The Efficiency Matrix: Integrating Flow and Resource Optimization

This article is inspired by the concepts discussed in the book "This is Lean (Niklas Modig and P?r ?hlstr?m), exploring the dynamics between resource efficiency and flow efficiency, and integrating my personal belief in the value of combining both with a systematic continuous improvement approach.

Resource efficiency, the traditional form of efficiency, involves utilizing resources as much as possible. For more than two hundred years, industrial development has been built around increasing the utilization of resources. A basic principle in this industrial development is to divide an incoming job into smaller tasks, which are carried out by different individuals and organizational functions.

Efficient use of resources has long been the most common way of looking at efficiency. It continues to dominate the way in which organizations in different industries and sectors are organized, controlled, and managed.

Resource efficiency focuses on the resources an organization needs in order to produce a product or deliver a service, such as staff, sites, equipment, tools, and information system.

With the arrival of the Lean model, flow efficiency emerged as a new form of efficiency. It is distinct in that it breaks away from the historical and natural focus on the efficient utilization of resources.?

Flow efficiency focuses on “the unit” processed in an organization. In services, the unit is often a customer whose needs are met through different activities. In manufacturing, the unit is a product composed of different types of components that are processed in various stages to make the product.?

Is it possible for both to coexist? or Should each organization choose one or the other?

What matters most for each one??

• Resource Efficiency - ?focuses on the resources an organization needs in order to produce a product or deliver a service, such as staff, sites, equipment, tools, and information systems.

• Flow Efficiency - focuses on the unit that is processed in the organization. It's created through processes. A process is a collection of activities that, together, create the path for and fulfill the need of a flow unit.

Which is the difference between both?

Taking the perspective of the flow unit enables us to understand a subtle but important difference between resource efficiency and flow efficiency.

• High resource efficiency means a high percentage of value-adding time in relation to a specific time period. The resources add as much value as possible.?

• High flow efficiency means a high percentage of value-receiving time in relation to the total time. The flow unit picks up as much value as possible.?

Resource efficiency focuses on the utilization of specific resources, while flow efficiency focuses on how a particular flow unit moves through the process. The difference between these two forms of efficiency can be expressed as a difference in the dependence between resources and flow units.

The difference in the dependence is the key factor that differentiates the two forms of efficiency:

• In resource efficiency, it is more important to “attach work to people” to ensure that each resource always has a flow unit to process.?

• In flow efficiency, however, it is more important to “attach people to work,” that is, to ensure that each flow unit is always being processed by a resource.

Is one better than the other?

Which is best: resource efficiency or flow efficiency? resource efficiency is the dominant form of efficiency. As a general rule,organizations are therefore organized around specific functions and specialized around resources. While it is important to use resources efficiently, it is also important to meet customers’ needs efficiently. In order to have both high utilization and satisfied customers, resource efficiency and flow efficiency are both important.

So why would anyone not aim to achieve high resource efficiency and high flow efficiency? The answer is that it is very difficult, if not impossible, to score high on both forms of efficiency.?

The best way to understand why it is difficult to score high on both forms of efficiency and how it can be done is to understand how processes work. Flow efficiency is created through processes.?

Resource efficiency can be increased or decreased, and flow efficiency can be increased or decreased. There is no “best” solution; it all depends on the organization, its competitive environment, its customer needs? and, particularly, its business strategy – what value does the organization want to provide?

The efficient Matrix

The efficiency matrix builds on the two forms of efficiency illustrates how an organization can be classified based on:

?(a) low respective high resource efficiency and?

?(b) low respective high flow efficiency. The matrix below depicts four different operational states in which an organization can find itself.

Efficient islands

In this state, resource efficiency is high and flow efficiency is low. The organization consists of sub-optimized parts that operate in isolation, where each part works towards maximizing its resource utilization. Through the efficient use of its own resources, each part contributes by lowering the costs for the goods or services being produced.

However, efficient utilization of resources comes at the expense of efficient flow. Flow efficiency for every individual flow unit is low. In manufacturing, this is represented by each component/product’s spending most of its time as inventory. In services, this is often represented in the form of unwanted waiting time during which the customer does not receive any value.

The efficient ocean

Flow efficiency is high but resource efficiency is low. The focus is on the customer and meeting their needs as efficiently as possible. In order to maximize flow efficiency, there needs to be free capacity in the organization’s resources.

Flow is efficient at the expense of an inefficient use of resources. Resources are only used when there is an actual need to satisfy. Creating an efficient ocean and creating flow require a good understanding of the big picture, not just independent and efficient islands.

Wasteland

In the lower left-hand corner of the matrix, the organization is unable to use its resources efficiently or create an efficient flow. Obviously, this is not a desirable state to be in because it wastes resources and creates less value for the customer.

In this state, there are neither efficient islands nor an efficient ocean. It is a wasteland, that is, poor utilization of resources and poor flow.

The perfect state

In the top right-hand corner is the perfect state. Organizations that achieve this state have both high resource efficiency and high flow efficiency. It should be clear by now that it is difficult to reach the perfect state, but not impossible. An approach to achieving this goal is presented below.

Breaking the Dichotomy: Integrating Flow and Resource Efficiency for Optimal Performance

Flow efficiency and resource efficiency can complement each other rather than exist in opposition, as is generally understood and accepted but to achieve that it’s vital to be positioned in the matrix as much closer as possible to the “Perfect State”.

