Efficiency and Effectiveness as stated by Peter Drucker “Efficiency is doing things right; Effectiveness is doing the right thing.” An organization survives based on the efficiency and effectiveness of a manager/management. Efficiency is the use of financial, human, physical and information resources such that output is maximized for any given set of resource inputs, or input is minimized for any given quantity and quality of output. An efficient manager might be doing the right job but not the job right. Doing the right job does not require much time or resource. A job can be done very quickly and efficiently within time. In this case, the manager’s main aim is to get the job done within the allocated time using the given resources. But doing a job effectively involves time and planning the right strategy. In this case the manager concentrates more on the outcome rather than just the input. Both efficiency and effectiveness are an integral part of a successful management.
Management is almost entirely concerned with getting things done and determining how to get things accomplished. In each manager’s mind there is a debate over whether more concern should go into low-cost production or to disregard production costs and go after complete satisfaction of goals and objectives. These two paths are known as the decisions which separate “Efficiency” and “Effectiveness”. Efficiency means that the job was accomplished cheaply and on time yet may not be a very thorough and impressive accomplishment. Whereas, effectiveness means that the job was done correctly and was accomplished but with no regard to whether the job was done inexpensively or on time.
To illustrate this idea with a simple example, let s take an organization that wants to create an ad for its service/product. Creating the ad within the budget and in time is efficient. But the main things to be considered are the current market trend and environment. It would take more than just time and money to create an ad that would call out to the customers. Creativeness and efficiency alone is not enough to create the perfect ad. A detailed analysis of what the customer wants and expressing it in a way that would appeal to the ethos of the customer is what is required to create the ad. Though this example is not a direct example to management, it is a simple way to highlight the difference between efficiency and effectiveness.
In an organization, a leader is different from a manager. A good leader is not essentially a good manager though a good manager should have ideal leadership qualities. A manager is someone who maintains the balance of effectiveness and efficiency in the organization.
It is essential that the difference between efficiency and effectiveness is made distinctively clear, as the two are nearly inseparable in business strategy, but they command two distinct points of view. This importance between the two is crucial when it comes to managing an organization. It is also necessary to understand that the two are mutually exclusive and that it is not possible for an organization to survive with just efficiency alone and not effectiveness.
Efficiency and Effectiveness in Organizations
Efficiency and effectiveness are mutually exclusive things. For a manager, they are both fundamental preconditions. Being effective is to be able to properly analyze the evolving environment and choosing the right things and strategy to concentrate on for the enterprise. On the other hand, being efficient requires a carefully planned cultural and operational framework which helps the manager to achieve a particular degree of success, given the level of resources applied to a particular objective.
In any business, an efficient manager is one who uses limited resources available viz., time, material and men to get the job done in a more professional manner. This includes securing productive and profitable results in a short span, using funds allotted for a business more legibly yet smartly, and appraising employee performance etc., In other words, an efficient manager would keep the business running even in dire circumstances.
An effective manager, on the other hand, is slightly different from the efficient one. The effective manager focuses on productivity rather than increased/balanced profitability. Effective management has various layers in its setup such as motivation, teamwork, communication and objectives. An effective manager is someone who leads, coordinates and filters various activities of the sub-ordinates and decides an appropriate mechanism to work upon. An effective manager usually works without any constraints such as funds, manpower etc. The focus always implies on better management practices and in turn, better output.
Effectiveness is a precondition for the success of any manager; however that depends more upon the uncontrollable variables dictated to the manager by the operational environment and his ability to come up with the right choices that would suit his resources built over time. It may be appreciated that a firm’s resources in terms of manpower and technology as well as capital would have been built up over time and they have a great degree of rigidity. Once you become effective, efficiency can be an easier thing to bring into operation. The two things are in fact complimentary. Efficiency in fact depends upon the lower level managerial abilities and culture while effectiveness is almost always a top management variable.
