Moving towards greater operational performance is a priority for many businesses selling their digital services. Some would say that this sounds easy enough. However, many companies find operational performance improvements more challenging than they anticipated.
One reason why businesses find improving operational performance more difficult than they think, is because they limit their focus to the income and expenses alone. Although gross and net income provide you with a picture of your business’s health, it tells you nothing of how efficient or effective you are operating day-to-day.
In essence, there’s much more to improving operational performance. You need to look at people, processes, and systems to set clear operational performance goals and build out a strategy to achieve them.
In this article, we inspect operational performance from A to Z, describe what it really stands for, what objectives drive it, and what measures one can take to improve.
- What is operational performance?
- Operational performance objectives
- How to improve operational performance
What is operational performance?
Operational performance can be best explained as the synergy between various company units and the ability to produce greater output together. In other words, it is the level where all business departments collaborate to accomplish specific business goals. Hence, operational performance management, otherwise known as OPM, aims at aligning those departments to ensure that all employees work as a collective, safeguarding the company’s interests and moving the boat in the direction of core business goals. Operational performance is, therefore, a general term that can also summarize all the activities you engage in to make sure every department is productive both individually and in combination with others.
Operational performance objectives
One of the biggest mistakes businesses make is failing to break down operational performance into specific objectives.
According to Andy Neely, author of the book “Business Performance Measurement: Unifying Theory and Integrating Practice,” there are five main operational performance objectives: speed, quality, cost, flexibility, and dependability. But what is the meaning of performance objectives in this context?
In short, it is about the operational performance goals that companies plan, manage, and execute on their way to success. These goals mean to answer a few simple questions: Is the company’s performance as good as it can be? Are all teams living up to their potential and collaborating for the greater good of the business? Is there something that is yet to be improved in the way the company functions internally?
As a rule, there is a set of operational performance metrics in place for businesses to easily measure and improve their operational efficiency and performance. Let’s then take a closer look at those objectives and what they mean to professional services firms.
In the age when time is money, speed has a major say in customer loyalty and decision-making process. The faster the client, be it a B2B or a B2C setting, gets the product or service they came for, the more likely they are to leave with a smile on their face and come back later for another round of cooperation.
Fast delivery always indicates that the company is doing a very good job at planning and executing their operational strategies. However, although speed is one of the primary objectives businesses go for when developing their performance improvement management, sometimes the cards can be stacked against you.
For example, a recent report by McKinsey indicates that it is considerably easier for small and medium-sized teams to optimize their performance speed — they have better quality and schedule adherence and are more likely to have normalized project delivery time. This is not to say that larger teams should skip speed as an operational performance objective altogether. Instead, they need to be ready to think outside the box and find creative solutions to optimize their performance.
This objective is also self-explanatory. It points at the level of quality of products or services certain companies provide and uncovers how satisfied customers are with what they get for the money they pay. In every business and industry, the very notion of quality has a different meaning for the simple reason that you measure different things.
For instance, if a company manufactures products or goods, the quality of their operational performance is firmly attached to the products they deliver to the end customer. Does the product have defects? How many products with defects are there in a single batch? And so on. With a professional service company, however, it is an occasional operational performance review left by a customer that can give an indication of service quality.
Increasing profit margin is one of the ultimate goals for many businesses and there are two common ways to reach it. In the first scenario, strenuous efforts are imperative — you need to rethink and optimize many internal processes that drive operational performance. The second option involves less performance improvement planning and more cost cuts.
When lowering the cost of certain business operations, you can both increase the profit margin and make your service more affordable for the end customer, which, in turn, increases competitiveness. What effect those cuts in business costs are going to have on the quality of the service or product you deliver is, however, worth pondering about too.
In business-speak, flexibility shows a company’s ability to respond to change and adjust operations on the go, should the situation ask for it. Suppose you see room for a new feature or a new type of service based on the needs of your target audience. Being able to accommodate those needs shows the level of your operational excellence.
Another situation where showing operational excellence can be positively received by the customer arrives when there is a new project requirement midway and you, as an operational performance leader, adjust the project accordingly. However, it’s crucial to see the line between showing flexibility and welcoming scope creep to come over for a cup of tea. Watch out for too much of a good thing so to say.
