Effectiveness and Efficiency (Encyclopedia of Management)
Efficiency and effectiveness were originally industrial engineering concepts 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 efficiency. Work simplification efforts again focused primarily on questions like "How fast can we do this task?" Work simplification also led to terminology like streamlined processes and efficiency experts, but the emphasis was still on time and motion. The concept of effectiveness, which takes into consideration creating value and pleasing the customer, 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.
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 (1994: 19) defines efficiency as "to the degree of economy with which the process consumes resources-especially time and money," while he distinguishes effectiveness as "how well the process actually accomplishes its intended purpose, here again from the customer's point of view."
Another way to look at it is this: efficiency is doing things right, and effectiveness is doing the right things. For example, think of a company that was successfully making buggy whips as automobiles became the mode of transportation. Assume that the processes used to make buggy whips were perfect. The relationships of internal and external suppliers and customers were perfect. The suppliers and customers teamed together to make perfect buggy whips. The buggy whips were delivered on or ahead of schedule at the lowest possible cost. This company was very efficient. 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 and gotten into a different market.
Let's consider a surgery example. 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 (i.e., however efficient he is), this process will not be effective. When the patient awakens from the surgery, he will not be a happy camper. And what about the HMO? Who will pay for a surgery performed on the wrong knee?
Efficiency and effectiveness can both improve speed, on-time delivery, and various other process baselines. A travel application which has six signatures (as opposed to two) causes the travel application process to be inefficient and ineffective. Many of the people who sign the application are not effective in their job because they waste their time on things that don't add value for any of the stakeholders. They are not doing the right things. They are also inefficient because they are participating in a process that takes too long and therefore costs too much. Eliminating some of the signatures would make the process (and the signers) more efficient and more effective. People who sign all those travel applications might justify it by saying, "These people have to be here anyway. It does not cost us anything extra for them to be signing the travel applications." There's something terribly wrong with that type of thinking!
A process can also be inefficient and ineffective because the steps of the process are completed serially instead of simultaneously. Assume that a university curriculum/course approval process takes an average of two to three years. The steps of the serial process are identified as follows:
- A professor suggests to the department chairman that a quality management course be added to the curriculum.
- The department chairman reviews the course, agrees, and submits the suggestion to all the colleagues in the department.
- The colleagues review the course, agree, and submit their recommendation to the department chairman.
- The department chairman reviews their recommendation and submits it, along with all materials, to the dean of the business school.
- The dean reviews the materials and recommendations, agrees, and submits them to all the department chairmen in the school.
- The chairmen all agree, and submit the recommendations and materials back to the dean with their recommendation.
- The dean submits the materials and recommendations to the entire faculty in the business school.
- The faculty reviews all materials and sends recommendations back to the dean.
- The dean submits all materials and recommendations to the associate vice president for academic affairs.
- The associate vice president agrees and submits everything to the vice president.
- The vice president agrees and submits everything back to the associate.
- The associate submits everything to the faculty senate.
- The faculty senate agrees and submits everything, with its recommendation, back to the vice president.
- The vice president submits everything to the president.
- The president signs the materials and submits them back to the associate vice president.
- The associate vice president submits the recommendation for course approval to the coordinating board.
- The coordinating board approves and submits the materials back to the associate vice president.
If the material were put in a shared computer file, the first 14 steps (or, at least steps 4 through 14) of this process could occur simultaneously. The first 14 steps of this process could be done in less than six weeks. Does the reader wonder why any person would ever recommend curriculum changes and get involved in such an inefficient and ineffective process? Professors and administrators don't want to do this work. They would prefer conducting research projects, writing articles, developing innovative teaching techniques, implementing improvement initiatives, working on strategic plans, and helping students. Instead, they are involved in meaningless work that does not add value for themselves or other stakeholders. Students and taxpayers would not want to pay for the extra time that it takes to do work serially instead of simultaneously.
Measures of efficiency, effectiveness, and capability for rapid adaptation 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 are not reliable. 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 stakeholder loyalty will diminish.
In order to make processes more efficient, more effective, and more capable of rapid adaptations, people should ask themselves what, who, where, 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:
- 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; and
- inventory turns.
Some effectiveness measures are:
- 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); and
- how well the inputs from the external suppliers meet the requirements of the process.
By contrast, measures of ineffectiveness include:
- defective products;
- customer complaints;
- high warranty costs;
- decreased market share; and
- percent of activities that customers perceive to be non-value-added.
Some measures of adaptability are:
- 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; and
- 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.
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 are:
- 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 team-work and communication as well as leadership skills in order to streamline relationships as well as processes and organizations.
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 adaptability, which is flexibility or the capability to respond fast. In some respects, 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 choose and use the right metrics. Of course, the results of those measurements should 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.
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, flow-charting 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.
"Efficiency or Effectiveness?" Hindu (20 January 2000).
Hammer, Michael. Beyond Reengineering. New York: HarperBusiness, 1996.
Pryor, Mildred Golden, J. Chris White, and Leslie A. Toombs. Strategic Quality Management: A Strategic Systems Approach to Quality. Houston, TX: Dame Publications, 1998.
Timothy, Allen. "Address Call of Effectiveness not Efficiency." Precision Marketing (17 October 2003): 18.