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If we want organizations to be effective and efficient, we must first clearly define what that means.

What is efficiency?
Efficiency is the way in which you carry out a process. It is measured by how many units of input are
needed to produce one unit of output. A system is efficient if it can carry out its process with the
minimum energy possible. To become efficient, you need to get organized, systematized, and
programmed.
To be efficient means to follow a process that uses the minimum energy and minimizes the waste of
energy. Efficiency is the result of following the right form. There is no room for mistakes. When you use
a system that was designed for efficiency, there is no learning process involved. You just have to follow
the programmed, prescribed system, which tells you in detail where, when, how, and with whom to do
what. You do not have to think or innovate or make choices. As a matter of fact, the more efficient you
want to be, the more you must avoid making choices and innovating.
Thus, the more efficient you try to be, the less you will innovate and the less effective you will be in the
long run.
What is effectiveness?
To be effective, on the other hand, means to produce that for which the system was established. It
means to provide the desired function. To become effective, you need to try out different solutions until
you find the right one. Thus, by definition, you have to make what most people consider mistakes, but
what I consider to be a necessary step in becoming effective. Nevertheless, making choices involves
making mistakes, and mistakes do waste energy.
Furthermore, for effectiveness in the long run, you must innovate, because clients needs change over
time.
Can you measure an organizations effectiveness? Many people believe that sales are an accurate gauge.
Not true. The correct measurement is: Are the clients coming back? This applies to anything. It even
refers to monopolistic organizations where people do not have a choice although in that case, the
question should be: If the clients had a choice, would they come back? If the answer is no, then the
organization is not effective. Clients are like intelligent animals who know where the watering hole is.
They are not going to come back to a dry watering hole
On Effectiveness and Efficiency and Their
Repercussions
Posted in English, Managerial Insights
I have said that a well-managed organization is effective and efficient, in both the short and the long
term.
It is interesting to note that some languages do not have a literal translation for the words
effectiveness, efficiency, or both. Hebrew, for example, has a word for efficiency, but to
communicate effectiveness they use the word purposeful, which, as I will explain below, is not
literally accurate because not all purposeful systems are necessarily effective.
Russian, on the other hand, has a word for effectiveness, but not for efficiency; to communicate
efficiency, Russian translators use the words organized or productive instead. Neither is truly


accurate, because getting organized is only one means of becoming efficient, and not all productive
systems are necessarily efficient.
To add to the confusion, it seems to me that the meaning of these words is not even clear in English. At
least not to me.
If we want organizations to be effective and efficient, we must first clearly define what that means.
What is efficiency?
Efficiency is the way in which you carry out a process. It is measured by how many units of input are
needed to produce one unit of output. A system is efficient if it can carry out its process with the
minimum energy possible. To become efficient, you need to get organized, systematized, and
programmed.
To be efficient means to follow a process that uses the minimum energy and minimizes the waste of
energy. Efficiency is the result of following the right form. There is no room for mistakes. When you use
a system that was designed for efficiency, there is no learning process involved. You just have to follow
the programmed, prescribed system, which tells you in detail where, when, how, and with whom to do
what. You do not have to think or innovate or make choices. As a matter of fact, the more efficient you
want to be, the more you must avoid making choices and innovating.
Thus, the more efficient you try to be, the less you will innovate and the less effective you will be in the
long run.
What is effectiveness?
To be effective, on the other hand, means to produce that for which the system was established. It
means to provide the desired function. To become effective, you need to try out different solutions until
you find the right one. Thus, by definition, you have to make what most people consider mistakes, but
what I consider to be a necessary step in becoming effective. Nevertheless, making choices involves
making mistakes, and mistakes do waste energy.
Furthermore, for effectiveness in the long run, you must innovate, because clients needs change over
time.
Can you measure an organizations effectiveness? Many people believe that sales are an accurate gauge.
Not true. The correct measurement is: Are the clients coming back? This applies to anything. It even
refers to monopolistic organizations where people do not have a choice although in that case, the
question should be: If the clients had a choice, would they come back? If the answer is no, then the
organization is not effective. Clients are like intelligent animals who know where the watering hole is.
They are not going to come back to a dry watering hole.
The efficiency/effectiveness trade-off
Can a system be effective without being efficient?
Yes, it can: The organization reaches its goals but uses excessive resources and/or energy in order to
do it.
Can a system be efficient and not effective? Sure. I can practice hitting a tennis ball from one spot on
the tennis court until my movements are perfect. Now that I am so efficient, I tell my opponent: Send
me the ball right here! and I hit only the balls that come to my racquet; if they do not arrive in
precisely the right place, they are missed.


