What is the difference between efficiency and effectiveness?
In everyday life, we tend to use these two terms interchangeably. However, in technical business terms, “effectiveness” and “efficiency” have rather different meanings. One has to do with whether you are making the right products and the other has to do with whether you are making products using a minimum of resources.
Efficiency has to do with the amount of resources it takes to make a given amount of product. The fewer resources you use per unit of your product, the more efficient you are. We might measure efficiency in terms of the amount (or value) of product produced per worker.
By contrast, effectiveness has only to do with the fit between what consumers want and what you make. An effective process is one that makes what consumers want. It has nothing to do with how many resources you use making the product.
Thus, a firm can be effective, efficient, or both. It would be possible to be very efficient, using the least possible resources, but to be ineffective because no one wants the product you make. It would also be possible to make a product everyone wants, but to do so while wasting resources. In this case, you would be effective, but not efficient.