Dare to improve your operational efficiency? Here’s your guide

A common way to measure operational efficiency for a specific process is to track the operational efficiency ratio. This indicator compares all your resources used and results produced — inputs and outputs. For example, if five members of your content writing team publish 20 blog posts a month, the ratio is 1:4. That is, every team member produced four articles. 

At the enterprise level, operational efficiency is measured by dividing your operating expenses (input) by the total revenue (output). Multiply it by 100% to get the operational efficiency rate: 

Achieving operational efficiency is a win-win for both customers and the organization itself. Customers enjoy better services and faster response times. The organization, in turn, can increase profit margins and gain a competitive edge while reducing operating costs. 

Optimized operating costs 

Efficient business operations require fewer resources to achieve the same or better results. As a result, operating costs can be reduced without compromising on output quantity and quality. 

For example, automatically triaging customer calls and support tickets reduces the time spent on each query. As a result, you can reduce the size of your customer service department without sacrificing response times. 

Reduced human error 

Manual processes are prone to human error. Having to fix those mistakes only slows down your employees and negatively impacts customer satisfaction. 

Automation and process standardization allow you to prevent mistakes, saving your employees’ time and improving customer experience. And, of course, fewer mistakes mean lower operating costs, too. 

Improved customer satisfaction 

Faster response times, higher one-touch issue resolution rates and faster onboarding all contribute to higher customer satisfaction scores. In fact, easy onboarding is the number one reason why consumers choose non-traditional financial services providers. 

Financial services customers already expect certain operations to be available online, according to Salesforce. For example, over 70% of banking customers want to apply for debit or credit cards digitally. In turn, 69% of insurance customers want to renew coverage online. 

Those processes can be near-instantaneous with automated data verification and application validation. 

Increased profit margins 

Lower operating costs plus increased revenue driven by higher customer satisfaction equals higher profit margins. 

For example, clients adopting the self-service borrower portal through Luxoft’s EarlyResolution™ product can achieve a 25-30% saving in call-management cycles and a 30-50% uptick in efficiency, thus minimizing customer wait times and eliminating the need for temporary staff during volume spikes. 

Improved employee satisfaction and retention 

Repetitive tasks and inefficient processes are the bane of employees’ routines. Removing them goes hand in hand with ensuring employee happiness. A higher employee net promoter score (eNPS), in turn, correlates with higher retention rates, productivity and engagement. 

Furthermore, high employee retention gives you an upper hand in times of higher competition for talent in certain domains, such as tech. 

Competitive edge 

All the other benefits of implementing a sound operational efficiency strategy — increased speed, profit margins, and customer and employee satisfaction – translate into a competitive advantage. 

Let’s put it more bluntly. Achieving and maintaining operational efficiency is key to successfully addressing rising competitive threats posed by Big Tech, megabanks, big fintech and challenger banks. 

Financial services organizations traditionally struggle with eight operational efficiency challenges, from data availability and quality and STP rates, to high technical debt. Let’s take a closer look. 

Subpar data availability and quality 

Data silos are the largest barrier to innovation, according to a WBR Insights survey of financial leaders. (It has overtaken the lack of buy-in and budget constraints.) 

Fragmented access to data can be an inefficiency in and of itself, too. The same survey revealed that in 85% of organizations, IT staff spend between a quarter and half of their time helping other employees access the data and insights they need. 

Breaking data silos, however, on its own is not enough. Data must be readily available when needed — and remain reliable, too. 

Always look for a match between the employee’s knowledge, experience, and tasks; they shouldn’t be overqualified. At the same time, people shouldn’t have too much on their plates. Otherwise, they’ll be on the road to performance issues, burnout and, perhaps, resignation. 

To optimize resource allocation in this case, ensure you have a full overview of: 

• People at your disposal and their skill sets 
• Their current and future availability 
• How much they cost your organization 

Break down organizational silos 

In large businesses, organizational silos tend to appear across departmental lines. But those can harm operational efficiency as they give rise to data silos and lack of transparency and communication. 

To enable cross-department collaboration, foster: 

• Open and frequent communication across teams, backed by the right tools to facilitate it 
• Organization-wide alignment with corporate goals and understanding of how each role contributes to achieving them 
• Motivation to collaborate on achieving company-wide goals 
• Transparency regarding changes, business decisions and other information (with a thoughtful approach to avoid causing distrust, blame-shifting and resistance) 

Address bottlenecks 

Bottlenecks can emerge at any level, from supply chain management to customer service. Catching them early on means avoiding a costly operational slowdown or complete standstill. 

Bottlenecks can take many forms. Yet, they all boil down to a single point of failure that may prevent the whole team from running smoothly. For example, imagine a scenario where only one specialist knows how to perform a certain task, so you can’t easily replace them if they end up on sick leave. Comprehensive process documentation removes this bottleneck. 

Besides undocumented knowledge, bottlenecks can also be caused by flaws in communication, process management, software systems or supply chain management. Even corporate culture and staff morale can lead to a bottleneck. 

A short-term solution that increases capacity can help deal with a bottleneck. For example, you can contract out certain tasks when your current capacity isn’t enough. However, preventing bottlenecks requires mitigating their root causes and improving in-house capabilities. 

Track the right metrics 

Poorly chosen metrics and KPIs can lead to one of two scenarios: One, you believe your operations are efficient when, in reality, they’re not — and suddenly a bottleneck reveals itself in the ugliest way possible. Two, you believe your operations are inefficient. In this case metrics aren’t an adequate reflection of resource productivity. 

