Efficient vs. Effective: How to Reach Your Target

Hitting the bullseye of your organization’s target is no small feat.

While there are many external factors that can derail your efforts, there are some internal factors you do have control over.

One of those internal factors is how you operate – are you focusing on the right activities and aligning the way you perform them to achieve your target/goals?

?In the last newsletter, you figured out what your time is worth.

Now we’ll analyze those revenue-generating activities you defined and determine if you’re performing them efficiently and effectively.?

?? The Difference Between Efficiency and Effectiveness

In its simplest definition, efficiency is doing things the right way.

Effectiveness is doing the right things.

Both can be measured. But before we get to that…

?? Which Category Describes Your Daily Operations?

Efficient, Effective: doing the right things the right way. You’re performing the right revenue-generating activities using proven best practices that maximize output. You’ve hit the bullseye!

Efficient, Ineffective: doing the wrong things the right way. You’re performing work using best practices, but it doesn’t yield results that accomplish the goals. You’re throwing paper planes instead of darts at the target.

Inefficient, Effective: doing the right things, but the wrong way. You’re performing work that aligns to organizational goals, but your technique needs improvement. You’re throwing darts but missing the target.

?Inefficient, Ineffective: doing the wrong things, the wrong way. You’re doing busywork that adds no value. You’re throwing darts blindfolded and willy-nilly, never hitting the board yet alone the target.

?? How to Calculate Efficiency and Effectiveness

Key Performance Indicators (KPIs) or metrics are great ways to measure effectiveness. By monitoring whether certain metrics increase over time (i.e., revenue, % closed business) or decrease over time (i.e., safety violations, % defective product), you are in a keen position to determine proximity to or distance from achieving your organizational goals.

Efficiency measures quality. When you're operating efficiently, you get out more than you put in.

If you want to measure the efficiency of one of your processes, you can divide the value of the output (your product or service) by the cost of the inputs (i.e., labor, utilities, materials).

If the cost of inputs to make your product or provide your service is $1,000 and you were able to sell that product or service for $5,000, then your process is operating at 500% efficiency.

However, if you spent $5,000 for a product or service you could only sell for $1,000, then your efficiency reduces significantly to only 20%. A breakeven point (100% efficiency) occurs when the value of work output equals work input.

But beware, there are limits to efficiency.

?? From What's Your Time Worth to Is it Worth the Time?

When I interviewed Tim Bornholdt on my Business Infrastructure podcast, he shared this chart with me.?

It's a sobering reminder that it's possible to reach a point of diminishing returns in your quest to operate more efficiently. If you happen to reach this point in one of your processes, then it might be an indicator its time to move on to evaluating another process.

?? Final Thoughts

Once you’ve committed to focusing on revenue-generating activities, make your time performing them count!

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This month you’ve learned what a Smooth Operator is (hint: it’s you!), how to calculate the monetary value of your time, and whether you’re using your time efficiently and effectively. There are more great things coming up in March! Make sure you subscribe so that you’ll receive a notification when the next newsletter arrives!

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Alicia Butler Pierre is the Founder & CEO of Equilibria, Inc. – an operations management firm specializing in business infrastructure for fast-growing small businesses. She’s the author of the two-time Amazon bestseller Behind the Fa?ade and host of the top 2% Business Infrastructure podcast. Alicia’s also an adjunct instructor at Purdue University and Nichols College. A chemical engineer turned entrepreneur, she’s advised, designed, and optimized processes for companies including Shell Oil, Coca-Cola, and The Home Depot.