Managing efficiency vs effectiveness
Efficiency versus effectiveness
As managers, what methods and practices do we bring to how we design and manage organisations? We all want to make a difference, to improve things, to cut costs and boost profits. We want to do a good job. How do we know how to do that? It is somehow inherent in us, or do we learn it?
I am going to highlight two basic ways that we can approach this task; by improving efficiency or effectiveness.
Efficiency
One common change action we look for are efficiencies. By making things more efficient, we cut costs, we improve. Typically, to make efficiencies, we identify problem areas, and analyse them in detail. We pull them apart, and see how we can cut out or simplify something.
When we have achieved this change, we put the results of the improvements into our spreadsheet, and we are satisfied by its contribution to the bottom line. What’s wrong with this way of problem solving and improving?
Effectiveness
But what about the real impact that this efficiency change has had? What we have not noticed is that this change has caused some extra work to be done by someone else in another department. It has also created increasing rejections and rework of some communication between department and additional admin.
The change has also simplified the way that some customers interact with the organisation, and as a result, some of those customers are getting a more negative experience of the service.
Improving one part of an organisation will often mean that we have changed other parts, of the way that we interact, and reduce efficiency in those other areas. That manager has been working on the assumption that increasing efficiency is the same thing as improving effectiveness. And in this situation overall effectiveness both across the organisation and for the customer, has fallen. This has led to more work, and less customers over time. If that manager had a perspective of the value that the activity that they had changed had, they would have made different decisions.
An example is if we wish front line staff in the contact centre to be more efficient — reduce costs, by taking more calls. So we measure call handling time, and give those operatives a target to meet. What happens? the failure calls, or calls that are repeated increase. Always.
It reminds me of the quote:
‘We know the price (cost) of everything, and the value of nothing ‘
It is very easy to identify and measure cost, it is much more difficult to identify and quantify value.
Efficiency is usually about reducing problems in a particular place in an organisation. Usually we measure this through costs, KPIs, numbers of, averages, etc
Effectiveness is about understanding how well we are working, and the contribution that we are making to the purpose of the service to the customer. For those of us in an organisation, not only do we not usually measure this, we are often not aware of it. But our customers are keenly aware of this and thats why they come to us, or our competitors!
Our focus
Both are totally different things., therefore the concepts and activities we apply to deal with both efficiency and effectiveness are different to each other. A reductionist mentality of solving individual problems (efficiency) is very different to understanding how things work (effectiveness). Therefore we can’t really do both at the same time. We have to use different methods.
Now here is an interesting thing, when we focus on effectiveness, then we should also look at the causes of cost. Causes of cost are what creates cost, therefore effectiveness should also reduce costs to the level they should be at. So it can be said that efficiency becomes an outcome of working on effectiveness — which is usually the case.
Consultants
Beware, when an organisation gores to a consultant, with a problem and the consultant is expected to ‘remedy’ the problem, then the great majority of cases the solution will be around the efficiency of the situation. Whilst initially this might seem what is required, in reality this often does not provide the underlying effectiveness. This is one of the reasons why consultants have a bad name.
Digital
In the UK digital Service Design (SD) is popular. If we actually look at the tasks that external SDs do, they are predominantly products. Implementing these often solve a problem, but the effectiveness of the overall service often drops! In the UK local government, the implementation of a digital front end has often been at the expense of people with complex needs being pushed away.
Improving the performance of the parts of a system taken separately will necessarily improve the performance of the whole. False. In fact, it can destroy an organization
Russ Ackoff
Definitions of Effectiveness
Effectiveness is measured by understanding elements of work like value creation and waste work. By understanding value and how we have designed operations around that, we can then begin to get a good sense as to why the problems we have exist, and then take steps to reducing those. This systemic change drives the improvement.
In summary I have added in some comments from Linkedin responses:
From Tony Gradwell efficiency = “doing things right” = following process accurately. Of course, processes can embed redundant steps. Effectiveness = “doing the right things” = reducing non-value adding activities whilst focusing on those that do. The ideal is “to do the right things right”.
From Sam Spencer 💚 I see it as a relationship between the two things.If you can learn to become more effective, you’ll become more efficient as a consequence. But if you make efficiency the aim in itself, you’re likely to become less effective and, ironically, less efficient!
From Alex Toth, CSEP Seeing the forest before optimising the trees?
I have added: in an organisation efficiency is about doing the task the quickest — how good we do it. Effectiveness is asking how worthwhile is the task?
I uncover the evidence you need to understand where and what to change, and then work with you to create innovative and forward-thinking approaches to advance your organisation.
For examples https://www.improconsult.co.uk/systemic-design-portfolio.html
and further resources for you to browse that I use https://www.improconsult.co.uk/systemic-resources.html
