Society has concluded that following the rules of efficiency is a noble pursuit. These notes offer an alternate response.
Whether it is by a socially driven characteristic or by self-preservation, it is a human tendency to be efficient. We laud and praise the holy name: efficiency. We have efficiency experts applying their attention to anything that gets in trouble and we chastise our children to be more efficient. Sears, one of the world’s largest retailers, begins the wording of its ads by an efficiency statement: “Save $20!” – long before it discusses the actual price. For Sears knows that, for Mr. and Mrs. America, the savings is more important than the price. My wife tells me: “I saved $1,000 by buying this fur coat on sale.” My statement that she would have saved $3,000 by not buying it at all, gets lost on her efficiency-dominated, Western, thinking.
What is Efficiency?
Definition: Efficiency is the ability to do things with a minimum of wastage.
In a commercial sense, efficiency is doing things that will save us money, both in the short term and in the long term.
Nobility of Efficiency
The war that we, at CCCC, feel must be continually waged is the concept ingrained in our society that efficiency in and of itself is good – that being efficient is being noble. This gives people the freedom to follow efficiency goals blindly without any other considerations. They feel quite justified in their unending pursuit of efficiency, allowing them to chase efficiency as an unquestioned good. “I just saved us $4 by visiting three shops to get the best price for a Frizzy Fat frying pan!”
The brother of Efficiency is Effectiveness. These two words seem so closely related that many people consider them to be the same thing. In several world languages, they are the same word; so translation from English becomes difficult. But they are very different words. The definition of effectiveness is quite distinct from efficiency.
Definition: Effectiveness is doing something that someone else needs or wants.
Let’s look at the example of Mary the secretary and, Tim, her boss. Mary might be pleased that she has typed 100 pages in the day and feel she has done a good day’s work. She has used her time efficiently, for it is usual to type 50 pages a day. However, Tim, her boss, is furious. He had an important proposal to get out that day and Mary did not even touch it. Mary has not been effective; she has not served the needs of someone else – in this case, Tim.
To be effective, we have to ask: “Who am I serving?” and “What do they want?” And then do it. We have to ask this every day and perhaps every hour.
The Preferred Order
CCCC states that you must be effective first. Only then can you enjoy the luxury of being efficient. For example, you must build a mousetrap that works very well and that people want. Otherwise, you won’t be able to sell them – because you’re not being effective. Now that people are buying your mousetrap for $15.95, you can put your effort to being efficient, to save costs in manufacturing so that you can sell the mousetrap, of the same quality, for $14.95. If you were not effective – you built a poorly functioning mousetrap, and nobody bought it, – what’s the point of being efficient?
Our society is rampant with efficiency-before-effectiveness with its disastrous results:
The school systems continually try to be more efficient, closing down schools, combining classes, etc. Public educators, long ago, ceased to be effective – providing a learning experience that the customer (students) wanted and secondary customers (parents) valued.
The medical system in Canada tries to be efficient first, controlling costs of doctors and nurses and, like the schools, reducing the number of hospitals or combining similar services into one hospital etc., all the while ignoring being effective – providing medical services in a responsive manner to the satisfaction of its clients, the public.
Creating Balance – Making Profits
If we follow the proper sequence, being effective and then being efficient, we create balance. It is through balance that we achieve results for everyone affected. If the hospital was effective and efficient, it would be providing medical services that the public valued and the public would be willing to pay for. Monetary issues would no longer be at the Medicare forefront.
In the business world, it is efficiency that brings in profits. Back to the mousetrap. At $15.95 each and a loaded manufacturing cost of $15.95 there is zero profit. With an efficiency step to reduce manufacturing costs to $13.95 and a reduced selling price of $14.95, a profit of $1.00 (6.6%) emerges. In fact the mousetrap’s superior effectiveness – works better than any other mousetrap* – combined with its lower price (efficiency) has the public buying many more, so that fixed costs are covered more quickly and net manufacturing costs drop to $12.95 each, creating a $2 profit, i.e. 13% – a doubling of profit.
