Optimization is one of those buzz words that gets thrown around a lot in the business world. So, today we are going to explain what it means and outline some actions that you can take to start your business optimization journey. The key topics that we will discuss are as follows:
Business optimization refers to the process of improving the efficiency, productivity, or profitability of a business. There are many ways to do this but in general it involves analyzing and refining the organization's processes, resources, and strategies to achieve better outcomes.
Business optimization can be applied to various areas within a company, including business operations, marketing, finance, and human resources. The primary goal is to eliminate inefficiencies, reduce costs, maximize revenue, and ultimately create a more competitive and successful business.
As you can see, the business optimization process is broad and can be applied to many different initiatives within a business. So let's explore the common steps required to improve business processes.
Having goals or objectives are important in life. It is no different when it comes to planning a business optimization project. Examples of business goals and objectives include:
Once the goals or objectives for the business process optimization initiatives have been set, then you can move on to mapping out the core processes.
Now it is time to draw up all of the parts for all of the processes that impact the objective. For example, if the objective is to decrease the cost per widget by 5%, then we will need to assess the entire process to source raw materials, produce and distribute the widgets (e.g., the supply chain). Here the devil is in the detail, as we will need to break up each existing process in to all of its parts.
Continuing with our example of the cost reduction per widget, we would start by assessing the procurement process and contracted prices for raw materials. These two parts of the current process for sourcing ultimately impact the cost price per unit. So we should outline how it works and the key constraints or requirements that exist at each step.
For example, we might find and note down that the procurement process requires a minimum of two quotes for sourcing all raw materials. In this step, we should also take note of the contracted price for all of the key inputs required to produce the widget.
After we have all of our existing processes that impact our goals mapped out, then we need to analyze them and identify areas of opportunity or improvement.
With our widgets example, the requirement of two quotes for sourcing all raw materials may be ok for items that are harder to source. But it may also mean that we are not be getting the best price for more available items (e.g. screws).
Therefore after reviewing certain tasks we can identify problems or the need for a new process to achieve what we want (e.g. financial savings). Many businesses have outdated processes, especially as a result of digital transformation initiatives.
A quick way to identify areas in a business where there may be an opportunity for improved processes is using a functional headcount benchmarking tool like CompanySights, which can provide a quick view of the number of employees required in any function, in any business, in any industry.
Remember that business processes are just a way to action a task. There can be unnecessary steps as new technologies are implemented in a business. Equally there can be a need to add new steps or internal controls as a business scales, in order to maintain total quality management.
Either way, once you have identified the business processes that require optimization then the next step is to redesign them. This step requires experience and creativity in order to come up with ideas to improve process efficiency.
Examples of redesigning a process could be for the procurement process in our widget business. In this scenario, an optimized process could be to have three or four quotes required for certain raw materials where it is easier to source many quotes.
Ultimately this action would likely have a positive impact on costs without impacting the overall quality of the product - Thus, an optimized process!
Just like rolling out anything, it is important to test it first before you implement business process optimization across the board. This testing period can be for a small, specific team or part of the business.
For example, if the proposed changes to the procurement process for the widget business was to be rolled out then it would be a good idea to try it for a month first. Then take feedback from the procurement team and incorporate any changes before rolling out permanently.
Even after implementation it is important to keep an eye on the new process (or new processes) as a key part of continuous improvement. This often involves a bit of project management to check in on the impacted business operations and see how the business process optimization is going.
Not sure which processes can be optimized? Assess your functional headcount with external benchmarks here
The key benefit of business process optimization is that it can represent a real competitive advantage for an organization. Not only does it minimize wasted time, reduce errors, and increase productivity, but optimized processes may also increase profits.
In short, five main benefits of process optimization in business include:
Streamlining processes often leads to cost savings. By eliminating inefficiencies and redundancies, businesses can reduce operational expenses, labor costs, and resource wastage.
Optimization identifies and removes bottlenecks and time-consuming steps in processes, allowing for quicker and more streamlined workflows. This can result in faster project completion and improved time-to-market for products and services.
Streamlined processes and improved resource allocation can boost overall productivity. Employees can focus on value-added tasks, leading to increased output and job satisfaction.
Optimized processes tend to be more consistent and error-free. This can lead to higher-quality products or services and fewer defects or customer complaints.
Efficiency improvements often translate into faster response times and better customer service. Satisfied customers are more likely to remain loyal and recommend the business to others.
There are many ways to achieve process optimization in a business. Let's look at three common examples that occur in many businesses.
Automating manual tasks in business can significantly boost efficiency and free up valuable time and resources. For instance, a retail store can implement barcode scanning and inventory management software to automate the process of tracking and restocking products.
This eliminates the need for manual stock counts, reduces human errors, and ensures that popular items are always in stock, leading to improved customer satisfaction and increased sales.
Removing duplicative controls or layers in business can streamline decision-making and reduce unnecessary complexity. For example, a large corporation may have multiple levels of approval for routine expenses.
By implementing a more efficient expense management system and eliminating redundant approval processes, the company can accelerate expense reimbursements, reduce administrative overhead, and empower employees to make faster decisions regarding routine expenses. This not only saves time but also increases employee satisfaction and productivity.
Improving communication within a business is a key strategy for optimizing processes and achieving better outcomes. For instance, a software development team can implement a project management tool that centralizes communication, task assignment, and progress tracking.
This tool ensures that team members are always aware of project updates, deadlines, and responsibilities. As a result, there is less miscommunication, improved collaboration, and faster problem resolution. By enhancing communication, the team can streamline the development process, reduce delays, and deliver higher-quality software products on time and within budget.
Process optimization is an ongoing process. Businesses that do not review their current processes from time to time are missing out on gaining a significant advantage over competitors. Only after understanding your current processes can you increase efficiency by making changes.
Once you have identified areas for optimization then you can redesign processes and unlock specific benefits, such as the ultimate goal of increased profits. Then it is a matter of repeating the process every year or so as part of continuous improvement.
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