For example, take an organization in which everything is well organized and documented into manuals
and standard operating procedures so that everyone knows what to do and when and how to do it. The
system is fully in control of everything so that there is no waste of energy.
The organization follows its rules and policies religiously, but it satisfies few needs because the needs
have changed over time, while the operating systems have not. The result is that clients are made to fill
out useless forms and to wait a very long time for products or services.
In this example, the organization is not serving its clients well. The organization is ineffective, even
though it is following the procedures as designed for efficiency.
That is called a bureaucracy.
How does this happen? How could an organization become efficient and lose its effectiveness?
To be effective, the organization needs to satisfy its clients needs which change frequently, much
faster than the time it takes for the company to reorganize itself to satisfy those needs efficiently. By the
time the organization has reorganized to stay efficient, its clients needs will have changed again.
The higher the rate of change, the smaller the chance that effectiveness and efficiency will be
synchronized.
In a changing environment, the needs will either be satisfied but inefficiently, or the organization will try
to preserve its efficiency by refusing to change its products or services which will make it efficient, all
right, but not effective.
The higher the rate of change, the more efficiency organizations have to sacrifice in order to be effective.
If they are not willing to sacrifice efficiency, they will have to sacrifice effectiveness.
Now, the bad news
It is easier to sacrifice effectiveness than efficiency. Why? Because reorganizing a company to remain
efficient in a changed environment means making organizational changes and that means stepping on
some peoples toes. As Machiavelli said (I am paraphrasing): If you want to be hated, try changing
people. In other words, it is easier to sacrifice clients needs than to get into intra-organizational political
battles.
So, the faster the rate of change, the greater the chance that the world we live in will become more and
more bureaucratized. Doesnt that make you optimistic about? the future
Organizational Effectiveness
Organizational effectiveness has a very broad and often vague definition, so much so that most
sources explain the concept by example rather than definition. Basically, the effectiveness of a
business constitutes its ability to perform a function with optimal levels of input and output.
Companies use organizational effectiveness to measure any number of things, from the relationship
between employee performance and company profits to the correlation between manufacturing
processes and production volume. No set parameters exist for organizational effectiveness and it
follows no definitive mathematical formula -- each organization creates its own method of measuring
effectiveness. Measuring effectiveness can help a small business without the ability to absorb
ineffective processes modify its approach to avoid loss.
Organizational Efficiency


