Effectiveness and Efficiency

Efficiency and effectiveness are two ways of judging the activities of an enterprise, whether business, government, or otherwise. Efficiency was originally an industrial engineering concept that came of age in the early twentieth century. Management theorists like Frederick Taylor and Frank and Lillian Gilbreth designed time and motion studies primarily to improve productive efficiency by eliminating waste in the production process. The concept of effectiveness, on the other hand, first became popular in the United States in the early 1980s, when Americans perceived Japanese products such as cars and electronics to offer greater value and quality. In contrast with efficiency, effectiveness takes into consideration creating value and pleasing the customer. While efficiency and effectiveness may be closely related in a given enterprise, they are actually two separate concepts. Each is used, separately and together, to evaluate an enterprise in an attempt to make improvements if possible.

EFFICIENCY V. EFFECTIVENESS

The words efficiency and effectiveness are often considered synonyms, along with terms like competency, productivity, and proficiency. However, in more formal management discussions, the words efficiency and effectiveness take on very different meanings. In the context of process reengineering, Lon Roberts defines efficiency as “to the degree of economy with which the process consumes resources—especially time and money,” while he defines effectiveness as “how well the process actually accomplishes its intended purpose.” Another way to look at it is this: efficiency is doing things right, and effectiveness is doing the right things.

Some examples might help elucidate the difference. Consider a company that was successfully making buggy whips as automobiles became the primary mode of transportation. Assume that the processes used to produce buggy whips had been highly perfected, and the buggy whips were delivered on or ahead of schedule at the lowest possible cost. This company was operating very efficiently. However, the company and its strategists were not very effective. The company was doing the wrong things efficiently. If they had been effective, they would have anticipated the impending changes in the transportation industry and begun developing new product lines in synch with industry developments.

Consider another example from medicine. A surgeon is very skilled, perhaps the best in the country. The impending job is to operate on the patient's left knee. However, the surgeon doesn't perform all the steps of the process leading up to the surgery. Someone else marks the right knee for surgery. However skilled this surgeon is, however fast he performs the surgery—that is, however efficient he or she is—this process is obviously not effective, as the injured knee is not fixed and a healthy knee is subjected to invasive surgery. When the patient awakens from the surgery, he or she will not be a satisfied customer. This is another case of a divorce between efficiency and effectiveness.

It should be evident from these examples that efficiency can occur in the absence of effectiveness, but the reverse is usually not the case. While an inefficient process may result in a product that meets the needs or wants of a given customer base, the possibility of improving this process means that costs could be reduced. If costs could be reduced, the firm is not being as effective as possible at meeting customers' desire for the lowest possible price. In other words, an efficient process may be ineffective, but an inefficient process cannot be optimally effective. Without efficiency, there cannot be optimal effectiveness.

PROBLEMS THAT LEAD TO INEFFICIENCY AND INEFFECTIVENESS

There are several ways for an enterprise to fall short of being efficient and effective. The examples above indicated how an efficient process might be an ineffective one. Processes may also be inefficient, hence ineffective, if there are unnecessary steps in the process, or if the steps of the process are completed serially when they could be completed simultaneously.

Consider a process for preparing a bulk mailing. Say that three clerical employees are assigned to this task. Before them are three piles of materials: first, a pile of letters to be folded and stuffed into the envelopes that make up the second pile, and third, a pile of address labels to be applied to the envelopes. One way of accomplishing this job is for the three employees to divide the three piles into thirds and each work on one-third of the task. This, however, would not be as efficient as setting up an assembly line with one employee folding the letters, the second stuffing the envelopes, and the third applying the labels. The former process is inefficient because each employee will be required to perform extra movements as they move from one task to another; also, focusing on three tasks rather than one will reduce the possibility for learning to do each step more quickly. With an assembly line, wasted motion is eliminated, and each employee is able to focus solely on getting very good at his or her specific task.

Another problem can be a process that uses serial rather than simultaneous steps. Look at a university curriculum/course approval process done serially that takes an average of two to three years. The steps of the process are identified as follows:

1. A professor suggests to the department chairman that a quality management course be added to the curriculum.
2. The department chairman reviews the course, agrees, and submits the suggestion to all the colleagues in the department.
3. The colleagues review the course, agree, and submit their recommendation to the department chairman.
4. The department chairman reviews their recommendation and submits it, along with all materials, to the dean of the business school.
5. The dean reviews the materials and recommendations, agrees, and submits them to all the department chairmen in the school.
6. The chairmen all agree, and submit the recommendations and materials back to the dean with their recommendation.
7. The dean submits the materials and recommendations to the entire faculty in the business school.
8. The faculty reviews all materials and sends recommendations back to the dean.
9. The dean submits all materials and recommendations to the associate vice president for academic affairs.
10. The associate vice president agrees and submits everything to the vice president.
11. The vice president agrees and submits everything back to the associate.
12. The associate submits everything to the faculty senate.
13. The faculty senate agrees and submits everything, with its recommendation, back to the vice president.
14. The vice president submits everything to the president.
15. The president signs the materials and submits them back to the associate vice president.
16. The associate vice president submits the recommendation for course approval to the coordinating board.
17. The coordinating board approves and submits the materials back to the associate vice president.

It should be fairly obvious that this is not a particularly efficient process. A professor who wishes to add a new course to the curriculum—perhaps responding to an important change in the field—may be dissuaded from doing so by the daunting task ahead. If the process were streamlined by putting the material in a shared computer file, the first 14 steps (or, at least steps 4 through 14) of this process could occur simultaneously, or at least in overlapping fashion. As a result, the first 14 steps of this process could be accomplished in a matter of weeks, rather than months.