* We always run into some wit who says: “If I can build a mousetrap that is cheaper than anyone else’s, then I will sell more and hence create a business out of being efficient.” Our response is that if the mousetrap does not work well, our wit may sell at lot at first, but lack of repeat orders and word-of-mouth advertising will usher in their untimely death – and probably the death of the enterprise. If the mousetrap does work well, then our wit has perhaps unknowingly, been effective. And then, too, perhaps effectiveness is answered by being cheapest. What do people need? (How can I be effective?) “They need a really cheap mousetrap that works well enough”. So then you set about to be effective with low price being a key parameter.
In a more real world, imagine that you are developing new microchip circuits for the computer industry. To be effective you must provide the speed of GHz that your customers want. You work at doing so, but your current cost of $30 per chip is far above the accepted selling price of $5 per chip. The circuit is still not working the way you want (i.e. the way your customer wants) so you press on with design changes to make it work properly, regardless of the costs – otherwise you will have no chip to sell if you cannot get it right. Finally when the chip is performing to specification, you can deliver a quantity of them to your client who will pay only $5 each. Now you can afford to look at your manufacturing methods in order to become efficient, to reduce costs closer to $4 each for the next set of customers, while maintaining performance quality.
The Third Dimension
The preferred order is:
- Effectiveness first
- Efficiency second
- Then ‘turning off’ the Efficiency tap.
We must add a third dimension – the turning off of the efficiency tap – to the effectiveness-efficiency balanced equation.
As companies evolve through the various stages of their lives and growth, they must clearly be effective first, then efficient. But as most of us are all too aware, bureaucracy settles into many large successful firms, slowly strangling them to death. They did not turn off the efficiency tap.
What we find, at CCCC, is that we must take young firms who are demonstrably effective, but disorganized, and create some order – some efficiency within their enterprises. They are effective because they are selling their products like crazy. They actually make money, despite not being efficient, because the newness of their wonderful product and having little or no competition, allows them to sell it at a high price. Because they are young, they have not created tracking systems, monitoring and measuring of performance systems. They may even falsely believe they are doing things right.
They are doing things right but just for the times. But new times, new competitors and better products are just around the corner. And if they don’t have an efficient enterprise, their newly found profits will be short-lived.
So, with CCCC’s guidance the young enterprises introduce methods to their madness: structures that work, operating plans, responsibility and accountability throughout the enterprise, sharing of the management load, etc. That is, we introduce efficiency which we call “A” as the company is entering its first level of maturing, namely, its adolescence. As it moves through its evolution curve – which all enterprises do – it finds that “A” moves along with it and grows.
The “A” staff – the accountants, the office administrator, the bureaucrats – all follow their human tendencies (of the first paragraph of part 1 of this paper) and nobly introduce more “A”. If something doesn’t work, they create a new policy – usually rules of what NOT to do.
Thus, with time, the company is in danger of becoming weighed down by the savior (A) introduced to salvage it, long ago. It has been our experience, that a common feature of organizations that grow, succeed and die, die of too much “A”. At the very least, strong “A” stays with a firm through all its stages of evolution until its demise. People say, “What a shame. It was such a wonderful company – with so many years of great history – but it was too big and too bureaucratic to adjust with the times.”
Efficiency has to be balanced with effectiveness. One cannot look at one without weighing the other. If new policies are to be introduced (efficiency) we must ask the question: “Will this policy be effective?” Will it serve our customers within the company or does it just serve our own interests?
We feel it is an achievement, at CCCC, every time we are able to get some policies and procedures introduced into a young chaotic enterprise. But then we have to tell them to turn off the tap! The policy and procedure makers see hundreds of new policies and procedures that could be made, nobly following that pursuit. The policy makers are rarely questioned by management, as they, these licensed A’s, wreak their havoc. Management should desist, but the only questions come from line staff members, who have to live with an increasing entanglement of confusing written instructions. “Do we need a policy to go to the bathroom?”