Many businesses prioritize efficiency. Why wouldn’t they? Efficient systems utilize resources to their fullest potential, getting more out of less, but with increasingly difficult economic conditions we need to be careful. We may be tempted to hyper-focus on managing costs and reducing waste, but focusing just on efficiency can leave businesses vulnerable.

Today, unexpected disruptions are increasingly common, and the efficient – but precariously balanced – system is more vulnerable than ever. Knowing the wind can come from any direction and at any force is one thing, but without an ability to predict it or stop it means that efficiency can no longer the be-all and end-all. Instead, businesses must learning to prioritize effectiveness. Effective systems are resilient systems, so when the wind does inevitably blow, there are supports in place that prevent total breakdowns.

What’s the Difference Between Efficiency and Effectiveness?

Efficiency focuses on reducing waste. It’s the ability to achieve a result in a way that ensures the maximum utilization of time, effort, and resources. Effectiveness, in contrast, focuses on producing a higher quality result that drives a better outcome or provides more value.

Peter Drucker, the ‘Father of Management Thinking,’ put it simply: “Efficiency is doing things right; effectiveness is doing the right things.”

Efficient Teams

Efficient teams prioritize progress and meet set targets, which are often stationary. They squeeze maximum output from the least amount of effort and adhere to an established and methodical work process with unwavering precision. They also value standardization, automation, and unbreakable rules.

Effective Teams

Effective teams prioritize maximizing the value of the end product or result. They understand that targets are rarely stationary, so they build slack into their process to enable adaptations and exploration. They assess and reorder priorities when internal and external factors change. A timely reminder of this comes from Toyota itself, the original gangster of lean delivery.

In addition, they invest time, effort, and resources into areas that will drive the greatest impact long-term. They see the bigger picture and focus on improving the end product to increase customer satisfaction.

What’s the Difference?

To illustrate the difference between efficiency and effectiveness in practice, let’s use a real-world example. Amazon has used container ships – the typical practice in the global supply chain – for many years. It’s an efficient approach, one that inevitably came undone as the pandemic disrupted the world.

However, in the background, Amazon was also investing in a more effective means of delivery, quietly chartering private cargo planes and ships and even constructing its own 53-foot cargo containers in China. In fact, the retail giant spent over $61 billion on shipping in 2020, up from under $38 billion in 2019.

When other retailers began to panic in the face of widespread supply chain interruptions, Amazon’s more effective delivery approach paid off.

Which Is More Important?

In the example above, the effective team comes out victorious, and the value of prioritizing effectiveness is clear. However, that’s not to say efficiency in delivery is unimportant. Instead, it’s about striking a balance between the two.

Leaders must be conscious that if they pursue efficiency with reckless abandon, all at the cost of effectiveness, their systems become fragile. The process of removing waste also involves shaving away room for error or change, and it often inevitably erodes psychological safety. As this happens, the system becomes increasingly vulnerable. The most efficient system has just one way through it, and if the unexpected occurs and the path to production is blocked, the entire system breaks down. In short, it lacks resilience.

Consider auto manufacturing, a space driven by Lean (a systematic approach that reduces activities that don’t add value) and Lean Six Sigma (a data-driven approach that focuses on decreasing waste, cycle time, and variation and encourages work flow and standardization). It also embraces just-in-time delivery (a management strategy that directly aligns raw material orders with production schedules).

Imagine a truck leaving the supplier with just enough steering wheels for the cars that the manufacturer is producing in the factory today. There’s an assumption – a necessity – that the delivery supply chain will not be interrupted. If it is, the manufacturer will be left with idle workers and machines.

Of course, if the last two years taught us anything, it’s that supply chains can and will be interrupted. We saw this when our supermarket shelves were empty, and how we felt the longstanding effects of disruptions on the automotive industry. Supply chain problems cost Ford an extra $1B in Q3 2022, and Volkswagen head of procurement, Murat Aksel claimed that supply chain disruptions would be the “new normal.”

Building effectiveness means introducing slack or wiggle room, which gives teams the luxury of thinking and responding to change and new learnings. It allows the system to flex more easily, absorb modifications and helps foster psychological safety (a great marker of organizational culture health). When things outside of the control of the business – external factors like the pandemic, for example – shift, operations can continue.

Another way to conceptualize the efficiency vs. effectiveness debate is using the ideas of exploiting and exploring, as put by Scott E. Page in his lecture series called Understanding Complexity.

As explained by Page, efficiency exploits what we know. It exploits opportunity, allowing us to use the static facts of a situation to shape the most efficient system possible with very little waste. However, in our complex world, this exploiting element must be offset by exploration. We need a significant amount of exploration to successfully navigate rapidly changing environments. Why? Because what we know from the past may not be true or relevant to the real world anymore. We can’t exploit what we don’t know to be true, and we can’t know the unknown without exploring it.

