Efficiency = Actual Outputs (U) / Actual Inputs (I)
The main goal of efficiency is the optimal utilization of all the resources and to reduce wasted material, time, energy, and money. It stipulates the formation of a workflow that reduces unnecessary steps. Efficiency may relate to individuals or organization, but the objective remains the same. Being efficient means Performing or functioning in the best possible manner with the least waste of time and effort.The origin of efficiency can be traced to Frederick Taylor’s Scientific Management Movement. Implementation of time and motion studies laid the foundations of improving productivity in manufacturing operations showing the way to the introduction of concept of efficiency.
Higher efficiency levels were thought to be the hallmark of successful organizations. Efficient organizations were automatically considered profitable and thus successful. But, that all changed when well- known and highly efficient organizations were found to be deficient in producing higher rates of profits and even started generating loses.
Effectiveness may be defined as:Having an intended or expected effect. Producing a strong impression or response; Producing a decided, decisive or desired effect. The degree to which objectives are achieved and the extent to which targeted problems are solved.
Simply speaking effectiveness is the ability to define and accomplish objectives and goals. It signifies achievement of results intended irrespective of whether they are achieved in the more efficient manner. The emphasis is on what the final result should be and getting it done rather than any process leading to it. The requirements of particular time are considered more important than the best abilities/ competence of the organization or in other words using the main strengths of the organization should give way to what necessities of time and market dictates. It is of no consequence as to what we can do best instead what is required to be done must prevail than any process leading to it.
Good organizations are expected to be both effective and efficient and in that order. The main objective of every organization is to produce decided results that is what effectiveness does and the best utilization of its resources that is what efficiency is all about. Hence, both efficiency and effectiveness are of prime importance for any organization. While efficiency seeks to improve what is already being done, effectiveness focuses on what to do, keeping in view the requirements of market and customers.
Comparison of efficiency and effectiveness
Efficiency's main concern is achievement of best resources utilization. Effectiveness main concern is achievement of main objectives. There may be a case where the product is produced more efficiently, but is lacking in demand indicating absence of effectiveness. In the alternate there may be a case where the right product is being produced most inefficiently, a case of effectiveness, but absence of efficiency.Father of modern management, Peter Drucker described the distinction in the most subtle, effective and efficient manner:
“Efficiency is doing things right and Effectiveness is doing the right things.”Effectiveness emphasizes doing the right thing at the right time and is externally oriented. Efficiency is doing the thing in the best possible way and is internally oriented.
According to Peter Drucker’s another quote “Management is doing things right; leadership is doing the right things.”
The two quotes read together shows that effectiveness is a leadership quality while efficiency is a management quality, putting effectiveness at a higher pedestal.