Efficiency and Effectiveness in Management

Efficiency and effectiveness were originally industrial engineering concepts that came of age in the early twentieth century. Management theorists like Frederick Taylor and Frank and Lillian Gilbreth designed time and motion studies primarily to improve efficiency. Work simplification efforts again focused primarily on questions like "How fast can we do this task?" Work simplification also led to terminology like streamlined processes and efficiency experts, but the emphasis was still on time and motion. The concept of effectiveness, which takes into consideration creating value and pleasing the customer, became popular in the United States in the early 1980s when Americans perceived Japanese products such as cars and electronics to offer greater value and quality.

The words efficiency and effectiveness are often considered synonyms, along with terms like competency, productivity, and proficiency. To distinguish between effectiveness and efficiency, we must first define these strategies. Effectiveness is ‘doing the right thing’. ‘Doing the right thing’ means conducting the right activities and applying the best strategies for competitive advantage. From a process viewpoint it is producing the required outputs and outcomes, in other words meeting objectives. Efficiency is ‘doing the thing right’ – it defines whether processes are completed using the least resources and in the shortest time possible. These simple definitions point to a clear distinction that has major implications for businesses of all sizes. The implications arise from the difficulty in balancing both efficiency and effectiveness.
Measures of efficiency, effectiveness, and capability for rapid adaptation are of great interest to all stakeholders: process owners, internal and external customers and suppliers, and executives. Inefficient processes are costly in terms of dollars, waste, rework, delays, resource utilization, and so on. Ineffective processes are costly as well because they are not