What does operational efficiency look like in 2016?

Guide

What does operational efficiency look like in 2016?


Whether your sector is poised for exponential growth or staring down competitive pressures, the secret of highly successful firms is remarkably similar: operational efficiency is the key to higher profits.

Macquarie's most recent benchmarking reports into the legal and strata industries highlight this trend. High performing legal firms are investing in technology to simplify systems, and liberate staff to work more flexibly. High profit strata management firms have improved staff productivity to spend proportionately less on salaries – even as they grow.

So what are these firms doing? Given the rapid pace of change in available technology – and staff and client expectations, the benchmark for what operational efficiency means has shifted. In its first SME Business Efficiency survey, OKI Data Australia found just 54 per cent of organisations with six to 20 staff felt they were running efficiently – and that it was harder to keep a profitable lid on expenses as they grew.1

Ready to capitalise on growth

"With 36,000 new apartments every year in Melbourne alone, strata firms are going to need to add hundreds of skilled staff to meet demand – or change their business model," says Tim Mackenzie, National Head of Strata, Macquarie Business Banking. Stretched businesses will struggle to keep pace unless they have systems to scale their service profitably.

"We're seeing the best performing businesses separate account management from service delivery (such as dispute resolution), to create a business focused more on proactive relationship and service," he explains.

He gives the example of a firm that has tripled in size over the past five years, but by defining specific tasks and roles and using technology to replace and automate repetitive processes this organic growth has been profitable. "The technology helps them maintain workflow, even if someone is away, so for the client it's seamless. All documents are scanned and accessible from all their offices. With Invoice Express alone, 1.5 staff were freed from invoice management to spend time in customer-facing roles.  

Time to power a new kind of practice

The legal industry is less bullish about growth, with downward pricing pressure the number one challenge facing the industry. "When profitable growth is tough, efficiency is the obvious lever to pull," says National Head of Legal Segment for Macquarie Business Banking, Ian Marshall. "The need to lower back office costs has amplified over the last few years – so the key question is what can you outsource or automate?"

He says outsourcing legal processes (such as litigation discovery or document review) is relatively new in Australia, but with examples like IBM's Watson algorithm to take away a lot of the manual work of going back through precedents and case law, we could be at a tipping point for technology in law.

"If you look at the number of technology conferences for this sector now, compared with just a few years ago, it's clear how far we've come. It's not just about a practice management platform or basic dictation solutions anymore," says Marshall.

So where, at a bare minimum, should you be investing your technology dollars?

1. New ways to simplify and automate

"Start by looking at the pain points in your business," advises Marshall.

"Map out all your back office processes because that's the lowest hanging fruit. For example, a lot of firms struggle with working capital – getting receivables paid on time. Simple things like automating invoice reminders through your CRM (customer relationship management) or practice management system can make a difference – or using DEFT to give clients more options to pay."

Mackenzie agrees. "What can you automate, what's repetitive and mundane? You need to be constantly looking for ways to do more with less – without compromising client experience." He points to automated payables systems such as Invoice Express as a way to streamline administrative work.

2. Create a platform to be an 'employer of choice'

A bonus benefit is improved staff engagement. "If you take away those boring, repetitive tasks, and make your workplace more flexible, staff are happier. They'll tell others in the industry – making recruitment easier," says Mackenzie.

Given 78 per cent of high profit strata businesses say 'retaining quality staff' is the top factor impacting profit, this is definitely a win win. They're also spending less on salaries – 55 per cent of total spending, compared with 63 per cent for low profit businesses.2

Marshall suggests using new technology to rewrite the way you manage their KPIs, particularly if you want to upskill and empower all staff to contribute to business development. "Look at using performance dashboard apps for staff, and look beyond billable hours metrics to things like referrals and other business development initiatives," he suggests.

3. Re-work your business model

Whether you're shifting your business to focus on higher value-add services, or fixed-fee commoditised packages, you'll need efficient processes and platforms in place.

Most strata firms already have digital platforms where clients and staff can interact. Just over half have an online platform that allows staff to work from anywhere, and 55 per cent share documents online. New law firms are also more likely to do this – 34 per cent of firms less than four years old collaborate with clients online.3

Mackenzie says freeing up time also provides management with what he describes as 'balcony time' – "big picture thinking, where you can draw on all the experience in your business to consider what else clients would like you to do." He is seeing some firms add services such as property management, energy and facilities management, or even online delivery management.

When profitable growth is tough, efficiency is the obvious lever to pull. The need to lower back office costs has amplified over the last few years – so the key question is what can you outsource or automate?

Ian Marshall

Tools of the trade

Make sure you check off at least some of the following criteria for true operational efficiency in 2016 – and beyond:

  • does it integrate with your management software? Avoid double data handling.
  • does it offer secure mobile or cloud-based access for flexible working – at home, with clients or on site?
  • will it automate repetitive workflow, such as receivables, payables, case management and contracts?
  • can it give staff (and clients) access to paperless documents?
  • can it help you capture data insights? For example, a CRM that gives you a complete client picture to help you cross-sell services, or streamlined budget data for better AGM (annual general meeting) preparation.
  • how will you measure its return on investment? Time and salary savings are relatively simple to check, but what about client or staff engagement and improved loyalty?

Strong, simple systems and new business models are increasingly important if you want to scale growth without eating into your profits.

If you're busy keeping up with accelerating demand, as strata managers currently are, it's an investment that should pay back within one to two years. And if you're worried about low-cost competitive pressures, it's vital for keeping costs under control while meeting changing client expectations.

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This material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.