In management, operating in efficient and in effective ways is a key to good performance and to successfully reaching the goals set for the business. While efficiency and effectiveness are similarly desirable characteristics of business behavior, either one is often seen as attainable only at the expense of the other. Looking at the interplay of the two characteristics can give a clear insight into the ideal behavior for a manager when faced with tasks which must be completed quickly, but also completed in such a way that the key goals are attained.
Luther Gulick advocates seven elements which make up common management in any organization. He calls it the POSDCORB.
- Planning a strategy to accomplish the objectives set for an enterprise.
- Organizing a formal structure of authority, arranged and defined for specific jobs.
- Staffing / Recruiting and training personnel.
- Directing/ Decision making and embodying rules, instructions etc.,
- Co-ordinating various parts of work.
- Reporting through records, research and inspection.
- Budgeting in form of fiscal planning, accounting and control.
These make up the common administrative tasks managers perform in an organization. The effectiveness of each element makes up both an efficient and effective management system. The following make up management behavior.
Management of human resources is a social phenomenon. An effective communication channel is always imperative in any kind of an organization. For an effective communication, the information passed on must be clear, consistent, adequate, timely, uniform, flexible and acceptable. A manager must make sure that a proper communication channel is present in an organization. This includes avoiding semantic and ideological barriers, two-valued thinking (Halo effect), stereotyping and dogmatism among the employees.
Decision-making is a vital part of an efficient management system. Decision-making involves a conscious choice or selection of one behavior alternative from a group of two or more behavior alternative. A behavior alternative may simply be known as a decision. Decision-making, in more ways or the other, is a singular function of the manager. It is thus very important in an organization. Every decision has two basic premises a factual premise and a value premise. A fact is a statement of reality while a value is an expression of preference. A manager would go by decisions based on these only. An effective manager goes in for the factual premise because it can be measured empirically, while the value premise, which may determine efficient factors such as profit, loss, employee satisfaction, cost-cutting etc., would be more preferred by efficient managers.
Motivation is a psychological process which energizes and activates an individual to achieve formulated objectives. A manager thus plays a vital role as a driving force behind motivation. On this part, both effective and efficient managers must be good motivators, so as to bring about the best in the employees. Classical and modern management thinkers have listed money and a variety of socio-psychological factors as a source of motivation. Motivation also helps to build teams and perform better.
Teamwork is another essential part of management. A manager is the undisputed leader of a team. He delegates work to his sub-ordinates, assigns tasks, creates plans and makes decisions. An autocratic manager would do all the above functions by himself. It is not desirable in an effective organizational system. On the other hand, an efficient manager would tend to be a little autocratic in his functions, because of the limited resources available and some other constraints. It is however better for an organization to be more democratic for proper functioning.
Being efficient does not necessarily mean effective. A person can be very efficient at what they are doing but still not get to where they want to be because they aren’t doing the right things. That’s where “effective” comes in. “Effective” means “having the desired result”. Once the desired overall result is defined, the tasks leading to the result can be isolated and these tasks can then be completed efficiently.
If a business wants to grow, one way is to attract more customers. To attract more customers, potential customers must be informed of the advantages of doing business with the company. This requires the step of identifying potential customers and identifying why they would want to become customers. Since the business already has customers, the easiest way to identify new potential customers is to identify people like the existing customers; the reasons these new customers would buy from the business are the same reasons the existing customers do. The steps which will be effective in attracting new customers are now clear:
- Identify groups of existing customers and find out why they are customers;
- Identify similar groups outside the existing customer base;
- Contact these potential customers and let them know the advantages of becoming customers, giving them the reasons existing customers gave.
These steps will be effective and they can now be performed efficiently. On the other hand, sending out mass mailings to general mailing lists can also be performed very efficiently, but it won’t be as effective and probably will not let the business reach its goals.
Importance of Efficiency and Effectiveness in Business
Managing effectively and efficiently is the way to go about in business. Efficient business tactics would help to know how to deal with finance and personnel in a more productive way. Most successful businesses in the world today are rather efficient than effective. Efficient management practices provide increased sustainability and stability in an organization. It involves novelty in management practices and output.
