The Efficiency Fallacy

Efficiency seems to be the Holy Grail of the corporate world. Many executives hire consultants—even specialists known as “efficiency experts”—to create more efficiency in their operations, believing that increased efficiency equals bigger profits. These clients want an outsider to find the hidden holdbacks in their business and make recommendations to revise those processes, believing that the ROI on increased efficiency is worth the initial cost of change.

The motivation to improve efficiency is certainly logical and admirable. Technology such as automation has played a huge role in increasing productivity in a number of industries. Management pioneers such as Frederick Winslow Taylor even helped to start the Efficiency Movement in the early 20th century. Henry Ford’s assembly line most certainly revolutionized manufacturing processes. Any technology, from the typewriter to the photocopier to the PC, boosts the efficiency of a person or group—for a while.

Efficiency enables companies to offer the same product at a lower cost, which can draw more customers temporarily. Efficiency is good, but it is not sustainable. Once auto companies other than Ford caught on to automation and set up their own assembly lines, Ford lost the competitive edge. His revolutionary approach brought him short-term gains but eventually became a standard that did not benefit him significantly. When your edge is based on efficiency alone, you must continually look for the next great thing to keep you one step ahead of the pack.

What about effectiveness?

Efficiency and effectiveness are two very different concepts, and it is possible to have one without the other. Effectiveness is about producing results from the customer’s perspective; it is not something that can be copied as easily.

Take a look at what happened to Blockbuster when Netflix arrived on the scene. Was Blockbuster efficient? Sure—it was the market leader in home video rentals. This industry giant had well-organized stores with a quick checkout process and probably the best technology available to keep tabs on inventory, catalog movies, track customer preferences, and so forth. Unfortunately, efficiency did not give Blockbuster a competitive advantage.

What Netflix did was to find a way to be more effective; that is, they understood that with more and more customers shopping for everything online, including pizza, a trip to the video store was an unnecessary interruption in someone’s day. Shipping DVDs to individual homes was extremely effective. Of course, Netflix had to be efficient as well; slow service and sloppy processing would not have made the company successful.

This combination of efficiency and effectiveness ultimately drove Blockbuster out of business. Regardless of how fast Blockbuster was and how many movies they offered, they still could not compete with Netflix, even when they tried to copy its home delivery service.

So while it is important to find ways to do things better and save time and money, it is most important to do things well. Pushing for speed at the sake of accuracy or quality is a good way to destroy your effectiveness. If your goal is to gain a considerable competitive advantage in business over the long haul, efficiency plus effectiveness is what gives you the edge.