Saturday, February 18, 2012

Efficiency and Effectiveness

Efficiency is the focus of Industrial Engineers (IEs).  

Efficiency is the focus of Industrial Engineers (IEs).  Industrial engineers are concerned with efficient use of resources in systems, processes and activities. Efficient use of human resource is one of the special focus areas of IEs. In addition they evaluate the efficiency of various other resources used in producing goods and services.
It is important to note that the punchline of Institute of Industrial Engineers (IIE) is Global Association of Productivity and Efficiency Professionals .

Is efficiency an important dimension in organizations' performance?

It is an important dimension. But its importance is next to that of effectiveness. That is how many management thinkers have expressed their opinion and industrial engineering discipline need not have argument about it.  Each and every academic discipline evolves around a dimension of importance and there is no reason to argue that the dimension that my discipline focuses is the most important dimension. Every employee need not do the same job. In division of labor one needs to have the ability do a job and organizations need to require this job.
Efficiency is an important dimension and many management authors have to spend some pages to distinguish between the two and spell out the difference between them and argue that managers have to focus on effectiveness first. Jesse Brogan in his article 'Only two metrics matter', Industrial Management, March-April, 2004 [1] identified effectiveness and efficiency as the two metrics that matter. He had written " The first measurement is effectiveness: The business is effective when it fulfills the purpose of its existence. If the purpose of the business is to earn a profit, then it is effective when the dollars flowing into the organization from the sale of products are greater than the dollars expended to run the organization while it generates those products." Accordign to Brogan, a more advanced measure is efficiency. Efficiency is measured as the value of products distributed to customers compared to the cost of operating the organization. Any product's effective value is measured by the income generated through the distribution and sale of that product. Efficiency is measured by income and cost. The value in dollar income is compared to the whole dollar cost of operating the business.

Peter Drucker on Efficiency and Effectiveness

Peter Drucker[2] also brought the importance of efficiency in his book Management: Tasks, Responsibilities. Practices in the chapter titled "The Dimensions of Management." He said, "Effectiveness is the foundation of success - efficiency is a minimum condition for survival after success has been achieved. Efficiency is concerned with doing things right. Effectiveness is doing the right things." Industrial engineers need not argue with Peter Drucker. They can accept the view of Drucker, that effectiveness is the foundation of success of managers select the right things. Industrial engineering is focused on providing a service to managers in  helping his deparment or his organization in doing things right. Industrial engineering is a service to managers in managing their organization.
Drucker also emphasized in another paragraph, "Of course efficiency is important. Even the healthiest business, the business with the greatest effectiveness, can die of poor efficiency. But the the most efficient business cannot survive, let alone succeed, if it is efficient in doing the wrong things, that is, if it lacks effectiveness. No amount of efficiency would have enabled the manufacturer of buggy whips to survive." So, Drucker emphasized the importance of efficiency in the survival and growth of business organizations and also brought out the obvious fact that an organization must have the skills to deliver what market wants. Organizations have to produce what market wants and not what they are efficient at. When market conditions change, organizations have to take up new products and services, produce and market them even thought they are not very skilled at the new activities. But over a period of time, they need to make them efficient.
Efficiency, the dimension which is core concern of industrial engineering discipline is an important dimension of management and industrial engineers must provide efficiency services to organizations effectively.

What is Productivity?

Peter Drucker has written in 'The Practice of Management', "Management has to give direction to the institution it manages. It has to think through the institution's mission, has to set its objectives, and has to organise resources the results the institution has to contribute." Further he adds that to fulfil its mission and achieve its objectives "It has to organize work for productivity, it has to lead the worker toward productivity and achievement."
The productivity that Drucker mentions is efficiency in effective activities. Effective activities contribute to the fulfilment of mission of the enterprise and achievements of its objectives. Managers have to select the right objectives and goals,  assemble right resources and then lead the members of the organization toward efficiently working toward the goals. It is in the area of efficiency that industrial engineers contribute and when they are able to make effective activities more efficient within a plan peiod, they are helping  the organisations in becoming more productive.

Chase, Jacobs and Aquilano

In their book Operations Management for Competitive Advantage, Chase et al.[3] explained efficiency as producing a good or providing a service by using the smallest input of resources. Effectivess was explained as doing the right things to create the most value for the company. They tried to relate effectiveness and efficiency through the concept of value, by defining value as quality divided by cost (price). Effetiveness improves quality and efficiency reduces the cost.

References

2. Peter Drucker,  Management: Tasks, Responsibilities. Practices, Chapter 2,  "The Dimensions of Management." , Heinemann Business Paperbacks.
3. Richard B. Chase, F. Robert Jacobs and Nicholas J Aquilano, Operations Management for Competitive Advantage, 11th Edition, McGraw Hill, 2006,

Bibliography

Interesting Note on Effectiveness and Efficiency - Doing the Right things , Right first time
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Related Exhibits

Punchline of Institute of Industrial Engineers (IIE)
Global Association of Productivity and Efficiency Professionals (now changed 18.2.2012)
http://www.iienet2.org/Default.aspx accessed on 22-1-2010
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