The Efficiency vs. Effectiveness Debate Continues | AccountingWEB

The Efficiency vs. Effectiveness Debate Continues

We here at VeraSage never shy away from folks who disagree with us. We learn more from those who disagree with us rather than those who agree.

Jim Caruso, a CPA colleague, recently left a comment on a recent post. Rather than replying to them individually, I wanted to start a new thread so others could chime in with their experience.

This just goes to show how controversial--and difficult to comprehend--this entire efficiency vs. effectiveness debate truly is for firm leaders.

Here's Jim's first comment to my post The Seven Moral Hazards of Measurement:


I agree with much of what you wrote and with the general thesis that metrics have dangerous limitations.
However, I continue to believe that, in general, efficiency cannot possibly be (and does not need to be) completely ignored in order to achieve     effectiveness. One sentence in your post that I particularly disagree with is this: "Efficiency and effectiveness cannot be balanced like tires because they are entirely different things."

Balancing entirely different things is one of the critical success factors for good leadership. CEOs have to balance short-term profitability with     longer-term growth initiatives. CPA firms have to balance immediate client service needs with longer-term business development opportunities.     Managers need to balance day-to-day urgencies with longer-term improvement initiatives. We all have to balance work priorities with family     priorities, or the need for time to ourselves with time for friends and loved ones. The examples are endless.

I reject this premise of balance, Jim. Let's hear what David Whyte, a corporate poet (and author of many excellent works) has to say in his book The Three Marriages: Reimagining Work, Self and Relationship:

Poets have never used the word balance, for good reason. First of all, it is too obvious and therefore untrustworthy; it is also a deadly boring concept and seems to speak as much to being stuck and immovable, as much as to harmony. There is also the sense of unbalancing that must take place in order to push a person into a new and larger set of circumstances.

My mentor, George Gilder, says this with respect to work/life balance:

One of the things that really makes me laugh is when I hear about the "workaholic." Workaholics are what the make the world go. Show me a success in any field, and I'll show you an obsessive. If your life is "balanced" by languid afternoons at the museum, you cannot develop a new business, break an important story, or make a contribution to the world. ...Our task on earth--laboring in the service to others--can only be satisfied thru hard and unbalanced work.

This is why management thinker Charles Handy uses the metaphor of a "portfolio life"--putting together a packet of different jobs, customers, and types of work.

He also dismisses the very concept of work-life balance as misleading "because it implies that work and life are two different things."

Nobody is suggesting that you "completely ignore" efficiency. We aren't Luddites here at VeraSage.

I am arguing that efficiency is not a competitive advantage since it can be so easily copied by your competition.

In addition, if you employ knowledge workers, efficiency gains will take place in the normal course of experience.

I will be more "efficient" doing my 100th tax return than my first few. If this is not true among your knowledge workers, you have made a hiring mistake.

Moreover, measuring the "efficiency" of knowledge workers based upon time spent is meaningless. Was Einstein efficient? How about Paul McCartney, is he efficient? How would you know?

What matters is the results of their output, not the efficiency of the inputs. I don't care how long it took Jonas Salk to develop the polio vaccine; I'm only glad he did.

But even beyond that Jim, economists have taught us for centuries that there's no such thing as "generic efficiency." It all depends on what your objectives are and how much you are willing to spend.

Again, I cite Peter Drucker from his book, People and Performance:

Efficiency means focus on costs. But the optimizing approach should focus on effectiveness.

Effectiveness focuses on opportunities to produce revenue, to create markets, and to change the economic characteristics of existing products and markets.

It asks not, How do we do this or that better? It asks, Which of the products really produce extraordinary economic results or are capable of producing them?

...It then asks, To what results should, therefore, the resources and efforts of the business be allocated so as to produce extraordinary results rather than the "ordinary" ones which is all efficiency can possibly produce?

This does not deprecate efficiency. Even the healthiest business, the business with the greatest effectiveness, can well die of poor efficiency. But even the most efficient business cannot survive, let alone succeed, if it 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.

Effectiveness is the foundation of success--efficiency is a minimum condition for survival after success has been achieved.

Efficiency concerns itself with the input of effort into all areas of activity. Effectiveness, however, starts out with the realization that in business, as in any other social organism, 10 or 15 percent of the phenomena--such as products, orders, customers, markets, or people--produce 80 to 90 percent of the results.

The other 85 to 90 percent of the phenomena, no matter how efficiently taken care of, produce nothing but costs (which are always proportionate to transactions, that is, to busy-ness).

A business is an interdependent system, and to argue that by increasing the efficiency of each component (or each hour) is the equivalent of arguing you can build a world-class car with the best parts of a Ferrari, BMW, Porsche and Lamborghini.

You could not; you'd have a pile of very expensive junk, since each car is interdependent, and not simply the sum of its parts.

You can't price for 100% efficiency, especially in a knowledge firm.

It's true in any business. This is a lesson Ben & Jerry (of ice cream fame) learned early in their career.

It was an epiphany for them, and for me as well.


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VeraSage Institute is the most revolutionary think tank for professional knowledge firms-we challenge the professions to break free of practice methods that hurt the professions, undermine their purposes, and fail their clients. Among our quests: burying the billable hour and archaic timesheets; pricing on purpose; recognizing that professionals are knowledge workers, not machines; and improving the professions for posterity.

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