Effective Vs. Efficient: Do You Know the Difference?

Effective and efficient are very common business/marketing terms. However, most of us tend to mix their meanings and usage occasionally (including myself), and that is why I decided to write on the topic. First of all if you look for both terms in most dictionaries youll find very similar definitions (which make the matter even more confusing). Some dictionaries get it right, however. Here is the definition from Dictionary.com, which I like: Effective (adj.): Adequate to accomplish a purpose; producing the intended or expected result. Efficient (adj.) Performing or functioning in the best possible manner with the least waste of time and effort. If you want an easier way to memorize the difference, remember this sentence: Being effective is about doing the right things, while being efficient is about doing the things in the right manner. Lets use a practical example to illustrate the concepts. Suppose that two guys, Mark and John, are trying to change a flat tire on their cars (each one has his own car). Mark starts by taking out the jack and placing it under the car. He quite doesnt know where to position it, so he goes by trial and error and wastes a lot of time doing it. After 20 minutes he finally manages to fix it, so he proceeds to lift the car and change the tire. As you can see Mark was doing the right thing, but he was doing it poorly. We can say that he was being effective, but not efficient. John, on the other hand, starts by grabbing a towel and cleaning the tire. He wants to make the thing shiny before he changes it. And mind you he is very good and fast at cleaning every little detail of the tire. We can say that John is being efficient, because he is cleaning the tire fast and throughly, but he is not being effective, because cleaning is a step that is not required at all when changing a flat tire. Now if we had a third person, Peter, who could change the flat tire using the right steps and doing it quickly, we could say that he was both effective and efficient. Efficiency and effectiveness are both commonly used management terms. Yet, while they sound similar and start with the same letters, they both mean different things.

Efficiency refers to doing things in a right manner. Scientifically, it is defined as the output to input ratio and focuses on getting the maximum output with minimum resources. Effectiveness, on the other hand, refers to doing the right things. It constantly measures if the actual output meets the desired output. Since efficiency is all about focusing on the process, importance is given to the means of doing things whereas effectiveness focuses on achieving the end goal. Efficiency is concerned with the present state or the status quo. Thinking about the future and adding or eliminating any resources might disturb the current state of efficiency. Effectiveness, on the other hand, believes in meeting the end goal and therefore takes into consideration any variables that may change in the future. In order to be efficient time and again, discipline and rigor is required. This can build inflexibility into the system. Effectiveness, on the other hand, keeps the long term strategy in mind and is thus more adaptable to the changing environment. Since efficiency is about doing things right, it demands documentation and repetition of the same steps. Doing the same thing again and again in the same manner will certainly discourage innovation. On the other hand, effectiveness encourages innovation as it demands people to think, the different ways they can meet the desired goal. Efficiency will look at avoiding mistakes or errors whereas effectiveness is about gaining success. In the earlier days of mass production, efficiency was the most important performance indicator for any organization. However, with consumers facing an increasing number of choices, effectiveness of an organization is always questioned. In order to be a successful organization, there needs to be a balance between effectiveness and efficiency. Only being efficient and not meeting the requirements of the stakeholders of the organization is of little use to anybody. And effectiveness may result in success but at what cost? Summary:

1.Efficiency means doing the things right whereas Effectiveness is about doing the right things. 2. Efficiency focuses on the process or means whereas Effectiveness focuses on the end. 3. Efficiency is restricted to the present state whereas effectiveness involves thinking long term. 4. Organizations have to be both effective and efficient in order to be successful.

Efficiency vs. Effectiveness: How Companies Can Accomplish Both Goals

Often, when a company has a stated goal of improving performance, their target is to enhance efficiency. However, a valuable opportunity is sometimes missed by not taking an overall look at the effectiveness of their business processes. Many companies can achieve a higher level of effectiveness through understanding current processes, and redesigning those processes to take advantage of advances in technology, elimination of wasted work, better alignment of human resources and improved internal controls. Efficiency is doing things right, but effectiveness is doing the right thing. An example is if you visualize an automobile coming down an assembly line, (sparks flying as the robotic arms of the automated welding machines do their work), these robots are far more efficient at welding than any human could ever be. However, if the robots are welding the door shut, the process is still efficient, but certainly not effective. The situation is similar when many companies evaluate, select and implement new information technology systems. When you implement a new solution, it is likely to make processes more efficient. However, if you do not redesign the processes to properly align your people, the processes and the technology, you are unlikely to make the business more effective. As an example, a client in need of a new financial system asked us to find a solution that was very efficient in creating journal entries, as they processed up to 2,500 a month. As part of our requirements analysis, we evaluated the business process and determined that the reason they were making such a high number of journal entries was coding errors in purchasing and accounts payable that required numerous reclassification entries. The solution was to redesign the process and implement an automated requisition and purchasing system in which the requestor codes the requisition to the appropriate cost categories. The system automatically checks the budget for sufficient finances, and the cost categories flow through the purchase order to accounts payable. With this process, there are no invoice coding issues. The combination of the new system and the refined process significantly reduced the number of journal entries, allowing the company to become more efficient and effective. Depending on the goals of the company, there are a wide variety of drivers for business process reengineering and systems evaluation, selection and implementation projects. However, the most common fall into two categories:

Growth: A business has expanded either organically or through M&A, or perhaps plans to go public and their current systems cannot keep pace with

requirements. As a part of the process to evaluate, select and implement new systems, a company should utilize this opportunity to examine and redesign their business processes to make sure they are efficient and effective given the new and projected demands of the company. Contraction: Especially in a difficult economy, many companies must do more with less as business has decreased, funding sources have dried up and headcounts have shrunk. Here, companies want to look for wasted work and where processes can be streamlined. Each process should add value to the business and make it more effective. Technology can then be applied to make the remaining processes more efficient.

So how does a company determine whether they are truly operating effectively? There are several key indicators that, if not addressed, could be damaging to a business health, image and bottom line:

Customer service: A high number of complaints, returns and orders that are not shipping on time, or overall poor customer satisfaction Compliance: Difficulty in meeting filing and regulatory requirements, bank covenants and trade agreements Budget to actual variances: Departments, programs or business units that consistently miss budget Cost containment: Difficulty in minimizing costs and remaining competitive Turnover: High unplanned turnover

A company that has any concerns regarding the effectiveness of their processes should consider contacting an experienced advisor. An examination of current processes can help to eliminate non-value added activities and identify opportunities to redesign and streamline the processes. Changes in the organizational structure may strengthen efficiency and effectiveness and result in enhanced control from a compliance perspective. Implementing new technology can often solve several problems and make a business more efficient. However, evaluating current processes in conjunction with the system implementation to make sure that the right people are doing the right things, enabled by the right technology can help ensure that a company is truly effective