Will you see better outcomes if you value efficiency over effectiveness? Let's explore the differences between these priorities and see how they impact results.
The words “efficiency” and “effectiveness” sound similar, and are often used interchangeably. But they are not the same thing.
While they both refer to metrics that describe the degree of success in producing a particular result, efficiency and effectiveness measure different things - and so, they should not be confused.
In this article, we will explain the difference between these two concepts and show why they are both important to your business success.
Efficiency refers to how you run your business. It is the ability to reach a desired result by optimizing the use of your resources – human, financial, and physical.
Efficiency focuses on processes and operations, managing them in a way that would maximize the result by reducing the costs.
In other words, it is focused on the tactical level of leading a business.
Efficiency is especially valuable when resources are limited – because with an efficient approach, a team can still make progress and achieve success.
This, in particular, can be achieved by analyzing the work process and eliminating unnecessary steps, using technology and other tools (like planning software), reducing inventory waste, sharing personnel, shortening shifts, enhancing time management skills, or improving communication and collaboration within a team.
These are the main characteristics of operational efficiency:
By the way, efficiency is not the same as productivity ➡️ here you can learn why.
Effectiveness, on the contrary, focuses on the strategic business direction. It refers to the ability to reach success by meeting the objectives and providing value for the customers. Effectiveness is more than completing tasks and doing it on time – it’s a success-oriented, long-term approach based on analyzing the market, understanding the customers’ needs, setting the right goals, and looking for the best solutions.
An effective business offers high-quality products and services, tries to provide brilliant customer support, and develops a working marketing strategy. Its priority is not to decrease costs but rather increase revenue.
To become effective, a company must develop a clear and straightforward decision-making process, aligning the steps it takes to the final goal and monitoring performance and processes.
With this in mind, let’s lay out the characteristics of effectiveness:
1. A team struggles to meet deadlines because the resources are not allocated properly. Some people get overworked, while others do not receive enough assignments.
An efficient solution: use resource planning software, making sure work is distributed fairly and improving resource efficiency.
2. A company tries to reduce costs to raise salaries for the best workers and retain them.
An efficient solution: shift to remote or partially remote work, which would let the company pay less for rent and, this way, use fewer resources.
3. Work goes very slowly because employees are required to submit too many requests and receive approvals before making any decision.
An efficient solution: reduce or eliminate bureaucracy, starting a new policy of autonomous decision-making.
1. A company experiences a revenue loss and starts falling behind competitors.
An effective solution #1: reconsider the marketing strategy and / or use influencers and social media for advertising.
An effective solution #2: perform market research and add a new product based on the customer's current requirements.
2. Because of external factors (global crisis, pandemic etc,) a company runs a risk of collapsing.
An effective solution: hire a change management expert who would develop a strategy for coping with a crisis.
3. A company decides to improve the customers’ experience:
An effective solution #1: find higher-quality raw materials.
An effective solution #2: improve customer service by hiring more personnel and / or conducting training.
The answer is – yes, you can. Even more, typically, organizations and teams tend to be better at one than the other. However, true success can be achieved only when these two metrics work in pair and complement each other.
But let’s analyze things one by one.
Efficient teams optimize operations and processes, use the right tools, and carefully distribute resources. That is all great, but what happens when all these efforts are aimed at the wrong goal? Eventually, everything you’ve done might lose sense, and you will have to start over.
Now let’s look at a different situation. A team works on applying efficient systems and processes, tries to reduce costs, and wisely allocates resources. At the same time, these efforts are aligned with a strategic company’s goal.
In other words, the team clearly knows why they do what they do. And if something changes and things need to be adjusted, the team will easily do it.
So what about effectiveness? Here we can talk about the same mechanism. A team that has a clear goal, and maybe even a vision, but does not support its efforts with operational efficiency, has low chances to reach its goal.
Its everyday activities will not get the team closer to the result. And the team will struggle because plans will stay just plans – or the way to making them true will be long and strenuous.
However, when there is a detailed process that leads to the strategic goals, it’s a whole different story.
