On Effectiveness and Efficiency and Their Repercussions

I have said that a well-managed organization is effective and efficient, in both the short and the long term.It is interesting to note that some languages do not have a literal translation for the words “effectiveness,” “efficiency,” or both. Hebrew, for example, has a word for “efficiency,” but to communicate “effectiveness” they use the word “purposeful,” which, as I will explain below, is not literally accurate because not all purposeful systems are necessarily effective.Russian, on the other hand, has a word for “effectiveness,” but not for “efficiency”; to communicate “efficiency,” Russian translators use the words “organized” or “productive” instead. Neither is truly accurate, because getting organized is only one means of becoming efficient, and not all productive systems are necessarily efficient.To add to the confusion, it seems to me that the meaning of these words is not even clear in English. At least not to me.If we want organizations to be effective and efficient, we must first clearly define what that means.What is ‘efficiency’?“Efficiency” is the way in which you carry out a process. It is measured by how many units of input are needed to produce one unit of output. A system is efficient if it can carry out its process with the minimum energy possible. To become efficient, you need to get organized, systematized, and programmed.To be efficient means to follow a process that uses the minimum energy and minimizes the waste of energy. Efficiency is the result of following the right form. There is no room for mistakes. When you use a system that was designed for efficiency, there is no learning process involved. You just have to follow the programmed, prescribed system, which tells you in detail where, when, how, and with whom to do what. You do not have to think or innovate or make choices. As a matter of fact, the more efficient you want to be, the more you must avoid making choices and innovating.Thus, the more efficient you try to be, the less you will innovate and the less effective you will be in the long run.What is ‘effectiveness’?To be “effective,” on the other hand, means to produce that for which the system was established. It means to provide the desired function. To become effective, you need to try out different solutions until you find the right one. Thus, by definition, you have to make what most people consider “mistakes,” but what I consider to be a necessary step in becoming effective. Nevertheless, making choices involves making mistakes, and mistakes do waste energy.Furthermore, for effectiveness in the long run, you must innovate, because clients’ needs change over time.Can you measure an organization’s effectiveness? Many people believe that sales are an accurate gauge. Not true. The correct measurement is: “Are the clients coming back?” This applies to anything. It even refers to monopolistic organizations where people do not have a choice – although in that case, the question should be: “If the clients had a choice, would they come back?” If the answer is no, then the organization is not effective. Clients are like intelligent animals who know where the watering hole is. They are not going to come back to a dry watering hole.The efficiency/effectiveness trade-offCan a system be effective without being efficient?Yes, it can: The organization reaches its goals – but uses excessive resources and/or energy in order to do it.Can a system be efficient and not effective? Sure. I can practice hitting a tennis ball from one spot on the tennis court until my movements are perfect. Now that I am so efficient, I tell my opponent: “Send me the ball right here!” and I hit only the balls that come to my racquet; if they do not arrive in precisely the right place, they are missed.For example, take an organization in which everything is well organized and documented into manuals and standard operating procedures so that everyone knows what to do and when and how to do it. The system is fully in control of everything so that there is no waste of energy.The organization follows its rules and policies religiously, but it satisfies few needs – because the needs have changed over time, while the operating systems have not. The result is that clients are made to fill out useless forms and to wait a very long time for products or services.In this example, the organization is not serving its clients well. The organization is ineffective, even though it is following the procedures as designed for efficiency.That is called a bureaucracy.How does this happen? How could an organization become efficient and lose its effectiveness?To be effective, the organization needs to satisfy its clients’ needs – which change frequently, much faster than the time it takes for the company to reorganize itself to satisfy those needs efficiently. By the time the organization has reorganized to stay efficient, its clients’ needs will have changed again.The higher the rate of change, the smaller the chance that effectiveness and efficiency will be synchronized.In a changing environment, the needs will either be satisfied but inefficiently, or the organization will try to preserve its efficiency by refusing to change its products or services – which will make it efficient, all right, but not effective.The higher the rate of change, the more efficiency organizations have to sacrifice in order to be effective. If they are not willing to sacrifice efficiency, they will have to sacrifice effectiveness.Now, the bad news …It is easier to sacrifice effectiveness than efficiency. Why? Because reorganizing a company to remain efficient in a changed environment means making organizational changes – and that means stepping on some people’s toes. As Machiavelli said (I am paraphrasing): If you want to be hated, try changing people. In other words, it is easier to sacrifice clients’ needs than to get into intra-organizational political battles.So, the faster the rate of change, the greater the chance that the world we live in will become more and more bureaucratized. Doesn’t that make you optimistic about the future?