How efficiency and effectiveness impact the business and an overview of these interactions can be seen in the Efficiency/Effectiveness matrix below. This grid can identify the possible outcome for an organisation given its positioning in regards to Effectiveness and Efficiency.
- An Effective and Efficient Organisation will Thrive
- An Effective but inefficient organisation will Survive
- An Ineffective but efficient organisation will Die Slowly
- An ineffective and inefficient organisation will Die Quickly
An effective management system takes a long time to fully materialize. It has more to do with the long-term vision of an organization than its present objectives. Effective management also involves setting time benchmarks within the organization, so that a given objective gets completed within a set time. Traditional management practices are usually followed, and the manager sets up an instructional framework within which the sub-ordinates are expected to follow. An effective management system, summarily can be defined as, one which
- Raises productivity
- Increases work output from sub-ordinates
- Functions within a set of rules and regulations
- Works in a more democratic manner
- Builds teamwork and effective communication channels
A good manager therefore is one who works both efficiently and effectively simultaneously. It is imperative that he does work in a more systematic manner and adapts himself depending on the organizational situation and environment. What an organization / business would need is an effective mechanism and an efficient output.
The primary difference between efficiency and effectiveness is that efficiency is productivity metric and effectiveness is quality metric. The thorough understanding of the difference between efficiency and effectiveness is imperative in the understanding of the importance of that difference. The basic job of a manager is to make decisions, allocate resources, direct activities of other employee to attain goals etc. It is essential that a manager has good relationship with his colleagues and his employee. Communication skills are also very crucial to the role of a manager.
This difference between effective and efficient managers is what defines the lines between Average, successful, effective and efficient managers. A person who has the talent to maintain the balance between efficiency and effectiveness is a successful manager. An average manager is someone who fails to maintain the perfect balance but still survives. An efficient manager is someone who does his job right and an effective manager is someone who does the right job and produces the result. According to Peter Drucker setting objectives, organizing the group, motivating and communicating, measuring performance, developing people are the five main essential functions of a manager. But the difference lies in whether the person chooses to do the right job or to do the job right.
The first question that must be asked of any requisition is whether it requires a focus on efficiency or effectiveness. These two metrics are often mutually exclusive: You can either get it fast or get it right, but you can rarely get both at the same time. Efficiency is a measure of speed and cost. Efficiency says getting someone in here right away is more important than getting the right person later. Effectiveness is a measure of quality and goodness. Effectiveness says the opposite: Hiring the right person is more important than hiring someone right away. This subtle difference between doing the right thing and doing things right is what determines success. But just knowing the difference alone does not make one successful. The implementation of this distinctive managing strategy is key to being a successful manager. In any case an efficient manager can also be successful in that he completes the job allocated to him with or without attaining the desired results.
An example to illustrate the difference between efficient and effective management: Consider an organization, a car accessories company, wants to introduce a new range of audio and video systems. As the company is already specialized in automobile accessories, it would not take much time to introduce a new improved product. Getting the work done would take considerable time but it is possible. An efficient management knows very well the general demand in the society and would get the work done efficiently. But an effective organization, though aware of the general demand of the society, would analyze the market and would put in the time and effort to get the work done to satisfy the needs and wants in the market. The difference here is, an efficient management would produce a product that is in demand at that particular time, which would bring sufficient profit to the organization but not the desired success, but may not be in much demand later on. On the other hand an effective organization, after analyzing and planning strategically, would produce a product which is not only in demand but in need which means the product would last in the market longer which is a success for the organization. Efficiency is about producing the end result in an economical, time saving and cost efficient way but Effectiveness is about producing something that would last, no matter what the cost.
Efficiency alone will lead an organization to bankruptcy. Effectiveness alone may allow the organization to survive. However the organization will not reach its maximum potential if it is inefficient. Efficiency and effectiveness together will almost guarantee success. An effective organization is at least going in the right direction, even if it is not getting there very fast. An efficient organization is taking the fast track to wherever it is going, be that a good or bad direction. The organization that is efficacious and efficient will grow and take business away from companies that do only one or the other. Knowing and handling the difference between efficiency and effectiveness will eventually lead an organization to success.