Efficiency is the job of managers; Effectiveness is the responsibility of leaders.
Napoleon Bonaparte once said, “Amateurs talk about tactics, professionals talk about logistics”. Well, the same is true of efficiency and effectiveness. Leaders who focus primarily on efficiency pale in comparison to leaders who focus primarily on effectiveness.
This article may offend some people because we all drank the efficiency Coolaid at one time and unfortunately, many leaders are still stuck there. We did this when we were managers and efficiency was our primary job. When we become leaders, the job changed as we became responsible for the effectiveness of the organization and should have turned over the reins of management responsibilities. There are at least two reasons for this. First, If we’re busy doing the internal management work of trying to save time and money there’s no one doing the external-facing work required to lead the organization. Second, our managers will either be frustrated with us and either disengage or amp up their efforts to meet our expectations by tightening down even more just to impress us, and their people will do the same. Eventually, everything will be so tight there’s no room for innovation, growth, or fun. effectiveness.
The biggest mistake “efficient leaders” make that takes them down the path to unremarkable performance is building the wrong dashboard and analytics tools. In my twenty-two years of specializing and teaching data analysis, I have seen very few dashboards that didn’t do more harm than good. And, the leader (read ‘head manager’) doesn’t even know it. The good leaders who succeeded did it despite the dashboard because they had good experience and intuition. Inexperienced leaders and bureaucrats love pretty charts and graphs because it gives them the illusion of knowing what’s going on in the organization. Their dashboard is their happy place. The employees go along, frustrated though they might be because they think leaders can’t be expected to understand the realities in the field. Some even believe knowing the reality at lower levels might harm their ability to see the big picture. “That’s just how leaders are, we can’t expect them to really understand”. Sound familiar?
This problem is not new, far from it. If you’re familiar with the fable The Emperor New Clothes by Hans Christian Andersen, this is exactly what it’s about. In the story, the emperor is convinced by con artists acting as clothing makers that the empty wardrobe they give him was so brilliant that he couldn’t even see the clothes. In reality, he’s naked and his close aides are too afraid to tell him. He finds out the harsh reality when he presents himself to the public in his new clothes. Dashboards and analytics are the new emperor’s clothes. Truly, “There is nothing new under the sun” (Ecclesiastes 1:9).
Efficiency has always been a concern but the hyperfocus on efficiency goes back to the dawn of the industrial age and was made almost gospel by Winslow Taylor and his Scientific Management Theory in the early 1900s. The concept is still promoted today in many Lean management programs. In recent decades the problem has gotten worse due to the proliferation of easy-to-use analytics tools. These tools are as powerful as the salesmen say they are, perhaps more. But this power goes both ways. It can help organizations but it can also harm them. Most organizations base their dashboards on efficiency measures only, such as inputs and outputs, but they rarely measure outcomes or the overall effectiveness of the organization. Because of the misleading nature of efficiency, the analytics tools invariably take the organization in the wrong direction. Their dashboards ensure the focus is always on saving time or money or increasing output rather than all of the other factors that really define success. These dashboards are actually dangerous for strategic leaders because they are so distracting from what they should really be focused on effectiveness. If your leadership team is obsessed with efficiency-based dashboards, I guarantee your dashboard is harming you. To paraphrase the great Peter Drucker, what an organization measures they get…at the expense of everything else.
Efficiency is misleading because it’s limited to two factors: resources consumed and productivity. This is why it’s easy to understand and fits nicely on a two-dimensional chart. With productivity on one axis and the resource consumed on the other. A good leader should be wary of any metric that has the words ‘cost of’, “time to’ or ‘per” in the name such as “widget produced per dollar”. At your next monthly or quarterly metrics review meeting realize that the histogram or bar charts indicating productivity within the reporting period is just another efficiency metric where the inclusive period is your factor of time.
Efficiency measures always leave out important information and, therefore, always tell a misleading story. To measure efficiency the organization has to evaluate productivity in terms of the time or cost it took to produce a product or service. Efficiency never measures tradeoffs or external factors such as other stakeholders or the greater environment which is very important information. Every time a person uses the word efficiency, we think of savings but the reality is that someone is also losing. If you pay less for groceries, it’s good for you, but ask yourself who is absorbing the loss. Are you paying a higher price somewhere else to compensate or are the saving coming at the expense of the farmer, the packager, the distributor, the merchant, the employee, or the environment? As Milton Freeman once said, “There is no such thing as a free lunch”. 
With efficiency, vary rarely is there a true savings to all stakeholders. The term disruptive technology which is used to signify a monumental step forward actually references to losers in the term. I’m not saying this is good or bad because we need winners and losers in business as a way of setting new standards and “culling the herd”, but the impact to other stakeholders is an important consideration.
