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. According to the famed management guru, Peter Drucker: "Efficiency is doing things right. Effectiveness is doing the right 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 rigour 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. Technology is a wonderful thing. It can automate tasks that are mundane and boring; it allows more efficient communication. However, when it's not measured against your company's goals, no one is asking and answering the important question "Is all of this efficiency contributing to our effectiveness?"
In the days of mass production, efficiency was the most important performance indicator for any organisation. However, now with consumers facing an increasing number of choices, effectiveness of an organisation is always questioned. In order to be a successful organisation, there needs to be a balance between effectiveness and efficiency.
How do I balance efficiency and effectiveness in my business? Entrepreneurs need to question the purpose of the business. Why does the business exist? Is my business doing the right things? Am I strategically working in the right areas? When a small business owner loses sight of the purpose of the organisation, efficiency takes over as the predominant theme. Efficiency alone produces less than with effectiveness combined. Efficiency needs to work in harmony with effectiveness- form and function. The lesson from here is that we can also use the same strategy, albeit with certain modifications, to successfully manage our personal lives too!