Any headline with "efficient" or "efficiency" in it is an attention-grabber because who doesn’t want to save money, time, and resources? As someone who studied economics years ago (which was often described then as the study of the allocation of scarce resources), the efficient use of limited resources is intrinsic to the discipline. Economics is also about how effectively a society uses its scarce resources. Efficiency and effectiveness go hand in hand, because they really are two sides of the same coin.
There are, however, limits to how much efficiency we can achieve. You can only cut so much before you reach a point of diminishing returns. And what about the upside? Pursuing more effective solutions (in theory) has no limits. The saying, “There’s always room for improvement” supports this. Pursuing greater effectiveness is about both incremental and breakthrough innovation for creating sustainable value. Pursuing both efficiency and effectiveness are important.
If your organization primarily pursues efficiency gains or incremental improvements and minor process refinements, disruptive innovators may make your product – or even your organization – obsolete. Achieving greater effectiveness in small and large ways is a hedge strategy to keep improving and staying relevant in an ever-changing world.
You could be efficiently producing a low-quality product or effectively producing a high-quality product with insufficient ROI. Or more generally, you could be solving the wrong problem at low cost or solving the right problem at high cost (wasting resources):
How do you measure efforts to be efficient and effective?
Many people tend to focus more on efficiency, likely because it’s easier to measure. Many variables, like costs of goods, wages, how long a process takes, how much to charge a customer, etc., are known. Some measurements are collected for a primary purpose, often to send a bill for a month of transactions. These measurements are then often used for secondary purposes to realize residual value from this data, such as looking at transactions of what products are purchased together frequently (market basket analysis) and testing strategies to promote bundles that may increase profits.
Measuring effectiveness can be more challenging. As an example, let’s say you've just started a new job at ceramic block manufacturer. This manufacturer is losing money due to too many cracked blocks coming off the production line. When you ask your engineering colleagues why their production process is set up the way it is, it becomes clear that no one really knows. So, after outlining the importance of understanding the production process so it can be optimized, you can then explain that a designed experiment is the best way to achieve that understanding and optimization. Design of experiments (DOE) lets you assess how the things you can change in the production process will affect the quality of the ceramic blocks – favorably or unfavorably. The experiment lets you definitively establish causality of which factors or combinations of factors are influencing quality, and you can then optimize the process. More importantly, you will know how changing one or more factors – like slowing the cooling of the ceramic blocks – will improve quality.
While there are many ways to measure effectiveness, they are context-dependent. The point is to challenge the status quo from time to time and be open to doing things differently.
How to encourage more effectiveness
First and foremost, invest in people. People implement the processes and technologies and, ultimately, comprise an organization’s culture. Simon Sinek has expressed “Culture = Values + Behavior.” People feel valued when they have access to what they need to be effective. This access includes technological and infrastructure resources, as well as ongoing opportunities to learn via internal and/or external training by attending conferences and workshops. It also means that they are encouraged to try new things – and be allowed to fail. The cultures that celebrate and value learning are the ones that encourage innovation. In these organizations, there is no fear of trying new things because they have permission to fail – and, most important, can learn from these failures. In his book, "Never Stop Learning: Stay Relevant, Reinvent Yourself, and Thrive," Bradley Staats writes, “We must all approach learning with four mindsets: focused, fast, frequent, and flexible.” He advises “focusing on the process, not outcomes, and on questions, not answers” so that a culture of curiosity and learning can flourish.
Second, be strategic in your data collection. Much of the data that is automatically “generated” is transactional or observational. These data were not collected to answer such questions as:
- How can we speed time to market?
- How can we make our products more sustainable?
- How can we increase product quality and reliability?
- How should we best structure product warranties?
- Are our customers happy with the latest product features that we added?
Ask, “What data do we need to answer the most pressing questions?” There is usually a cost to measure something, so the effort to obtain data that can best inform important decisions needs to be considered. It can also benefit from the input of the stakeholders who may be affected, including senior and junior colleagues with diverse backgrounds and perspectives since no one has a lock on good ideas. Seeking their input further promotes an environment of collaboration. Think “wisdom of crowds” on a smaller scale.
Third, be strategic in your approach to experimentation. Many of us learned in introductory science classes about the scientific method – a process for experimentation to observe phenomena and seek answers to questions – and that to do a “fair” experiment, you can only change one factor at a time while keeping all other conditions the same. This is wrong! Design of experiments is the most efficient way to learn from data and understand causation. Because the way much of science is still taught, DOE is still largely unknown. The innovations in experimental design methods over the last few decades have the power to revolutionize science and accelerate innovation. Coming back to my econ background, the Latin phrase ceteris paribus ("other things being equal") reinforces this one-factor-at-a-time thinking. In some sense, it’s ironic that DOE could help utilize resources more efficiently and effectively, contributing significantly to economic growth and accelerated innovation.
Finally, take the long-term view. It’s easy to be a short-term thinker, especially with the barrage of information coming at us in various forms every day. It takes more energy and planning to be a longer-term thinker, but it can be more rewarding. As an example, in the past, chemists may have developed products that they considered effective and inexpensive to manufacture. Down the road, lawsuits were filed, these products were found to be toxic, and liabilities were incurred. With the growth of green chemistry, we can be much more intentional about the products we make, which allows us to consider potential consequences of the decisions we make. Organizations that invest in long-term research and development are focused on the future and convey that they value ongoing innovation.
To balance the pursuit of efficiency and effectiveness, invest in your human resources, be strategic in your data collection and your approach to trying new things, and do these things with a long-term perspective. All of these will contribute to a culture of curiosity and innovation.
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