So, choose your metrics wisely. Otherwise, you risk fixing what’s not broken — and missing out on the real troublemakers. Keep in mind that employee productivity is notoriously difficult to translate into quantifiable data — just look at the developer productivity metrics debate. 

Upgrade and unify your software systems 

Just as your operations should run like a well-oiled machine, so should your software. In other words, your applications need to be a harmonious digital ecosystem, not a wild zoo where different species fight each other. This will enable a seamless flow of data and prevent double work, such as copying and pasting data from one system into another. 

While reviewing your application stack, ask these questions: 

• Are there any solutions that lack functionality to power operational efficiency? 
• Are there any legacy systems that require modernization before they can be integrated into a digital ecosystem? 
• What do users have to say about each system? What inefficiencies do they face? 
• Are there any systems that serve similar or identical purposes? Can they be replaced with a single solution? 

Leverage intelligent automation 

To achieve operational efficiency, you’ll need automation, whether robotic process automation (RPA) or AI solutions. RPA tools operate on basic algorithm trees, whereas AI-powered intelligent automation solutions can take on more complex tasks like data extraction or analytics. 

To enable automation beyond standard “if-then-else” scenarios, you’ll first have to ensure a seamless flow of data between systems. This data will then be used to train AI models, provide real-time insights and execute tasks based on real-time information. 

For example, in supply chain management, AI tools can automate order processing, shipment tracking and inventory management across the whole supply chain. 

Provide necessary training 

Even if you adopt cutting-edge AI automation solutions, they are still only tools. The efficiency of these tools depends on how people use them. 

So, if you tackle your operational inefficiencies with new technology, ensure its users know how to make the most out of the tools at their disposal. Training is also necessary to bring your employees up to speed on process improvements, changes in workflows and company-wide efficiency goals. 

Finally, equipping your workers with certain skills can boost productivity, thus making training a solution to certain inefficiencies. 

Ensure continuous improvement 

To maintain operational efficiency, operational efficiency strategies can’t stay set in stone. You should regularly review and iterate on them to enable continuous improvement. 

These reviews should be based both on stakeholder feedback and collected metrics. They represent an opportunity to: 

• Assess the impact of operational efficiency initiatives already in place 
• Adapt them or roll them back if they don’t achieve the set objectives 
• Keep up with customer expectations vis-à-vis service quality and speed 
• Keep up with competitors 
• Take advantage of innovative technology to improve operational efficiency 
• Identify new gaps in efficiency 

Data standardization requires centralizing all data in a single enterprise data management platform (EDMP), be it a bespoke or off-the-shelf one. This solution will then ensure the data quality, align it with the standard and distribute it downstream to other systems like a supply chain management solution. 

However, data standardization doesn’t equal simply rolling out an EDMP. It should also involve: 

• Establishing a clear and comprehensive data governance policy 
• Ensuring data interoperability with consistent data formats across the organization (e.g., standardized country names, scales for numerical data, date formatting) 
• Leveraging data profiling tools to rectify errors, detect missing data and automatically validate entries 
• Introducing data quality controls and ensuring regular data maintenance 
• Ensuring data security and compliance with privacy and industry-specific regulations 
• Implementing a uniform approach to null value handling 

As for the eternal buy vs. build debate, vendor solutions have undeniable benefits. The vendor is responsible for maintaining and upgrading them, ensuring their functionality remains cutting-edge. A vendor solution is also compliant out-of-the-box and comes with comprehensive documentation. 

Straight-through processing optimization 

Improving STP rates starts with identifying the cases where users still rely on manual work to send confirmations and payments. Then, you can phase in automation tools to enable STP. Keep in mind that automation needs a step-by-step approach. 

An STP solution can help you: 

• Automate sending PDF confirmations to customers 
• Reduce human error rates 
• Direct your human resources to more value-added tasks 
• Speed up transaction processing, improving customer experience as a result 

As for the optimization routes available, automation can take on: 

• Comparing provided information against country-specific rules and regulations 
• Identifying discrepancies in provided data and flagging transactions for review 
• Providing detailed currency-level payment information requirements to customers 
• Enabling systemic preemptive transaction validation 

Reconciliation improvement 

Higher reconciliation matching rates improve payment process efficiency and reduce the ops team’s workload. To improve those rates, you’ll need a comprehensive tool that can handle front office and back office (FOBO), Nostro, bridge, position, sundry and other reconciliation types. 

Reconciliation inefficiencies often stem from manually comparing records because one or multiple sources contain unstructured data which is not machine friendly. If that’s your case, you need a solution to extract and structure this data. For example, an OCR tool can extract data from scanned documents, while an LLM can structure it and compare it against other records. 

However, making all data machine-readable is only the first step in automating reconciliation. You also need to: 

• Standardize data from multiple sources 
• Implement data validation to establish its accuracy and reliability 
• Integrate data sources into a single system to pull data in real time 
• Define matching and exception-handling rules 

That covers everything, and just to briefly summarize our extensive guide: operational efficiency is the ratio of resources used to the output produced. Improving it involves refining processes, investing in training and implementing automation. Benefits include reduced costs, fewer errors and enhanced customer and employee experience and the challenges include poor data quality, technical debt and lack of standardization. The solutions? Enterprise data management platforms and intelligent automation to optimize your processes.