Organizational efficiency can be described as the organization’s ability to implement its plans using the smallest possible expenditure of resources. It is crucial to achieve efficiency in an organization no matter if it is a start-up, growth-stage or mature. It is the key in building and managing healthy and successful organizations. As stated in the definition, there are 2 important keywords: planning and execution.
The first step is planning. Most mature organizations have the planning process in place whereas start-ups or growth phase companies usually do not. The reason for it is mostly the fact that start-ups or growth-stage companies focus on building a product/business from scratch and growing it. While doing this, their plans may change everyday with the new developments in the product, market or customer base. They do a lot of trials, tests and change their product strategy accordingly. Dealing with all these complications and changes, most start-ups do not consider the planning process as a priority. But it is of high importance for building a sustainable business. As a start-up, you have limited resources; and without planning you can’t know how much to allocate to each area or when you will be out of cash or have a positive cash flow.
If you are thinking about starting your own business, you need to have a realistic business plan. I have seen many business plans where expenses are understated or revenues are overstated. For example, the most common mistake is miscalculating payroll costs. This indicates how important it is to know how much fixed costs you will incur to start your business. On the revenue side, market growth rate is one of the inputs that we need to be careful about. For example the growth rates for emerging economies are assumed to be higher compared to developed economies.But there are also risks that need to be taken into consideration and these risks may create ups and downs.
The second step is execution. You built a planning process, you finished the annual plan for next year. What’s next? The plan is the target you want to achieve and you should continuously monitor the performance against the plan and take necessary actions on the way. In the previous paragraph, I mentioned that most mature organizations have the planning process. But if you ask whether they are effectively executed, I am not sure. People generally tend to make a plan but miss to monitor it, which leads to a waste of time and resources. I have worked in very big organizations and saw many examples where the targets are missed by 30%-40%. If you achieve 60% or 150% of your target, it means that either something very extraordinary happened in that specific period or you have problems in your planning or execution. You either can not make realistic plans or there is mismanagement.
There are several steps to monitor the performance against the plan. First, you need to have KPIs (key performance indicators) which are clear and measurable. Second, you need a reporting process to compare the actual vs targeted KPIs. And third, you need a performance system where the people are evaluated and incentivized according to their results.