The first rule for a successful startup is organizational efficiency

“Efficiency is doing things right, effectiveness is doing the right thing.” - Peter Drucker

It seems that for the past 50 years all has been said about the importance of efficiency and effectiveness in any organization. I would like to offer my perspective, as I continue to hear and read debates over which is more important. "Common sense" might lead one to believe that both are equally important, but in my experience, this is a superficial view. I have worked in the IT industry for nearly 20 years. The first half in a service departments and the second in product development departments. I believe this puts me a unique position to be able to compare the importance of efficiency and effectiveness from two perspectives.

The digital transformation era made the IT departments the core element of the success. The main struggle however was caused by old school managers who never understood the subtleties of the software development and especially the difference between software product and how and when it becomes an service.

Standard operational aspects of IT service organizations consist of 3 main points:

1. IT service organizations are procedural based. Everything is described in cookbooks and most employees are not expected to think much during their day-to-day work.
2. They employ various levels of support. Tickets escalate from first level to second, third, and so on until resolved. Lower levels have cookbooks and procedures how to handle different cases.
3. There is clear separation between change, problem and incident management. If there is a service interruption, there is an incident. If this happens often it becomes a problem. In order to solve the problem a change has to be performed.

IT service organizations do not struggle with efficiency, as frameworks like ITIL detail everything meticulously, and usually, this approach works. Effectiveness however is a problem. And the simple reason is that if we look into the lifecycle of a software product the service excellence is achieved near the product end-of-life. "Milking the cow" is fine, but thinking what could be next and where to invest is a problem especially if the organization is making good money.

Now let's check the 3 main characteristics of IT Product Development organizations:

1. Often Startups. IT product development organizations either begin as startups or adopt startup behaviors. Things are done quickly, with limited customer feedback. There is an urgency something to be pushed to the market, so that the financial flow can start.
2. There is no clear definition of roles and responsibility. The organization is learning and experimenting with different structures, because of quick growth or lack of results.
3. The operational frameworks are changing often. The organization tests with different kind of product development frameworks as it tries to figure out which one can bring the quick wins.

IT product development organizations struggle with efficiency. By definition, effectiveness encompasses the risks they take when launching a new product. Such organizations think they have problems, because they are not doing the right thing, but when the efficiency problem is not solved they just never reach the point of validating the new idea. Sometimes the new product is not the perfect match for the market, but if the product development organizations are efficient the product can be tweaked or even just the knowledge that the product is not what the market wants is enough information to figure our what really the market needs. When product development organizations never solve the efficiency problem they may never reach a point where proper conclusions are made if the business model is effective.

Let's assume each IT product undergoes the CHASM model.

If product development organizations want to pass the CHASM, they should focus on efficiency, because without achieving it even the best idea will not be validated. Efficiency of organizational structure, software architecture and product development frameworks should be the main focus if such organizations want to succeed. Questions like "Are we doing the right thing?" are meaningless at an early stage of the software product lifecycle.

When the software product matures and starts functioning as a service, the focus should shift to effectiveness. Near the End-of-Life if the organization has not started working on something new or a spin off of the existing product, they could be quickly overrun by the competition.

We all recall how the release of smartphones impacted Hewlett-Packard and Nokia, which were the leaders in the laptop and mobile phone markets. Despite these organizations being considered among the most efficient at the time, the lack of effectiveness and vision for the futures collapsed both in a short time.

Another common mistake among less mature IT organizations is to use frameworks designed for efficiency in pursuit of effectiveness, and vice versa. In larger companies, it's crucial to identify the specific goals of each department. This enables the application of the appropriate organizational framework tailored to those goals, rather than applying a one-size-fits-all concept across all departments.

As a conclusion, both efficiency and effectiveness are important for an IT organization, but never at the same time and never equally. I argue that in certain scenarios, the simultaneous focus on efficiency and effectiveness contradict each other, and organizations trying to achieve both often fail to accomplish either. A trap some startups fall in is they focus to much on efficiency and forget efficiency does not matter if the organization fails operationally.