Efficiency

Efficiency improves cash flow by performing business processes better, faster, or cheaper than the current operation. Doing things better results in superior quality, such as lower defects in manufacturing environments. In a service environment one result could be better customer service.

Performing business processes faster can refer to the time to make a car or to approve a loan. Doing things faster must result in consumption of less resources or a lift in revenue to improve cash flow. For example, a furniture company buys new equipment that reduces labor costs by cutting down the amount of time it takes to build a table. The important thing to remember is that reduced time does not necessarily reduce costs. An illustration on the revenue side is cutting product introduction time. Introducing products faster can improve cash flow by improving profitability (the difference between benefits and costs).

This value proposition can also be justified by reduction or avoidance of costs. Costs are defined as operating and investment costs. Operating costs are costs associated with the maintenance and operation of a business. These costs are generally referred to as expenses and are found on the income statement of a business. Cost of goods (raw materials), labor, and maintenance contracts are examples of operating costs. Investment costs are those that create assets. These costs are found on the balance sheets of businesses: capital expenditures (purchase of buildings and equipment), capitalized intangibles (purchase of software, goodwill, or patents), and working capital (inventory and accounts receivable). Value propositions centered on efficiency are easier to measure and to quantify than repositioning and RIM.