Let me give you an example of the misleading nature of efficiency as pointed out in the wonderful book The Efficiency Paradox by Edward Tenner. Using a rideshare service such as Uber or Lift appears efficient from the perspective of the customer and perhaps even the driver, who takes advantage of otherwise unused assets; their car and time. When you take an Uber, they pick you up and drop you off and you don’t have to hassle with parking or traffic, plus it may even save you time or money. But remember efficiency is always a matter of perspective and if we’re being honest, we must ask ourselves what’s the overall impact. Your two-way journey, there and back, is now a 4-way journey for an Uber driver: (1) To your home, (2) to your destination. On the return trip, (3) to pick you up, (4) back to your home again. So, taking an Uber likely uses twice the fuel and because there are four legs to the trip rather than two, the contribution to traffic doubled.
A growing company is by necessity always learning something new. This learning can be plotted on one of the most famous efficiency graphs of all time—the learning curve. It shows how fast people produce a product based on their level of experience. The learning curve demonstrates that all new skills are slow and inefficient in the beginning. However, through practice, which is the most effective way of learning, people get better which reduces the time per unit. The effectiveness-oriented company understands this and accepts the fact that learning takes resources and time and is inherently inefficient. The efficiency-oriented company is overly concerned about saving time and money so they avoid the inefficiency of learning new things. This results in starving their investment budget and all but kills innovation.
Don’t get me wrong, measuring efficiency is good and appropriate…for managers. In fact, it’s in the name. They manage the process for converting people and resources into products or services. Thus, their job is to control inputs and outputs. All of which is controllable because it’s internal to the organization. Outcomes, however, are a different story. Outcomes are what happens when outputs come into contact with the external environment. Managers are not responsible for the external environment because it can’t be managed. That’s the leader’s job–to pick the environment, shape it the best they can, and establish the standards and focus of the organization. All to give it the best chance of success when it comes into contact with external forces. 
It’s a hard job with a lot of responsibility, including many factors that can’t be controlled. Perhaps it’s even impossible, but that’s why leaders get paid the big bucks. Efficiency is the measure of how successful a manager is but the measure of a leader is how effective they are at achieving all the company’s desired outcomes. Strategic leaders, therefore, need to focus on the bigger picture in order to measure effectiveness.
Most organizations have several desired outcomes and many support functions which they are required to perform such as finance, logistics, marketing, and many others. These are all necessary and contribute to overall effectiveness but each takes resources. An effective leader understands they have limited resources so they have to make tradeoffs between all of the functions. Maximizing effectiveness, therefore, requires distributing resources strategically in order to optimize the organization’s outcomes. The question is, how?
It is often quipped that “efficiency is doing things right, but effectiveness is doing the right things”. This is a good summary but does not really explain the comprehensive nature of true effectiveness. Measuring effectiveness is thought to be difficult for multiple reasons. A few common reasons are; too many factors, results are subjective, it’s hard to measure, and time frames to see results are too long. To many, this seems daunting. But there’s good news, it’s possible to measure effectiveness and even easy when done correctly.
So here’s the answer to the million-dollar question how do you measure effectiveness? The trick is to create an organizational recipe for success
and then measure how successful you are following the recipe. Like a recipe for a delicious meal where the perfect dish depends on timing, process and ingredients, the same is true for any company or organization. Perfecting the recipe will take time, but thankfully there are only three questions a leader needs to answer about the organization. What’s important, how important is it, and how much is enough.
- What’s important? are the core business functions you decide to measure.
- How important is it? is determined by weighting each factor in relation to all other factors.
- How much is needed? is answered by establishing a range of acceptable performance for each measured area.
Every leader should already be answering these questions and probably are in their heads, if not on paper.
When the recipe for success is perfected decision-making is easy for leaders and everyone else in the organization because priorities are already spelled out. Making small changes to the recipe is always possible as is analyzing the impact of those small changes. Sensitivity testing like this allows leaders to continue improving and adapting to the organization. Following the recipe ensures organizational resilience because it’s harder to be distracted by efficiency metrics and or low priority issues.
By measuring effectiveness in this way organizations get rid of countless hours churning out unimportant metrics, which ironically, is very inefficient (take that efficiency snobs). The only added step to measuring effectiveness is calculating the results. I created a tool for doing this and used it for several years. I even shared it with over a dozen other organizations. The results were always remarkable. In retrospect, it’s obvious why. When leaders make a conscious effort to maximize effectiveness by focusing on what’s most important and then building a recipe for success, t
hey get exactly what the recipe is designed to produce success! But what was less obvious is how much this process boosted morale and promoted growth. Everyone in the organization understood what our priorities were, this provided stability, and everyone knew exactly how to control their own fate. Having a recipe for success also ensured consistency throughout the organization which made maintaining standards easier and dramatically improved continuity during employee turnover. Growth became as easy as tweaking the recipe. If the new process resulted in a higher overall effectiveness grade, we kept the change. If it was worse, we got rid of it. Thus, we became a learning and growing organization with one direction, UP!
If you would like help designing a recipe for success for your organization, please let me know. I can be reached at michael.mcpherson@effectivenessfirst.com