How does efficiency and effectiveness impact the perfomance of an organization?What are some of the examples?
A company is in a constant struggle to balance efficiency and effectiveness, it is a delicate balance to achieve because overall performance of an organization is measured by customer satisfaction. If a company decides that there are too many layers, for example, in the labor force, jobs could be eliminated to improve efficiency, but might result in a reduction in the company's ability to effectively serve the needs of their customers.
If a company wants to reduce costs with regard to overall expenses, in an effort to utilize resources, such as employees, more efficiently, a company might decide to reduce the workforce, let's say in a factory. So the factory workers are now required to work harder to make up for the smaller size in the staff, but this also requires them to work overtime to meet demand, which results in 1. expenses on overtime pay, which might be more than regular salaries, and could result in health issues with the workers who become exhausted from the faster pace in the work environment.
More mistakes could result from employees who are always straining to meet production quotas, which eventually results in customer dissatisfaction with inferior product. The natural outcome will be that customers will discontinue buying the product because the company can no longer be regarded as reliable.
Another example of a struggle between effectiveness and efficiency or output is found in the mail-order business with regard to shipments and distribution. In most cases, there is an inspected by ticket or a check mark next to the item on the order sheet, placed in the package that allows the customer to understand that their order was verified after it was placed in the box, before it was sealed and shipped.
If you purchase merchandise from a certain mail-order catalog and your order arrives incomplete or contains the wrong size or color item, this causes you an inconvenience as a customer, you are not happy with your purchase, your post-purchase dissonance is negative, it leaves an impression with you that will influence your purchases in the future.
What the customer does not know is that the company just eliminated several jobs, among the inspectors, because they were taking too long to do their job and the shipping process was delayed. The company wants the shipping process to be quicker, so they don't use the inspectors anymore and packages are sealed without a final inspection, and many order are incorrect.
In the name of efficiency of resources, costs particularly, effectiveness has been reduced.
Effectiveness is an assessment of performance of an organization in terms of how well the organization is able to extract maximum output results from a given quantity of input resources. Alternatively, it refers to the the ability of organization to obtain given quantity of output results using minimum resources. Effectiveness refers to the ability to increase output, without reference to the resources used for obtaining the the outputs.
An organization needs to be efficient as well as effective. Let us say say there are two different companies A and B manufacturing packaged orange juice. Cost of manufacture of Juice for company A is $1.6 per litre and that for company B is $1.7 per litre. Looking at these figures it is clear that company A is more efficient than company B. But this dose not necessarily mean that company A is better or more profitablee than company B.
We will now examine how company B can make more profit in spite of being less efficient. Let us say the company A is able to have lower cost because of its lower expenditure on advertising, but then it also has lower sales volume. Thus company A sells 100.000 litres of juice every year at the average price of $2 per litre, making a profit of $0.4 per litre. In comparison company B sells 150,000 liters at average price of $2 per litre, making a profit of $0.3 per litre. Thus company A makes a total profit of $40,000 per year, and company B makes a total profit of $45,000 per year. Clearly the overall performance of company B is more desirable than that of company A.
Thus an organization mus pay attention to achieving high levels of efficiency as well as effectiveness, and where necessary sacrifice performance in one area to achieve better performance in the other, so that optimum balance of the two is achieved.