Efficiency versus Effectiveness

Guest post by: Steve Major
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MIND TRAP: Ignoring the Evidence - By Steve Major

Everyday we are confronted with the message to be more efficient. There's efficiency rating's on white goods, businesses produce reports about the efficiency of operations and divisions, governments focus on improving the efficiency of various departments. But they have missed the point.

The first criteria should be effectiveness, not efficiency. You can be awfully efficient at the wrong thing.

We could have the best measurement systems in place to measure the efficiency of the operations, but be producing the wrong thing or focusing on the wrong area. As a result, the business could fail, though it was highly efficient.

The efficiency movement started with Frederick Taylor in America where he implemented time and motion studies to improve the productivity of manufacturing operations throughout America, particularly for the car manufacturers. The focus was internal management and cost accounting, but it wasn't a question of whether this activity was effective, the question being addressed was efficiency.

Yes we need to improve efficiency of our business and of our government departments, but effectiveness first please.

To put it in a rather obvious, but often unappreciated way; most motor vehicles that we have at our home are highly inefficient. (Thanks to Ron Baker of Verasage.com for this example). No I'm not talking about when they are operating, but when you consider the amount of time that the motor vehicle actually is running, versus the amount of time that it is sitting idle at our home, workplace or the train station; there is no doubt the majority of its life is spent idle. For the majority of the motor vehicles life it is inefficient, but we as motor vehicle owners are willing to pay for that inefficiency, because when we want to go to a particular destination it is the most effective way to do so. We are willing to allow the inefficiency, so that the effective solution is available.

In business we need to have the same outlook. Sometimes we need to accept inefficiency to gain effective solutions or services. The mindless pursuit of efficiency can be the death knell of business.

The first question needs to be: - "What is the most effective solution, product or service?" We need again to refer to what matters to the customer. We must understand the customer and what the customer sees as success so we can design the effective solution. We could have the most precise, efficient internal operation, but if we are providing the wrong product or service, then the business has no future.

So why is it that so much focus is given to efficiency rather than effectiveness? The answer is simple, because it's easy to monitor efficiency; it's much harder to address effectiveness.

We need to take the time to ask the right questions to get to the root of effectiveness. Efficiency can be done through rules, processes and systems; whereas effectiveness is a much harder battle. Effectiveness takes a true and complete understanding of the customer.

It is only the effective business, the business that is concentrated on the effectiveness of its products and solutions that will survive and thrive.

3M and Google both have a percentage of their time devoted to free time for the employees to develop products or services. For Google this has led to Gmail, Google maps etc. Now this is highly inefficient, but it is very effective for building the future of the organisation.

The key lead measure of the business needs to be focussed around effectiveness of the business not the efficiency. What is going to build the future of our business does not come through efficiency; it comes through effectiveness.

To quote Ron Baker "The buggy whip manufacturers were highly efficient the day before they went out of business."

To use an Australian example Cob & Co Stage Coach had a near national presence. They operated through the eastern seaboard states of Australia transporting people between hundreds of destinations. Yet, with the advent of motor vehicles and trucks they disappeared. They were a highly efficient organisation, but because they weren't focused on what mattered to the customer and weren't considering their effectiveness, the company disappeared. They were delivering a transport solution, but they were looking at their business as a stage coach business and determining how to be more efficient.

In New York in 1905 there was an important environmental meeting held. New York had a big problem with horses.

Unfortunately horses leave manure, and in 1905 the city was under threat. The manure had got to the point of creating an untenable situation. How to deal with it? How to stop it getting into the water system? How to address the cleaning of it? It was an environmental problem of great proportions.

They called together experts from all over the country and they met for 5 days to determine what to do. 10 years later the problem didn't exist, the motor vehicle had taken over.

In 1905 the motor vehicle was in existence, but they were looking at the problem as a horse problem and determining how to be more efficient in the management of horses, rather than looking for an effective solution. An effective solution would have been to look at ways they could have encourage the population to use cars. (Yes I know this was to lead to another environmental challenge we are debating global at the moment.)

The pursuit of efficiency can lead to a tendency to pull each component part of the business apart and improve that sections efficiency. But there is interdependence between each part of business. That means that sometimes if we make an area each by themselves efficient, we actually decrease the effectiveness of the organisation overall. Some of the parts are actually less than the whole, because of this interdependency.

The interdependence of each part of the business must be considered in designing our measures/metrics. These need be designed with a view to giving an insight to the effectiveness of the business now and in the future. We need to be constantly asking the question of what is the effective solution for our clients and customers moving forward.

Now remember the efficiency pursuit started with Frederick Taylor in the US Car Makers. In 2008 & 2009 the US car makers had to be bailed out by the government and GM & Chrysler went bankrupt. This was not the first time in their history had they received government assistance. The pursuit of efficiency cost the business.

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MIND TRAP: Ignoring the Evidence - By Steve Major

About the Author: Steve Major

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A powerful, incisive and challenging speaker and insightful thought leader, Steve shows businesses how they can "get" the numbers behind their business, make savvy and smart decisions, escape from the information avalanche, and find, and intensely focus on the one number that really matters (and it is not the profit line).
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