How to Build Effectiveness into Systems

When building effective systems, we need to think about that slack, that surplus that enables us to respond to change, adapt, and continue operations, whatever the world throws our way. We don’t want people working 100 percent of the time, nor do we want to spend 100 percent of our budget or utilize 100 percent of our resources. Instead, we plan on sub-optimal utilization and invest the rest for a rainy day because rainy days seem to roll around more often than ever before.

With slack and flex in place, Page’s idea of exploration as a response to increasing complexity can become a real part of how an organization operates. We can begin to build space for, as it’s called in some circles, blue skies research. Blue skies research doesn’t have a clearly defined end goal, and its findings don’t have an immediately known application to real life. Instead, it’s motivated by curiosity. Examples of how that might look may include experiences like hackathons and design thinking workshops. Ideally, these learning events should take place in-house and become integral elements of the employee experience.

It sounds idyllic in theory, but what if you are grappling with an organization dedicated to efficiency who struggle to adapt? Here are a few ways you can ease them toward an approach that prioritizes effectiveness:

• Deliver on diversity. Diversity is an essential ingredient in a workplace where efficiency and effectiveness live in harmony. Diverse teams also consistently outperform their competitors. By introducing different backgrounds, genders, experiences, and upbringings into the mix, you benefit from unique perspectives and more innovation.
• Create an inclusive culture. Diversity refers to the mix of people within an organization. Inclusion means ensuring people who are different from one another feel respected, welcomed, and heard. Decisions aren’t made by just one or two people. Instead, an inclusive culture uplifts all voices.
• Create psychological safety: Employees who are afraid they’ll lose their job if they make a mistake or who are afraid of being penalized for sharing a potentially challenging idea may not speak up. Instead, they’ll keep their creativity to themselves. This is not an environment conducive to the type of exploratory work required in an effective workplace. As a leader, you must build safety nets that explicitly reassure team members. Only then will they have the confidence to challenge the status quo and experiment with ways to add more value.
• Build appropriate guardrails and let go of control. Giving your teams control over their projects allows them to reach their objectives on their terms. It awards them the decision-making power needed to follow research tangents and pursue alternative solutions.

Challenges Preventing Effective Teams and Systems

Challenge 1: Efficiency is built into the fabric of our Organizational DNA

For decades, the pursuit of efficiency was king. In uncertain or tight economies, getting more for less is a leading objective, with no space for fluff or "waste". While cost management is a real phenomenon many of us are dealing with right now again, the tightening of the belt should come with consideration that with the ever increasing pace of change - we still need to make space for learning and resilience.

This efficiency mindset is part of many organizations’ DNA, and it’s something that cannot be easily erased. It lurks in the fabric of systems and processes. It’s hidden in the building blocks of production lines and product roadmaps. It’s embedded in our collective values, and the idea of not doing things as efficiently as possible feels nothing short of sacrilege. It’s what makes it all the more challenging to adopt effectiveness as a guiding force.

Overcoming this barrier requires buy-in and consensus, which you can achieve with the help of the following strategies:

• Ensure transparency. When every person is on the same page and can see the value in transformation, they are more likely to buy into and enact the change.
• Allow time and space for the change to occur and showcase the wins to reinforce the value of the change along the way. Altering your organization’s mindset and values won’t happen overnight, and it’s important along the journey to recognize and account for the wins that take place along the way, while also giving time and space for adjustment to the change. In fact, reflection and celebration can also help get those sitting on the sidelines to jump in and embrace the change faster.
• Enlist the help of a "volunteer army". The value of change champions cannot be ignored. If a few team members embrace the shift to an effectiveness mindset, encourage them to support other employees who might be more hesitant.

Challenge 2: Efficiency is predictable and financially attractive

Another significant challenge is the funding of exploratory behaviours. Efficiency is tight and clean. It is predictable, so long as external variables don't stray too far from what’s expected. It offers accuracy in our financial plans. However, when we delve into the financing side of embracing effectiveness, the water is a little murkier. We can’t know for sure that a full-day hackathon will result in a viable solution, for example.

But what we do know is that change is inevitable, and we must buffer ourselves for the certain change. If we don’t account for an unknown and unknowable tomorrow, if we don’t build room for adaption into how we manage and produce value, we put our organization in jeopardy – financially and otherwise.

In other words, the world we operate in demands an effectiveness mindset in addition to efficiency awareness.

Achieve Effectiveness

If you are ready to pull the trigger and pursue a balance between efficiency and effectiveness that builds resilience, embracing both Agile and Lean schools of thought is key. Agile gives you and your teams the tools, culture, and commitment to sharpen your competitive edge and deliver genuine solutions to real-world problems, and Lean gives you awareness of appropriate tools and practices to ensure efficiency is still addressed.

At IncrementOne, we are experts at bridging both worlds of Agile and Lean, and offer tailored training, facilitation and consulting that takes the challenge out of your organizational evolution to embrace both efficiency and effectiveness.

Schedule an appointment today, and let’s discuss your organization’s needs and challenges.