Motion graphics.' Options to add a description, attachments, and subtasks are visible. The task has to-dos for 'Visual direction' and 'Draft release,' a 'Working' status, is assigned to Carmen Williamson, and has a due date of May 5, 2024, with a stopped timer at 00:00.

Centralize your communications and progress updates with Productive’s tasks

Effective communication includes two things: one is ensuring that all employees are aware of organizational goals and other changes that affect their work. Another is ensuring that day-to-day processes go smoothly, without significant miscommunication or roadblocks caused by lack of information.

Regular and structured communication channels, such as team meetings, newsletters, and digital communication platforms, facilitate the flow of information and keep everyone on the same page.

8. Using Software Solutions

Research by Capterra shows that the benefits of using software solutions for agency management include: improved timeline estimation (60%), more effective use of project resources (55%), enhanced team communication (49%), improved budget estimation (48%), and more accurate KPIs (38%).

There’s a variety of solutions available to improve your operations, from specialized agency client management software to enterprise resource planning (ERP) tools.

Finding a consolidated platform with user-friendly design, responsive customer service, and scalable features and pricing plans is often your best bet.

Key features to consider when researching your best tool include:

  • Automation: Refers to various features for streamlining repetitive tasks, such as invoicing, resource allocation, keeping project stakeholders updated, and writing documentation.
  • Real-time reporting: Includes capabilities for creating and sharing reports, as well as financial forecasting.
  • Resource planning: Includes workload balancing, utilization insights, time tracking, and time off management (learn more on what is workload management and its importance).
  • Collaboration features: This includes features such as customizable layouts for organizing task lists (Kanban, Gantt, Calendar, etc.), collaborative documentation, and progress tracking.

Productive — Your Agency’s All-in-One Tool for Operational Efficiency

Productive is a consolidated platform tailored to agency workflows. It includes a range of features that support operational excellence, from project management and multiple project tracking to budgeting and billing.

You can use Productive to:

  • Balance employee workloads and forecast your utilization rates across various metrics
  • Connect your resourcing and time management for automatic time tracking
  • Visualize and forecast key financials such as profitability, margins, and budget burn
  • Create documentation with Productive AI and keep all key project information centralized
  • Build reports from scratch or by using one of Productive’s 50+ agency-focused templates
  • And more

Book a demo to learn how Productive can help optimize your business efficiency.

Connect With Agency Peers

Access agency-related Slack channels, exchange business insights, and join in on members-only live sessions.

Lucija Bakić

Content Specialist

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