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Efficiency versus Effectiveness

By yashodhan_kanade on Thu, 24 October 2013 at 12:19 IST
Efficiency versus Effectiveness


Competent people are required to discharge their duties “effectively and efficiently”, to fulfil organization’s objectives. These objectives are -
a) To earn and maximize profit – by improving the performance through visualizing and eliminating losses –(Efficiency)
b) To earn goodwill & maximize customer satisfaction - through understanding and fulfilling customer requirements & expectations by following management systems – (Effectiveness)
c) To be a step ahead of competitors – by improving market leadership.

Example of KBC
In a popular TV show “Kaun Banega Karodpati”, a person who arranges four options as per the prescribed sequence within shortest possible time, is entitled to occupy “Hot Seat”, that provides him an opportunity to win amount up to five crore rupees.

The answer must be as per requirements of the assessor and the entire process must be free and fair.

Correctness of the outcome of the process of arranging four options amounts to –Effectiveness While, arranging four options within shortest possible time (resource) amounts to – Efficiency All the contestants carry out similar activities but the winner carries it most effectively and

In organizations too, if the outcome of the process, be it a product or a service, is as per the customer requirements, then the process is effective and when minimum resources are used for getting the desired output, the process is efficient.

In today’s competitive business environment, any organization that carries out their activities most effectively and efficiently rules the roost.

However, in business organizations, activities are varied and resources are many, namely – Materials, machines, men, time, space, energy, air, water, methods and measurements that are used to carry activities. Industrial activities are more complex than in KBC.

Effectiveness first
In KBC, neither the participant, who gives correct answer but is late (Effective but Inefficient) nor the participant who gives a wrong answer within shortest possible time (Efficient but ineffective) qualify for the hot seat.

By same token, if defective goods are produced using cheaper resources in a manufacturing unit, in order to save expenses, customer may return the goods or it may be recalled by the organization. It amounts to huge loss of profit and goodwill to the organization.

On the other hand, if goods are produced as per customer requirements, while using more than normal resources (converted in terms of overheads), it amounts to reduction in profit. However the organization can look forward to minimizing waste of resources by implementing performance improvement techniques and bounce back in the business.

This tells us that Effectiveness comes first, followed by efficiency. Effectiveness and efficiency both are necessary in organization to be a market leader.

Industrial activities are more complex
In industry, customer requirements are varied, resources to fulfil such requirements are different and processes are multistep, making the situation more complex.

An organization can be viewed as a macro process, where inputs in the form of customer requirements are converted into an output, which is customer satisfaction, by providing him what he wants.

An organization is a network of various processes and sub processes, where output from one process or sub process becomes input for other process or sub process.

This demands that an outcome of every process must be effective and efficient, to maximize customer satisfaction and in turn profits. This also demands that at every process and sub process level, the immediate supplier must understand the requirements of the immediate customer and
fulfil them. If all internal customers are satisfied, the external customer would automatically get

If we want outcome (product or service) to be effective and efficient, then the processes must be effective and efficient. And if we want processes to be effective and efficient, the system must be effective and efficient.

Other way of looking at effective and efficient activities
Being effective is about doing the right things, while being efficient is about doing the things in the right manner. Such right things must be learned and adopted by the organization.

The efficiency-effectiveness matrix

The matrix has four quadrants:

Low effectiveness and low efficiency. This means that we are doing wrong things in a wrong way. We are neither effective, nor efficient. We must immediately stop doing such activities. For example, this is the case when we choose wrong products that we don’t know how to sell.

High effectiveness and low efficiency This means that we are doing the right activities in a wrong way in our business. We are effective but not efficient. We need to analyze all activities, with a view to make them less resource consuming, to increase the potential of our business. For example, this is the case when we choose the right products that we want to sell, but the cost is higher than our competitors.

Low effectiveness and high efficiency. This means that we are doing the wrong things in a right way. We are efficient but ineffective. For example, this is the case when we choose wrong products that we sell them in a right way. The customers will probably buy for the first time, but it is sure that they will not come for more.

High effectiveness and high efficiency. This is what an organization requires to fulfil its third objective- to march towards market leadership. This is the case where we are effective and efficient. Such activities will satisfy all the organizational objectives. For example, this is the case when we choose the right products e where we market it in a right way.

To be an effective and efficient organization, organization needs to learn and implement lean manufacturing techniques. A complete overhauling of activities in line with lean manufacturing
techniques is the right step in this direction.

Effective and Efficient people
An organization is defined as a group of people and facilities, together with roles, responsibilities, authorities and their interrelation.

Such a group must have unity of purpose. Some people resort to leg pulling when others are doing their job effectively and efficiently. Somebody wants to show that they are very efficient by carrying out activities to get noticed by the bosses, without bothering whether desired results are achieved or not. Such people are termed as “pseudo dynamic persons”. Some other type of people manages to take credit of others, who are working effectively and efficiently.

Naturally an organization gets affected by such activities.

For organization to succeed, everybody needs to be effective and efficient. This happens when employees learn performance improvement techniques, implement them and the improvements are periodically monitored and made a basis for the increments, rewards and promotions.

Yashodhan Kanade
Lean Manufacturing Consultant
E [email protected]
Mobile - 919822470912

Yashodhan Kanade is a Lean Manufacturing consultant. (M) +919822470912

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