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The Struggle Between Efficiency and Effectiveness

Business books, magazines and newsletters are full of recommendations about becoming more efficient. They talk at length about the importance of the bottom line and incremental gains from reengineering and total quality efforts. And they talk about how technology can provide a real boost in efficiency.

But with all this talk about efficiency, are we losing something in terms of being effective? To distinguish between effectiveness and efficiency, a brief definition should help. Effectiveness is doing the right thing. Efficiency is doing things right. These simple definitions point to a clear distinction that has major implications for businesses of all sizes. The implications arise from the difficulty in balancing both efficiency and effectiveness.

With the pressure to constantly be as efficient as possible, an organization can get caught up in focusing too much on reducing process time and/or the number of employees and not enough on what makes sense for the organization. For example, suppose a distribution company decides that it is taking too long to process orders because there is an additional review step in place to ensure that the order is accurate. But often times, orders get backed up slightly for shipping because the people doing the additional accuracy check on outgoing orders fall behind. So the decision is made to eliminate this additional step and at the same time save some money by eliminating two positions. This is done in the name of efficiency because orders will go out faster which has some real merit. But the result of eliminating this additional step is a significant increase in incorrect orders being shipped. The impact of this is additional time dealing with more customer complaints, additional picking and restocking time, additional costs of returned shipments and, above all, customer ill will.

This example illustrates how doing the right thing is often overshadowed by doing things right. What employees often view as being efficient can many times impact the company negatively. This is why it is important for management to create an environment where employees are encouraged to look for ways to become more efficient, but do so without degrading the level of customer service and quality.

Bringing a balance between efficiency and effectiveness is one of the critical jobs of any owner or manager. In the above example, the company might have been realizing a competitive advantage because it was shipping orders with a higher degree of accuracy than its competitors. When it decided to save some money by streamlining a process and eliminating some positions, it lost that competitive advantage. And in terms of saving money, any savings realized from the streamlining were in all likelihood given back several times over.

It is important for businesses to constantly look for ways to do things right….to become more efficient. But it is equally important that decisions along those lines be made by asking questions about the impact on quality, customer service and employee morale. Bad decisions relative to efficiency can very often have a negative effect on all three of these variables.

With regard to technology and efficiency, does the addition of new technology to any process have a positive impact on these variables? Business processes and what’s good for the customer should drive the implementation of technology. Technology should not dictate how a process gets defined. Start with the customer and work backwards. Define the process based on the best way to serve the customer and the best way to accomplish tasks. Once the business process is defined, match the technology to the process. When technology is allowed to drive the business, things tend to get forced to fit and the customer, productivity and employee morale with often suffer.

We can safely say that balancing efficiency and effectiveness is not easy. But it is important for organizations to stay focused on the long-term impact of all decisions. Yes, short-term performance is important, but if it takes precedence over long-term viability it could lead to a decline in performance over time.