Last but not least, dependability is an integral operational performance objective because it can either increase or decrease the trust your customers give. The level of dependability shows how likely the business is to meet the commitments and promises it gives to the end customer. To illustrate, suppose a company promises their client to build software within 5 months. Whether or not the company acts upon that promise and actually delivers the software within 5 months will show its level of dependability. A low operational performance indicator here will be a red flag for the customer and a reminder for the business that it is time for a change.
How to improve operational performance
The truth is, there is no rule book for you to follow when upgrading your operational performance. This process is always custom-made and needs to match the specific needs of individual businesses. However, here are some common steps you could take to see a considerable change in performance levels fairly soon.
1. Carry out operational performance analysis
As with many other improvement processes, the first thing you do is research to identify your weak spots. Conduct an analysis of your operational performance indicators to find out what areas of your business ask for some additional time investment. Next, come up with a solution to meet the needs of the departments that are lagging behind in their operational performance or devise a strategy to help different departments synchronize better.
2. Foster the right culture and employee engagement
People buy from people so when it comes to selling services, it is primarily the quality of person-to-person interaction that makes a company. This is why fixing your internal culture can have a very positive impact on cross-departmental collaboration too. In our recent webinar titled “Culture eats strategy for breakfast”, a group of top C-level executives came together to talk about the power of culture and the effect it can have on the overall performance and accountability of the group. Among many insightful ideas worth noting were:
- Build teams rather than companies — a team consists of employees, customers, partners, etc.
- Embrace openness and vulnerability — people are allowed to have rough days
- Identify the values you need to see in your team — it’s not just professional performance that matters.
3. Double down on business process management
The way you handle business processes, aka your business process management, is also a definitive factor that often impacts the status of the company’s operational performance. What are some things you could change about business processes to promote healthier cooperation between all business units then? Here are a few ideas:
- Reinvent your resource management practices — maximize their effectiveness
- Optimize internal and external processes to increase response time across all units
- Build new agile strategies to meet the changing requirements of the business and its customers
- Increase customer satisfaction
- Speed up your journey from initiating a type of service to presenting it on the market
4. Organize your data
Even when you’ve managed to gather the numbers, tracking how they relate to the actual operational performance is tough. That is, each operation turns out to be a black box: inputs go in, outputs come out, and little analytical attention is paid to the inner workings of the transformation process. Some people explain this with the concept of dark data. As Gartner defines it, dark data stands for all the information assets you collect and keep for compliance purposes, but fail to use for things like business relationships or analytics. In this case, it is the data you already have access to but don’t use to improve your operational performance measures.
5. Establish a relationship of trust
By and large, the very definition of high operational performance is dependent on trust between employees and their employer. When employees feel they have more freedom and trust to do the best they can in their role, their level of intrinsic motivation, engagement, and responsibility flies up. Interesting fact, a recent study found that at “freedom-based companies”, as many as 70% of employees are “engaged”, while at companies with more orthodox management styles, only 33% of employees are “engaged”. Naturally, this engagement is directly linked to the quality of operational performance. We have recently talked to RedSprout Media, an agency that has implemented a “work anywhere, anytime culture”, and found out that what helped them build this relationship of trust was “a key piece of software, Forecast”.
6. Level up your capacity planning
Contrary to popular belief, working long hours does not equal higher operational performance. When employees are overbooked and need to work from dusk till dawn, their productivity and performance crawl at a snail’s pace. This means that not doing proper capacity planning will backfire both for people and the companies they work for. To forestall this danger, consider using a Heatmap to always have easy access to your teams’ availability and know who is about to get overbooked or is already missing out on their work-life balance. Here’s what that Heatmap looks like in Forecast.
7. Leverage PSA software
There’s only so much you can do unaided, with no tech solution to bring more visibility into your projects and processes. Among other things, technology can rid all team members of the administrative work they waste their time on or at least keep them in the loop as to what is going on with what task, milestone, or project in general. It will not only help you measure your company’s operational performance, but will also point at the weak spots and generate ideas on how to make lemonade out of lemons. Luckily, there are lots of PSA software on the market today so you can choose the one that makes the best fit with your business needs.
Operations performance management can be a daunting task for many organizations. Even if you have access to rich and detailed operational data from diverse resources, you might still struggle to properly harness its potential to improve performance, remain stuck with analyzing the same information annually, and preparing reports from the same business-as-usual solutions. But the modern fast-paced business environment asks for agility, constant change, and creative solutions. This is why keeping an open mind and looking beyond the numbers can yield solid results when it comes to upgrading operational performance. If you want to see what role technology has to play in it for your business, think about starting a free trial with Forecast.