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Monday, September 30, 2013

Efficiency and Effectivenes

Having taught for almost 12 years in the Business Graduate School at the University of St. La Salle in Bacolod City, the terms efficiency and effectiveness have always generated lively and intriguing discussions in Operations/Production Management and Human Resource Management courses.

The adjectives efficient and effective are very common terms related not only to productivity and work performances of managers and employees but also to work plans, systems and procedures.  However, most of us tend to mix their usages and meanings occasionally, so that maybe writing on this subject would be valuable to most of the readers specifically those who are in the management and labor sectors of both public and private organizations. 

But first thing first, let’s start with the definition of the terms efficient and effective.

Courtesy of snowyorange.com
The term "efficient" is defined as performing or producing a work effectively with the least minimum cost. The term is likewise manifested by a high ratio of outputs in relation to the inputs. To be efficient simply means to achieve an end result by using available resources such as machine, materials and time without wasting them in order to optimize work performance.

Therefore, organizational efficiency can be described as an organization that is productive of its available resources and will produce a product without waste and with the least minimum cost. It is interesting to note that the word "efficiency" as defined above incorporates the concept of effectiveness.

On the other hand, the term "effective" is defined as a state of accomplishing a desired or planned outcome. Further, an effective work performance is one that achieves the objective of a particular undertaking.  

Using the above definition, organizational effectiveness can be described as an organization that produces a desired effect or output. As an example, increase in profits is one measure of a company's effectiveness. The desired effect will depend on the goals of the organization, which could be, for example, making a profit by producing and selling a new product.

If an organization has both organizational efficiency and effectiveness, it will achieve its goal of making a profit by producing and selling a product at the least minimum production cost. In economics and the business world, this may be referred to as the maximization of profits.
From the above definitions, it is clear that both words are words of performance or productivity. For our discussions, the first definitions are apt. Efficiency is the state or quality of being efficient, or proficiency in work performance. Effectiveness is a quality and feature of as a result of doing the right decisions to accomplish an objective and achieve planned outcome.

From the management standpoint, efficiency seeks to do better on the current system or practice. It focuses on the operations/production costs. On the other hand, effectiveness focuses on what to do or the right decisions to take to exist and sustain a lead in a business competitive field.

Courtesy of executiveinabox.com
Peter F. Drucker, a 20th century Austrian author of many books on organizational management said that businesses should strive for effectiveness in contrast to mere efficiency. A quote from Drucker's book, The Effective Executive, says that "Efficiency is doing things right, effectiveness is doing the right things."

In both public and private organizations, it is extremely important for planners and managers to be both efficient and effective.

For example, if an efficient lawn mowing contracting company using manual lawnmowers can finish the lawn mowing job for a single football pitch in 2 days and a new contract requires only 3 days to mow 3 football pitches, then the current work capacity and efficiency of the company will not be effective for the said contract. Hiring additional workforce and purchasing additional manual lawnmowers or mini-lawn tractor maybe an effective way to meet the required deadline and achieve the result desired, but it is not likely to be an efficient way to do it.

An efficient manager ensures that the work is done in the right manner and the use of available resources at the least minimum cost, while an effective manager focuses in doing the right things by introducing other alternatives of resources to accomplish the company’s goal. As a result, it can be said that a worker, manager or system maybe efficient but not effective.

Allow me to illustrate further the same topic by recollecting the Battle of Thermopylae, where the 300 Spartans under King Leonidas and his more than 700 allies confronted the more than 20,000-strong army of King Xerxes of Persia who decided to invade Greece. In order to prevent the entry of the Persian forces to Southern Greece, the Spartans positioned themselves in Thermopylae, a narrow pass situated between the sea and a high mountain in Greece. On the first 2 days of the battle, the Greeks led by the Spartans, although outnumbered by 10 to 1, were able to defeat the Persian army who suffered the loss of more than 10,000.

In these episodes, the Greek army led by Spartan King Leonidas was efficient and effective in thwarting the attack of the Persian forces, considered as inefficient and ineffective in these 2 skirmishes.

However, after the Greek forces were outflanked by the Persians through a secret path in the mountain of Thermopylae, the Persians finally defeated the Greeks that resulted with the death of King Leonidas and his Spartan army and allies. Actual casualties for the Battle of Thermopylae are not known with certainty, but reportedly may have been as high as 20,000 for the Persians and around 2,000 for the Greeks. This will best illustrate the effectiveness of the Persian army in entering Greece through Thermopylae, their objective of the battle. Efficiency can never be attributed to the Persians who won a pyrrhic victory with the loss of its massive forces to achieve their goal.

The defeat of the Greek army in the Battle of Thermopylae illuminated the exceptional efficiency of King Leonidas and his 300 Spartans in fighting the battle but fell short of its effectiveness in preventing the Persians from entering Greece mainly because its full resources were not utilized in the battle. The Spartan Council prohibits the use of its army for religious reasons and the Greeks were not united during that period of time.

Most business managers are familiar with the distinction between efficiency and effectiveness. The most frequently used differentiation is that efficiency is doing something in the best possible way, while effectiveness is doing the best possible thing. But too many people emphasize the importance of effectiveness while downplaying the importance of efficiency. Nonetheless, both are equally important.

Effectiveness involves having a vision or mission, goals compatible with that vision, and a plan of action to achieve those goals or objectives. But efficiency is necessary to carry out the step-by-step action plan in the most economical, expedient way with a resultant quality consistent with the goal. A goal and plan are useless if the job never gets done.

Efficiency and effectiveness work in tandem; one is futile without the other. Sans effectiveness, we lack direction and shift away from the priorities, and neglect the 20% of the tasks which represent 80% of the total value, in reference to Pareto’s Law. On the other hand, without efficiency we experience the frustration of knowing exactly where we want to go, but see little progress in that direction. It can be considered a two-step forward and one step backwards process.

The higher the level in the organization, the more time a manager must spend in managing, and less time in the “hands on” principle of working. Therefore, effectiveness becomes more essential at higher echelons in the organization, while efficiency is critical at the “rank and file” and staff level. But even a Head of an organization should exert efforts in ensuring that efficiency never loses its importance.

In several management researches, time management experts advise us to be efficient but not at the expense of effectiveness, however this should not  mean that efficiency should be overlooked.
If you want an easier way to memorize the difference of efficiency and effectiveness, try to inculcate in your memory the following phrase: “To be efficient is about doing the things in the right manner and to be effective is about doing the right things.

Sept. 27, 2013
Dr. Rogelio G. Balo
Fresno, California USA

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