Lessons from the Recession: 4 Ways to Improve Operational Efficiency as a Small Business

As you may know, Canada is facing some economic challenges. The term recession has been thrown around by banks and economists – and that’s alarming. While we’re not officially in a recession, economic growth has slowed, bringing challenges for small businesses. So how can we protect ourselves? Can we learn from past recessions? 

What is a recession?

So, what is a recession, and how do we know if we are in one? Technically, a recession is two consecutive quarters of negative GDP growth. The last time Canada experienced a recession was in 2015, when oil prices collapsed. The official data for the GDP growth in 2022 and 2023 is not yet available, but some economists have predicted that Canada could enter a recession by the end of 2023 or early 2024. 

Now that we know what a recession is, let’s see how it could impact small businesses. According to Statistics Canada, there were approximately 1.2 million small businesses in Canada in 2019, accounting for 97.9 per cent of all businesses and employing 8.4 million people. As such, small businesses are crucial to Canada’s economic growth, innovation and social well-being. But as we all know, small businesses face many challenges and risks, especially during a recession. Here are some you might be familiar with: 

• Reduced demand: a recession could lead to a drop in consumer confidence and spending, impacting the demand for goods and services offered by small businesses.
• Increased competition: We may also see an increase in competition among small businesses, as they try to attract and retain customers by lowering prices or offering discounts and promotions.
• Reduced access to credit: small businesses could have less access to credit from banks or other lenders, as these agencies tighten their lending standards and require more collateral or higher interest rates.
• Increased costs: a recession could also increase the costs of doing business for small businesses, as they may face higher taxes, fees, tariffs, or regulations from the government or other authorities.
• Increased uncertainty: finally, we’re likely to see more uncertainty and volatility in the market and the environment, which could make it harder for small businesses to plan and strategize.

Recessions and operational efficiency

Let’s be clear: this doesn’t mean all hope is lost. Instead, this means that businesses may have to adapt their operations to the economic climate. Your first thought might be cost-cutting, and you’d be partly correct. But that doesn’t mean layoffs; in fact, the companies that emerged strongest from the Great Recession focused on improving operational efficiency rather than laying off staff. 

But what does improving operational efficiency actually mean? Operational efficiency is a business’s ability to deliver its products or services to its customers in the most cost-effective and timely manner. Broadly, it measures how well a business uses its resources to achieve its goals and objectives. In challenging economic environments, operational efficiency can significantly boost a small business’s profitability and competitiveness. 

You can improve your operational efficiency and optimize your performance in many ways. Below, we’ve listed some of the most common and effective strategies. This isn’t an exhaustive list – it’s a place for you to start and find which strategies fit your business. 

How to improve operational efficiency

1. Streamline and automate business processes.

One of the key factors impacting operational efficiency is the quality and speed of business processes. Business processes are the activities and tasks your business performs to deliver its products or services. By streamlining and automating business processes, small businesses can reduce errors, waste, delays, and costs, and improve quality, consistency, and customer satisfaction. Some examples of streamlining and automating business processes are: 

• Using software tools and applications to manage accounting, invoicing, inventory, payroll, HR, marketing, sales and customer service.
• Implementing online platforms and systems to facilitate communication, collaboration, and information sharing among employees, customers, suppliers, and partners.
• Adopting cloud-based solutions to store and access data and applications from anywhere and anytime.
• Leveraging artificial intelligence (AI) and machine learning (ML) to analyze data, generate insights, and provide recommendations.

2. Implement lean management principles.

Lean management is a philosophy and methodology that aims to eliminate waste and maximize value in business operations. Waste is anything that does not add value to the customer or the business, such as defects, overproduction, waiting, inventory, motion and transporting. Value is anything that the customer is willing to pay for, or that contributes to the business goals and objectives. By implementing lean management principles, small businesses can identify and eliminate waste in their operations and focus on creating value for their customers and stakeholders. Some examples of implementing lean management principles are: 

• Applying the 5S method to organize the workplace and ensure that everything is in its place and easy to find.
• Using the PDCA (Plan-Do-Check-Act) cycle to continuously monitor and improve business processes and outcomes.

• Applying the Kaizen approach to involve all employees in identifying and solving problems and implementing improvements.
• Using the Kanban system to visualize workflow and manage inventory levels.

3. Invest in employee training and development.

Employees are the most valuable asset of any business. They are the ones who perform the business processes, interact with the customers, and drive results. Therefore, investing in employee training and development is essential for improving operational efficiency and enhancing employee performance, productivity, satisfaction, retention, and loyalty. Some examples of investing in employee training and development are: 

• Providing regular feedback and coaching to employees to help them improve their skills and competencies.
• Offering online courses, webinars, workshops, seminars, etc. to employees to help them learn new knowledge and techniques.
• Encouraging employees to pursue certifications, degrees, or other qualifications that are relevant to their roles or career goals.
• Creating a culture of learning and innovation where employees are motivated to share best practices, ideas and suggestions.

4. Monitor and measure operational efficiency.

The final step in improving operational efficiency is to monitor and measure it regularly. By tracking key performance indicators (KPIs) and metrics related to operational efficiency, small businesses can evaluate their progress and performance against their goals and objectives. They can also identify gaps, issues, challenges and opportunities that need attention or improvement. Some examples of monitoring and measuring operational efficiency are: 

• Using dashboards and reports to visualize data and trends related to operational efficiency.
• Conducting surveys or interviews with customers or employees to collect feedback on operational efficiency.
• Performing audits or assessments on business processes or systems to check for compliance or quality standards.

• Benchmarking against industry standards or best practices to compare operational efficiency with competitors or peers.

Critically, improving operational efficiency isn’t a one-time event; it’s an ongoing process that requires constant attention and effort. By applying some of these strategies consistently and continuously, you can enhance your operational efficiency and achieve better results for their customers and themselves.