All You Need to Know About Effectiveness and Efficiency
Peter F. Drucker, one of the most respected writers has argued that a manager’s performance can be measured in terms of two concepts: effectiveness and efficiency. As he puts it, efficiency means “doing things right – means once you take the decision do very rightly means minimize the cost,” and effectiveness means “doing the right thing – means taking the best decision in a particular situations.”
By efficiency, we mean using resources wisely and without unnecessary waste. The ability to get things done correctly is an “input – output” concept. An efficient manager is one who achieves output, or results, that measure up to the inputs (labor, materials, and time) used to achieve them. Managers who are able to minimize the cost of the resources they use to attain their goals are acting efficiently.
But is not enough to measure the efficiency of a manager’s use of employees only in terms of keeping their costs low. Because people are the major resource of most organizations, efficiency might also mean developing or upgrading the skills of the people who do the work.
A project producing 200 trained workers for $1,000 a piece is much more efficient than a comparable project producing 100 trained workers for $1,000 a piece.
By effectiveness, we mean doing the right things. Effectiveness entails achieving stated objectives. On the other hand, effectiveness is the ability to choose appropriate objectives.
An effective manager is one who selects the right things to get done. A manager who selects an inappropriate objective – the production only of large cars when demand for small cars is soaring- is an ineffective manager. Such a manager would be ineffective even if the large cars were produced with maximum efficiency. No amount of efficiency can compensate for lack of effectiveness.
A manager’s responsibility requires performance that is both efficient and effective, but although efficiency is important, effectiveness is critical. For Drucker, effectiveness is the key to the success of an organization. The manager’s need to make the most of opportunities, says Drucker.
If the objectives of both projects are to increase industrial employment, a training project that placed 90 per cent of its graduates in jobs may be considered more effective than a comparable one that places only 40 per cent of its graduates.
Managers are responsible for balancing effectiveness and efficiency. In one hand, managers must be effective by getting the job done. But on the other hand, they must be efficient by controlling costs as much as possible and conserving limited resources.