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Effectiveness vs. Efficiency

December 12, 2022

Many businesses prioritize efficiency. Why wouldn’t they? Efficient systems utilize resources to their fullest potential, getting more out of less. However, with such slim margins, efficient systems are always teetering on the edge, nervously watching for a gust of wind to topple them over. Businesses cannot predict when the wind will blow or from which direction, but they do know it’s coming, and there’s nothing they can do to stop it.

Today, unexpected disruptions are increasingly common, and the efficient – but precariously balanced – system is more vulnerable than ever. Efficiency is no longer the be-all and end-all. Instead, businesses are 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. As this margin dwindles, 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 in the automotive industry, the effects of these disruptions and resulting system breakdowns are still being felt. Ford says that supply chain problems cost an extra $1B in Q3 2022. Furthermore, Volkswagen predicts that pandemic-induced chip shortages will continue throughout 2023, with the head of procurement on the Volkswagen board Murat Aksel claiming supply chain disruptions are 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 and absorb modifications. 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 rigid 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, which is non-demand-driven work. We need a significant amount of exploration to successfully navigate rapidly changing environments. Why? Because what we know 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 academics, 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 in the software delivery space, for instance, include experiences like dojos and hackathons. 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 a team dedicated to efficiency who struggles 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.
  • Eradicate fear. Employees who are afraid they’ll lose their job if they make a mistake or their idea fails will 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.
  • 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

For decades, efficiency was king. Getting more for less was a leading objective, and if things like resilience and innovation were casualties of the hunt, so be it. Besides, companies were exploiting what they knew, and what they knew did not typically change as quickly as things do now.

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 in the bones of our habits, behaviours, and expectations, which makes it all the more challenging to adopt effectiveness as a guiding force. These intrinsic networks within an organization are also what make large-scale transformations so disruptive.

Overcoming this barrier requires company-wide 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. Altering your organization’s mindset and values won’t happen overnight, and it’s important to recognize and account for the time and space needed for genuine and long-lasting change.
  • Enlist the help of a "volunteer army". If a few team members embrace the shift to an effectiveness mindset, encourage them to support other employees who might be more hesitant.

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. The unexpected is a certainty. 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. We either jump in and embrace it or resist and risk it all.

Achieve Effectiveness with Agile

Efficiency has dominated the conversation, and many of today’s commonplace business processes stem from this perspective. But today’s companies need to dedicate more time and resources to effectiveness and exploration, a need driven by unpredictable, shaky, and fast-moving variables in our external environment. We either heed those factors or end up with fragility in our organizations, and if we opt for the latter, we’ll lack the resilience required to survive.

If you are ready to pull the trigger and pursue a balance between efficiency and effectiveness that builds resilience, a shift to Agile 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.

Agile is a mindset, a way of thinking that celebrates effectiveness. Therefore, it demands company-wide participation, something easier said than done. Don’t go it alone. At IncrementOne, we offer tailored consulting and training that takes the challenge out of your Agile transformation. We propel you toward an organizational structure that is resilient, effective, innovative, and capable of lightning-fast change.

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

Interested in becoming a catalyst for positive change in your organization?