MEASURING EFFICIENCY, EFFECTIVENESS, AND FLEXIBILITY

Efficiency and effectiveness are often considered synonyms, but they mean different things when applied to process management. Efficiency is doing things right, while effectiveness is doing the right things. A third related concept is flexibility or adaptability, which is the capability of the organization to respond quickly to changing circumstances. It is this capability for an organization to reinvent itself that ensures its long-term survival and success.

Organizational leaders can't comprehend the extent to which their organizations and processes are efficient, effective, and flexible unless they know how to measure these things. Measures of efficiency, effectiveness, and flexibility are of great interest to all stakeholders: process owners, internal and external customers and suppliers, and executives. Inefficient processes are costly in terms of dollars, waste, rework, delays, resource utilization, and so on. Ineffective processes are costly as well because they don't do what they are supposed to do. Processes that are not capable of rapid adaptation (flexibility and innovation) are costly because they are not capable of rapidly responding to customers' needs in terms of customization and rapid decision-making. The greatest risk is that stake-holder loyalty will diminish.

In order to measure processes in terms of efficiency, effectiveness, and capability of rapid adaptations, people should ask themselves what, who, when, where, and how questions.

Perhaps the first question about a process is, why do it at all? Many steps exist simply because of organizational inertia (“We have always done it that way”). The second question might be, why do we do it this way? Then you might consider questions like these: What is being done? What should be done? What can be done? When should it happen? and so forth. These questions, and the concepts of efficiency and effectiveness, apply to all processes, all jobs, all types of organizations, all industries.

Some process efficiency measures are as follows:

• Cycle time per unit, transaction, or labor cost
• Queue time per unit, transaction, or process step
• Resources (dollars, labor) expended per unit of output
• Cost of poor quality per unit of output
• Percent of time items were out of stock when needed
• Percent on-time delivery
• Inventory turns

Here are some effectiveness measures:

• How well the output of the process meets the requirements of the end user or customer
• How well the output of the sub process meets the requirements of the next phase in the process (internal customers)
• How well the inputs from the external suppliers meet the requirements of the process

By contrast, measures of ineffectiveness include the following:

• Defective products
• Customer complaints
• High warranty costs
• Decreased market share
• Percent of activities that customers perceive to be non-value-added

Some measures of adaptability are as follows:

• The average time it takes to respond to special customer requests compared to routine requests
• The percent of time special customer requests are denied compared to the denial of routine requests
• The percent of special customer requests that have to be escalated to higher levels of management compared to the escalation of routine requests
• The capability to respond to product changes versus process changes

Organizations should establish baselines for efficiency, effectiveness, and adaptability metrics. In other words, they should determine their current performance levels. Then they should benchmark best-in-class or world-class organizations and set aggressive goals or targets for improvement. Finally, they should determine root causes of problems and eliminate them or minimize their impact.

TOOLS AND CONCEPTS

Generally, management and non-management employees have not had experience with the concepts and tools that will help them evaluate the processes which they own. In this case, training and opportunities to apply the concepts and tools should be provided. Examples of concepts and tools include the following:

• Statistical process control, which measures variability in a process.
• Trend charts, which measure performance over time.
• Pie charts, which depict measurements compared to each other.
• Process flow charts, which allow staff to quickly identify serial versus simultaneous processes, items which do not add value (like too many signatures, unnecessary travel and handling, long queues, etc.), and sub-processes that do not meet the needs of internal customers.

In addition to process concepts and tools, people should learn interrelationship concepts such as teamwork, communication, and leadership skills to streamline relationships as well as processes and organizations. This way, the results of measurements of efficiency, effectiveness, and flexibility can be fed back to the process owners so that they can improve the organization and the processes. This includes management processes as well as lower-level work processes. By their very nature, management processes can positively or negatively impact other work processes because they quite often deal with approvals (signature cycles) including requisitions for the purchase of essential equipment.

Answers to who, what, where, when, and how questions can be used to determine if the work should be done at all, who should do it, where and when it should be done, and how the work should be done. If these questions are answered truthfully, many activities in a process will be eliminated because they do not add value. Sometimes, entire processes will be eliminated.

ENHANCING EFFICIENCY, EFFECTIVENESS, AND FLEXIBILITY

Employees need to learn about and use various concepts and tools which will help them and their processes to be more efficient, effective, and flexible. For example, flowcharting the curriculum process mentioned above would have highlighted the need to replace serial sub-processes with sub-processes that were simultaneous and the need to eliminate duplications of effort and long waiting times. In addition, workers should learn interpersonal and leadership skills in order to be able to refine relationships as well as processes and organizations. Understanding the relationship between efficiency, effectiveness, and flexibility is an essential aspect of ensuring the success of any enterprise.

SEE ALSO Time Management

BIBLIOGRAPHY

Breyfogle, Forrest W., III. The Integrated Enterprise Excellence System: An Enhanced, Unified Approach to Balanced Scorecards, Strategic Planning, and Business Improvement. Austin, TX: Bridgeway Books, 2008.

“Efficiency or Effectiveness?” Hindu 20 January 2000.

Hunsaker, Phillip L. Management: A Skills Approach. 2nd ed. Upper Saddle River, NJ: Pearson Prentice Hall, 2004.

Pryor, Mildred Golden, J. Chris White, and Leslie A. Toombs. Strategic Quality Management: A Strategic Systems Approach to Quality. Houston, TX: Dame Publications, 1999.

Roberts, Lon. Process Reengineering. Milwaukee, WS: ASQC Quality Press, 1994.

Timothy, Allen. “Address Call of Effectiveness not Efficiency.” Precision Marketing 17 October 2003, 18.

Wittmann, Robert B. Strategic Planning: How to Deliver Maximum Value Through Effective Business Strategy. London: Kogan Page, 2008.