Efficiency and Effectiveness in Management

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.

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