The underlying goal of any business is to make a profit. This goal can best be achieved by focusing on improvement of “efficiency” in managing the company affairs.
Every year, new ways to improve efficiency are introduced. But do they really work in practise? The answer is hard to come by. Each organisation has its own structure and working ways that cause their unique methods and approaches. However, there are some methods that are used by all companies. How effective or good are they? Let us find out.
1. Cost reduction
Most often, companies use a variety of methods to reduce costs, from purchasing resources and equipment at low prices to reduce payroll. In this situation, the question arises: why create a company if you constantly have to save anything? The company must make money, which may be difficult without cost control. But as a method of increasing the efficiency of the organisation, reducing costs in modern conditions is a very slow and risky method. It’s definitely not worth the risk of quality and performance.
2. Modernisation of the product
Modernisation means replacement of production equipment with new ones with high productivity, and implementing modern technology and software. Companies increasingly introduce corporate management systems to automate individual business processes that increase the speed and quality of the organisation. Such systems include software for document flow automation, corporate web portals and CRM and ERP systems. This method has been established as the most rational to increase the efficiency of the organisation. But replacement of equipment, despite the need, is the most expensive method. Substantial investments require for replacing equipment. And the payment period for this method can also be longer.
3. Modification of the operating system
Proven operating systems are more popular in businesses. Companies prefer to use them rather than creating their own systems. A change in the management system affects the overall work of the organisation. But this almost never happens without a change in the team’s composition of experts.
4. Productivity is the most important quality
Productivity is the most important quality attribute of management at all levels. With higher results at the same costs, the unit of labour required increases, or with lower costs per unit, the capacity of production increases.
5. The economic efficiency of a product
In its most general form, the economic efficiency of a product is a quantitative ratio of two dimensions – the results of economic activity and the cost of production. The producer has always been interested in the relationship between costs and the outcomes of his operations, regardless of the mode of production. Economic efficiency is ultimately expressed in the increase in labour productivity. The level of labour productivity is a measure of the economic efficiency of production.
6. Indicators of the efficiency of an organisation
Profitability, organisational activities, technical measures, and financial metrics are all important indicators of an organisation’s efficiency.
- A. The profit of the company is one of the important indicators of the financial activities of the company. Profit reflects the net income generated in the production. The level of financial efficiency provides a sign of the costs associated with achieving financial impact. A product with higher impact and lower costs is more efficient from a financial standpoint. It is also possible to increase the efficiency of the use of fixed assets through organisational, technical, and financial measures.
- B. Organisational activities include: 1.shortening terms and extending integrated periods to reduce equipment idle time; 2. increasing the number of shifts in equipment work; and 3. ensuring that the workplace has the necessary tools, equipment, and other resources.
- C. Technical measures include: 1. increasing the speed of machinery and equipment; 2. using catalysts to reduce the duration of technological processes; 3. using machines and equipment to their full capacity; 4. improving manufacturing technology; 5. applying innovative technology; 6. and introducing automation, etc.
- D. Financial measures include: 1. improving the planning system; 2. controlling the accounting and utilisation of funds; 3. creating incentive systems to ensure maximising the efficiency of staff, and real estate use, etc.
7. Ways to increase productivity
One way to increase productivity is to increase the efficiency of using working capital. It depends on their turnover. The current assets of the enterprise are constantly in motion, forming a circuit. They go from the sphere of circulation to the field of production and to the field of circulation again. At the same time, working capital goes through three stages in a row: monetary, production and commodity. A system of interconnected measures defines the efficiency of using working capital. With the fixed funds invested in creating working capital, an increase in production volumes and product sales is achieved by increasing the turnover rate of working capital. Working capital costs can also reduce if production and sales are consistent.
8. Labour productivity is a deciding factor
Labour productivity affects the outcome of a company’s operations. A higher productivity level shows that the company produces more products in a given amount of time, resulting in a higher profit margin.
To achieve higher financial results, improve the working conditions of employees, and use highly efficient equipment and resource-saving technologies. At the same, maintain employee interest in achieving high-end results while also ensuring stable and expanding sales markets for company products.
9. Ways to improve production efficiency in an organisation
Productivity in a company is multidimensional. Any business should strive to provide a high-quality, competitive product that responds to the needs and desires of its customers. This task can only be completed by a team that works deliberately and consistently, as reflected in the following general organisational basic principles:
- Consistent, systematic and thoughtful work on organisational development at all levels;
- Interaction at various levels between the divisions of the organisation;
- Building and maintaining a motivated and efficient team, applying management principles that value human resources;
The primary aim of the company is to provide its functional subsystems, management and production system with the required human resources, equipment and customer base. Also, the enterprise should address the following issues:
- Recruitment; assessment; labour adaptation; incentives and motivation; training and certification; work organisation and office; staff utilisation; career advancement planning; talent management; safety and health; leadership, etc.
All activities of the organisation should contribute to the achievement of this goal. The organisation’s sub-goals can be subtracted from the primary goal. For instance, provide labour resources of a certain quality and quantity by a certain date, for a certain period, and for a specific job. In modern conditions, the increase in the organisation’s efficiency is achieved mainly through the development of innovative processes. These can be eventually expressed in new technologies, new types of competing products.
Therefore, ways to increase financial efficiency cover a set of technological, organisational and socio-economic measures based on which living labour, costs and resources can improve the economy, product quality and competitiveness. Important factors in increasing financial efficiency are:
- Reducing labour intensity
- Increase in labour productivity
- Reducing the material consumption of products
- Rational use of natural resources,
- Reducing the capital intensity of products
- Intensifying the investment activities of enterprises.
The primary condition for increasing financial efficiency is the effective improvement of the organisation of production, the effective management of implementing the necessary organisational and technical measures.