While flow efficiency focuses on reducing delays and optimizing the movement of work through a system, resource efficiency ensures the effective use of people and tools without unnecessary downtime. The key lies in balancing both—creating a smooth flow of value while ensuring that resources are neither overburdened nor underutilized. This combined approach improves both the speed of delivery and the overall productivity of the team, leading to better business outcomes.

What is the main driver to get as close as possible to the ideal state?

Variation

What type of Variations do we need to manage?

• Demand (customer needs)?
• Supply (the organization’s resources)

Why do variations limit possible positions in the matrix?

Variation affects the possibility of combining high resource efficiency and high flow efficiency. We can understand the effect of variation through looking at the extreme, an organization that utilizes its resources one hundred percent and, at the same time, meets customers’ needs in an optimal way. Such an organization would be positioned at the “star” reaching the ideal state.

Unfortunately, the star is a theoretically perfect state, which is worth striving for but impossible to achieve. In order to reach the star, an organization would need two things:

• ?Firstly, it would require perfect access to all information regarding the customers’ present and future needs.
• Secondly, it would require perfectly flexible and reliable resources, where resources’ capacity, functionality, and competence could be immediately adjusted so that all types of needs could be met.

?Therefore, the key here is variation, both in demand (customer needs) and in supply (the organization’s resources).

Variation in demand prevents organizations from reaching the Perfect State

Unfortunately, a demand pattern is extremely difficult to predict. An organization can invest time, resources, and energy in order to predict what its customers want, when they want it, and in what amount, but it will be impossible to make perfect predictions.

It is in the nature of customer demand to be variable. Can you perfectly predict what you need, when you are going to need it, and how much? Sometimes, perhaps, but the further into the future we look, the more difficult it is.

Variation in supply prevents organizations from reaching the Perfect State

Even if it were possible to predict demand perfectly, reaching the star would? require perfectly flexible and reliable supply. These two prerequisites concern the organization’s resources. First of all, resources must be perfectly flexible. It must be possible to adjust the capacity, functionality, and competence of resources immediately so that all types of customer needs can be met.

?The organization needs perfectly flexible resources in terms of:

• What is supplied
• When it is supplied
• Which amount is supplied

?However, it is not enough to have perfectly flexible resources. Supply must also be perfectly reliable. The organization must always be able to predict what is going to happen when a product is produced or a service is delivered.

It is impossible to have perfectly flexible and reliable supply, especially when the resources are human beings.

How can we reduce variation to move closer to achieving the ideal state?

One strategy for resolving the efficiency paradox (resource effciendy vs flow efficiency) is the “lean” concept which involves focusing on flow and creating organizations that are more like an efficient relay race. It is about seeing the whole in order to avoid island thinking and focusing on real customer needs. Lean has been extremely successful in eliminating waste and superfluous work in many industries from manufacturing to services.

Anything that helps to eliminate, reduce, and manage the variation in an organization is a good means with which to realize a lean operations strategy.

?For many organizations, realizing a lean operations strategy is about developing solutions, methods, and tools to help them eliminate, reduce, and manage the variation that exists in the context in which they work.

The level of variation and the organization’s ability to deal with it will dictate the organization’s chances of being in the perfect state.

Lean Operation + Kata Improvement as an Approach to get closer to the Perfect State

Being at the 'Start' point would mean 100% resource efficiency and 100% flow efficiency, but this is theoretically almost impossible. However, by managing variations, it would be achievable to reach the Perfect State quadrant and get closer to the 'Start.'

The combination of a Lean Operation strategy and a systematic continuous improvement model like Kata Improvement allows progress in that direction:

• Lean Operation +?
• Systematic Continuous Improvement

Why Lean Operation ?

Lean is an operations strategy, a strategy to achieve a specific objective. In particular, the objective is to prioritize flow efficiency over resource efficiency. However, by eliminating, reducing, and managing variation, the aim is to continually increase both flow efficiency and resource efficiency.

Focusing on resource efficiency first tends to create efficient but sub-optimized islands. Superfluous work and waste often occur between the islands. A focus on flow efficiency means an integration of the separate islands into one system.

This integrated system serves as the basis for increasing resource efficiency. Resource efficiency is improved at a system level, not at the level of individual islands.

Why a systematic continuous improvement?

By systematically identifying and addressing inefficiencies and variations within processes, Continuous Improvement fosters a culture of constant refinement. One candidate framework?is Kata Improvement.

The Kata improvement pattern will enable the implementation of a systematic and consistent approach to creating a sustainable culture that manages uncertainty and ambiguity through scientific thinking.

Conclusion

In conclusion, balancing resource efficiency and flow efficiency is not a simple choice between one or the other, although in same cases the Busines Strategy defines the route, but it's clear that getting high efficiency in both is the ultimate goal.

Both forms of efficiency are critical to the success of modern organizations, and they need to coexist in order to meet customer needs while optimizing resource utilization. Achieving the Perfect State is a challenging goal, but by focusing on eliminating, reducing, and managing variations, organizations can move closer to this ideal.

A Lean Operations strategy, complemented by a systematic continuous improvement model like Kata Improvement, allows organizations to address variations in both demand and supply, leading to greater efficiency overall. While perfect resource and flow efficiency may remain theoretically impossible, a continuous improvement approach will help organizations steadily progress towards achieving the optimal balance, driving business success in the long term.

References:

"This is Lean" (Niklas Modig and P?r ?hlstr?m)

"The Toyota Kata Practice guide" (Mike Rother)

Kata Improvement: A Practical Approach to Continuous Improvement with Toyota Kata