Organizational efficiency essentially denotes how well a company uses money. Nonprofit assessment
organization Charity Navigator measures efficiency based on the relationship between the
effectiveness of fundraisers and organizational expenditure. In publicly traded corporations,
organizational efficiency lies in a companys ability to maximize profits based on capital acquired
through equity and debt. Writing in Philanthropy Journal, analyst Chris Harris notes that return on
investment (ROI) constitutes a good measure of organizational efficiency. For instance, if you sell
company stock for $10 per share and one year later your stock holds a value of $20 per share, your
company exhibits a high degree of inefficiency. Regularly monitoring organizational efficiency can
help small businesses prevent money loss.
Fundamental Differences
The most basic fundamental difference between organizational effectiveness and organizational
efficiency lies in the fact that an organization can essentially use the former to measure anything,
while the latter pertains exclusively to financial efficiency. For instance, effectiveness could measure
how effectively the employees of an organization waste time as easily as it could how effectively
employees use an organizations assets. Furthermore, organizational efficiency constitutes a concrete
measurement, while organizational effectiveness is abstract; it exists in the conceptual realm and
relates more directly to business theory than business practice.
Mathematical Differences
Organizational efficiency proves much easier to calculate than organizational effectiveness in
mathematical terms. Measuring organizational efficiency often entails little more than examining the
relationship between company expenditure, equity and debt capital and profits. Measuring
organizational effectiveness mathematically requires quantifying values. For instance, a company
measuring the effectiveness of employee performance must create mathematical values representing
employee work input and production output. Upon creating these values, someone must carefully
monitor them and create a matrix displaying the relationships between quantified values.
Organisational Efficiency and Effectiveness
Within the course of your study you will frequently come across the terms
organisational efficiency and effectiveness. Because in everyday language the terms
efficiency and effectiveness are often used interchangeably but have quite
specifically different meaning within the context of organisational management,
some explanation needs to briefly made here.
Organisational efficiency is a measure of the relationship between organisational
inputs (resources) and outputs (goods and services provided) and in simple terms
the more output we can achieve with a given amount of inputs or resources, the
more efficient we are. For example, if we can make 100 cars with X value of
resources we are more efficient than someone else who only makes 80 identical cars
with the same value of resources. Efficiency relates to the term productivity and a
major focus of all managers is to maintain or improve the level of productivity of
their work unit and organisation.
In simple terms, organisational effectiveness relates to goal attainment. An
individual, group or an organisation, that achieves their goals are said to be effective,


and have used their resources to achieve an effective outcome. But does this also
mean they have used their resources efficiently?
Perhaps a couple of examples will easily clarify the difference between the two
concepts. Consider a manager who develops and implements a training course and
then trains the maximum number of employees, in the shortest period of time and at
the cheapest possible cost. This person would be considered highly efficient because
no-one could have done it better, their output for inputs expended is the maximum
possible. What though, if this training course had nothing to do with the
organisation's objectives and was a complete waste of time for everyone who
attended? We would then qualify our evaluation and state that whilst the manager
was highly efficient he/she was not effective.
Likewise if the same person developed a training program that was critically
important to the ability of the organisation to achieve its objectives, we would define
this person as effective. However, if the program used five times the amount of
resources that it could have used it would be considered effective but not efficient.
The achievement of organisational efficiency has always been a prime interest of
organisational managers. However over more recent times, with the realisation that
efficiency and effectiveness do not necessarily equate (ie, our previous example
highlights organisational activity may be efficient but not effective or effective but
not efficient) there has been a strong emphasis on the attainment of both these
concepts.
The aim is to be both efficient and effective; ie, to use our available
resources in the most productive way in the achieving of organisational
objectives.
Within strategic management, organisational success if often expressed in terms of
efficiency and effectiveness, though in reality such measures are more complex than
often expected. For example, in many production oriented businesses that
manufacture or produce tangible goods the measure of efficiency may be a direct
almost mathematical relationship between inputs and outputs as discussed above
and therefore easily measured. In many service industries, this relationship is not so
clear cut and consequently our ability to accurately measure efficiency in a simple
relationship between inputs and outputs is difficult or the result meaningless. Take,
for example, the case of a mechanic servicing cars. At the end of one week he is
asked why he has been so inefficient that week given that his average cost of
resources used per client was 30% higher than the average of all other workshop
mechanics doing the same job. On the surface it appears the mechanic is highly
inefficient until he explains that he had to service three cars that hadn't had a
service in over two years, one that had major mechanical repair requirements, two
cars that had been returned for re-service after a former mechanic had failed to
undertake various critical adjustments and eight cars where the diagnostic
equipment failed and provided incorrect readings requiring the entire number of
services to be redone at no cost to the customers. In fact, the mechanic believed he
had never worked so efficiently before in his life.


In this example, it can be seen there can be many issues that can influence and
distort a straight measure of efficiency. Consideration of many other service
functions (eg, a doctor treating patients) will readily support this.
Similarly, effectiveness can require significant qualification. Issues such as
attainment of short term versus long term goals, whose goals, whether the goals
were valid in the first place (eg, too easy or unrealistically hard to achieve, etc) can
distort this concept.
Consequently care needs to be taken in using these two terms.
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