As we can see, while business effectiveness and efficiency can be practiced separately, it’s best to pay enough attention to both of them. There is no strategy without tactics, and vice versa.
That’s a tricky question. If you're going for a hike, is it more important to put on the right shoes or to know where you're going, in the first place? Common sense says that, ideally, you'd have both sorted.
But this is not the question we should ask at all. What we should ask, however, is – what comes first, efficiency or effectiveness?
Getting back to our hiking metaphor, what you should do first? Figure out what to wear and what supplies you need on your journey, or know your destination?
And at this point, it becomes so obvious. Your equipment depends on where you go. That’s how you decide if you need winter boots or mosquito spray.
This is exactly how efficiency and effectiveness work. First of all, you have to set direction, decide what you want, and think what things are the right ones to do. And only after that, you can create a roadmap, figuring out how to do things right. By improving effectiveness, you can improve efficiency.
Of course, your choice of what exactly you need to focus on will depend on your current situation. If you are sure your strategy is right, focus on efficiencies to lower costs or maximize profits. And, on the contrary, if you think your processes are good but give little result, revisit your strategy, marketing approach, and long-term goals.
So what steps can you make to improve both effectiveness and efficiency, uniting them in a single, integrated approach?
That’s the cornerstone of business success. Focus on something that has a real effect or something without which your success is not possible. Dissipating efforts means procrastination, wrong choices, and wasted resources.
Also, remember that you shouldn't have too many priorities. If you try to set too many priorities, they are no longer priorities - just tasks on your to-do list.
What is your desired outcome? What are you trying to achieve? Understanding goals and business objectives gives your team a sense of direction, as well as motivation.
And this applies to both efficiency and effectiveness:
Do your business processes support your purpose? To make sure they do, you may need to regularly analyze and reflect on what’s going on. Sometimes, goals may change, and then processes must change, too, otherwise they will lose their relevance.
That’s why you should always leave some room for maneuvers. It’s not always possible to predict change, and it’s better to have a back-up plan, to not be taken off-guard.
This is a great way of aligning processes with the goal. If information is freely circulating at all the levels of an organization, everyone gets clarity around what is going on, and how they personally fit into a big picture.
Effective communication eliminates the risk of error, helps collectively find the best solutions, and puts everyone on the same page.
You might have a wrong impression about the effectiveness of your strategic objectives and the efficiency of your operational approach. But figures do not lie. That’s why you should continuously measure your team’s performance.
Evaluate performance against the goals you initially set – as we said before, they should be clear and measurable. Besides, you could also develop key performance indicators (KPIs), and use them as a unit of measurement.
Measuring operational efficiency and the validity of goals will help you diagnose problems and take action to correct them before it’s too late. So make sure you measure progress regularly, not just once a year. This will let you find areas for improvement.
The beauty of the modern world is that we can enjoy the fruits of technological progress, saving lots of time and effort.
You do not have to spend long days trying to organize your processes manually in cumbersome spreadsheets. You do not have to make phone calls to see if people are busy working on something. All you have to do is to find the tool that effectively surface information for you.
For example, Runn, a resource planning software, can make your life so much easier, and your work so much more efficient. With Runn, you can easily create tasks, assign the right people to the right projects, and even forecast your future capacity. Runn lets you have a birds-eye view of all the projects and all the people working on them, so you will never face problems like over- or understaffing.
But software is not the only tool you can use to increase efficiency. Another important instrument is time management. There are various time management techniques (like, for example, time boxing,) as well as ways to work faster, that would also help you be more efficient.
Frontline workers often have a more in-depth appreciation of how the day-to-day work gets done than their managers do. They might have more interactions with customers, and this way, have a better idea of what the customer is asking for.
They are actively involved in processes and know all the minor (and major) issues that slow things down – and for that reason, you, as a leader and a manager, should probably listen to what they say.
After all, teamwork is all about collective effort. A modern leader knows it.
Business success is about balance, and the best thing you can do is to ensure an integrative approach that would optimize both efficiency and effectiveness. By setting the right goals, you direct your team; and by improving the processes and systems, you make your dreams come true. It’s a natural cycle where all the components play their unique roles.
