Have you fully cracked the efficiency code?

January 12, 2024Sources of efficiency—or put simply, finding ways of doing more with less—are still well within reach by improving your approach to managing time, resources, and technology. As organizations focus on planning efforts for 2024, it is tempting to jump to some of the headline grabbers of 2023 such as generative AI. And as important as it is to consider big bets in new technologies across the operations value chain, there may be sources of value in your core operations that are up for grabs.

Indirect functions, such as planning, engineering, and maintenance, are the backbone of a manufacturing company’s organizations. Get them right, and you’re ready to respond with speed to changing market conditions and challenges. This recent article explores how a focus on indirect operations could unlock a 15 percent to 25 percent optimization potential in indirect functions, which can translate to a sizable impact on the bottom line.

With so much potential at stake, why are indirect operations often overlooked as a source of efficiency? Across a production network, each site may have its own processes due to site-specific constraints, which can make standardization hard. Factor in the number of processes that take place within these functions, and sticking with the status quo can seem much less daunting. But ignoring these opportunities for efficiency could be a mistake, leaving large amounts of value on the table.

Benchmarking provides the starting point for understanding the opportunity. And once that effort has been completed, the following seven typical drivers can provide the most impact in creating efficiencies in indirect functions.

1. Reducing demand. Decreasing the number of work packages, reports, and meetings can have a typical impact of 5 percent to 15 percent.
2. Consolidating and outsourcing. Adjusting the scope of responsibilities between local, central, and external roles can create an impact of 5 percent to 10 percent.
3. Optimizing process efficiency. Streamlining processes and tasks can result in an impact of 5 percent to 15 percent.
4. Implementing stringent performance management. Ensuring optimal delivery of core activities while monitoring continuous-improvement efforts is essential.
5. Digitizing. Introducing intelligent systems, such as robotic process automation to replace manual work, can achieve an impact of 20 percent to 50 percent.
6. Optimizing organizational structure. Removing overlaps, decreasing the number of layers, and adjusting spans of control can have an impact of 5 percent to 10 percent.
7. Developing capabilities. Improving team members’ skill sets, particularly versatility and productivity, can result in an impact of 5 percent to 20 percent.

Beyond production-related indirect operations, there are new sources of value to be found in ever-squeezed HR and finance functions, as well as other back-office operations. And it’s here that efficiency and (cost) effectiveness can work hand in glove, disproving the previously held belief that focusing on efficiency could damage effectiveness, and vice versa.

Our research found that companies that have higher maturity ratings against six key dimensions of effectiveness—and with notable overlaps with the seven drivers of efficiency in indirect operations—are also able to achieve greater efficiencies (in the shape of cost savings). Such companies demonstrate to other companies how to prioritize investments and more effectively sequence interventions to improve performance.

The prioritization of the six dimensions (listed below) will vary depending on the function where efficiencies are being sought. For finance functions, process optimization and digital transformation had the biggest impact, while for HR, strong demand- and capacity-management practices and optimizing the function’s operating model were the most important dimensions.

1. Function strategy. Align each function’s scope and role to the business’s strategic value-creation agenda.
2. Demand and capacity management. Focus the function’s work on the highest-value activities while providing just-right staffing levels.
3. End-to-end process optimization. Design, manage, and refine processes to optimize user experience, expedite workflows, and achieve desired outcomes as efficiently and seamlessly as possible.
4. Talent development and deployment. Source, develop, manage, scale, and retain the internal and external talent and capabilities needed to support the business.
5. Agile operating model design. Build effective, agile, resilient organizations in optimal locations to drive economies of scale and skill while retaining the ability to manage fluctuations in volumes and requirements.
6. Digital transformation. Increase productivity and insight generation by reimagining work via AI, analytics, automation, data, and robotics.

As businesses finalize their plans for the coming year, the knowledge that reducing costs and improving efficiencies often go hand in hand is invaluable. By finding areas where things work well together and taking a smart approach, leaders in both indirect and corporate functions can free up even more capital, liberate resources, and increase the value they provide to their organizations.