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Which is more important to a firm:  efficiency or effectiveness?

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S.L. Watson eNotes educator | Certified Educator

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First of all, it might be helpful to define the two terms. Effectiveness can be defined as producing the expected results or reaching the company's goals. Usually a firm measures effectiveness by measuring employee performance and company profits. Employee performance is directly linked to how well employees maximize a company's assets. The problem with measuring effectiveness is that it can become an abstract concept depending upon business theory. For example, the company must determine the value of employee work input to production output. This measurement deals with values that must be established and monitored.

However, organizational efficiency is more measurable. It directly relates to how well a company uses money. Efficiency is generally measured mathematically by examining the relationship between company expenses, equity, debt, and profit.

Using the above explanations, for a company to be successful, it must maximize efficiency to be effective.

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pohnpei397 eNotes educator | Certified Educator

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It is impossible to say which of these is more important since no business can thrive unless it is both effective and efficient.

Efficiency has to do with making your product using the fewest possible resources, particularly time and money.  Effectiveness has to do with making the right product.  Both are absolutely essential.  If a firm is not effective, it will not stay in business.  A firm cannot prosper if it makes a product for which there is no demand.  Therefore, effectiveness is necessary.  At the same time, however, it is necessary for a firm to make its product efficiently.  If a firm makes a popular product, it can still fail if it is not efficient.  If it is not efficient, competitors will make the same product for less money and the firm will fail.

Therefore, both of these are equally vital to a firm.

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jesseldridge | Student

It’s very clear that to run a successful organization there should be a balance of efficiency and effectiveness. Because efficiency is required to achieve your goals with the least resource and the effectiveness is required to ensure you achieve the desired goal. That's why, I think both of them are equally important for an organization.