Today we’re going to talk about effectiveness versus efficiency. This is something that I often have to educate my customers on and a lot of people have either misunderstanding or they use these words interchangeably. They really are two different things so I want to help you understand why they’re different and why that matters to you and your business.
Let’s start by defining effectiveness. Effectiveness is how well something meets its intended purpose. It could be anything.
You can have the effectiveness of a business. Think about your Ultimate Outcomes that you want from your business. How good is your business at reaching those ultimate outcomes? That is the effectiveness of your business.
You can have effectiveness of a system in your business. How well does the system do the thing that you wanted to do?
You can have effectiveness of an employee in your business.
Your products have a level of effectiveness. How well is your Customer able to do the things they want to do with your product? That is the effectiveness of your product.
How well does anything meet its intended purpose? That is the effectiveness of that thing.
Efficiency, on the other hand, is a ratio between how much you have to put into a system or process to create something and how much do you get out. That ratio between your inputs and your outputs is the efficiency of that system.
So when you think about efficiency in the context of a business system, any system that you have, it’s going to have inputs into that system. Things like people’s time, money, different artifacts that you create in your business are examples. These are going to be inputs into a system and what you get out are the outputs.
Let’s think about going through the system or the process of hiring a new employee into your business. You’ve got lots of different inputs into that system. People are giving their time to do things like identify the job duties, write a job description, do interviewing, and screen candidates.
The output is eventually you hire somebody. That one employee that you hire is the output of a hiring system.
So, efficiency is about how many hours did you put into hiring that one person.
Another example is producing a video and audio. There are inputs that go into that.
You have to research a topic. You maybe write some notes and identify what the key talking points are. You identify the things you want to cover. You should identify your keywords for SEO.
There’s a lot of time that goes into actually creating one video.
So when you start to think about efficiency, you think about how many hours you spend as inputs to the system.
You think about how much money you spend as part of the system. You would use money to do things like buy audio or images to use with the video.
You could be ghostwriting in and paying somebody else to clean up the writing. There are all kinds of ways you could potentially spend money on this in addition to the time.
If you have other people working on the production, you would count their time and costs as well.
All of these are inputs to making a video and the output is the video and audio that you get at the end of the process.
You can start to understand how efficient you are once you understand and measure these inputs and outputs.
There’s no magical efficiency ratio, but over time it’s all relative to itself.
This is why you should always take baselines of your systems when working to improve them. You can understand how efficient you are today and then you can improve your efficiency in producing videos by spending less time, spending less money, and getting faster at the things that you’re doing.
That means you will put fewer inputs into the process. Now you’re making yourself more efficient because you’re still getting the same output even though it’s taking you fewer inputs.
To summarize, effectiveness is about how well a thing meets its intended purpose.
Efficiency is about the inputs that you put in and the actual outputs that you get out and the ratio between those two.
The Role of Effectiveness and Efficiency in Scaling
Let’s talk about growing your business and the relationship of effectiveness and efficiency to scaling and growing your business.
When you start a business, you are almost always very inefficient, but that’s ok. Almost every business starts very inefficiently and that’s okay. That’s how it happens, you’re just trying to get things done.
You’re trying to figure things out and the learning that you’re doing is more important than being super-efficient. There are more important activities when you just start out than trying to make everything really efficient.
The challenge comes when you try and grow and scale. Your revenue will increase, but also everything that you’re doing in your business that is inefficient will also scale with it.
You can’t just scale the good in the business. When you scale a business, you scale the entire thing. All of it comes with you and that includes all your inefficiencies.
All of the bad processes that you have and all of the things you’re not doing very efficiently scale and create more inefficiency, more time wastes, and more dollar waste as you grow.
To scale properly, you’ve must work on your efficiency before you try and scale.
However, there’s a catch to working on efficiency. Before you work on your efficiency, you need to get your effectiveness right.
Effectiveness is more important than efficiency.
If you are building something in your business, if your product is not effective, it doesn’t matter how efficient you are building that product.
You’re not going to satisfy your Customers. You’re not going to be able to maintain your business for very long.
It doesn’t matter how efficient you are. You have to be effective.
So before you work on your efficiency and optimizing your processes and making things fast and sleek and streamlined, you have to get the effectiveness right.
That means learning from the Customer figuring out what your product is doing and how it’s adding value or if you’re missing some things.
You must work on that effectiveness first.
If you work on the efficiency first and you spend a lot of time streamlining, you’ll probably spend some time automating. You’re going to introduce technology into your systems to make things efficient and easy.
You’re going to work to reduce manual steps and that’s expensive and time-consuming. When you then go and try and address effectiveness your automation doesn’t work anymore because you automated for X and you need Y so now you have to go back and you have to reinvest money and time to change your technology and automation.
When you do it the other way, you don’t have that same waste of time, energy, and money. Get your effectiveness right first, then work on your efficiency, then you can start scaling your business.
Here’s an example.
Let’s say you want to start writing a blog as part of your marketing strategy. And from day one, you start figuring out the perfect system super optimized and superefficient to write. You spend a lot of money and invest in technology to streamline how it is you research your keywords, and how you write. You buy writing tools like the pro version of Grammarly to help you with and spend lots of money streamlining and making a very efficient process and system for creating these articles.
Three months later, you find out your audience doesn’t like to read. Your audience is more into video and you need to create videos instead. Now all that time that you spent making your writing super-efficient is wasted. To get a good video, you’ll have to redo everything that you’re doing and produce video content instead of written content.
Sure, there are some benefits to improving your writing down the road, but for the thing that you’re trying to do right now, it was a waste.
That’s really why you want to focus on effectiveness first. Figure out what is effective before you spend a lot of time and energy trying to make what you’re doing efficient. Once you get the effectiveness and efficiency, now scaling becomes better. It becomes easier because when you scale there are fewer inefficient things that are going to scale with you the amount of waste you’re creating is going to stay smaller.
It’s still going to scale, but because you reduced it first, it’s not going to get as big and when you get bigger as a business. You’re not going to have to spend so much time and energy and resources managing the waste that’s occurring in your business because you made it efficient first.
Technology’s Role In Effectiveness and Efficiency in Your Business
Remember that effectiveness is how well a thing meets its intended purpose. So when you walk backwards from there to answer the question “how can technology help me do that?” it’s focused around user information.
Think about Customers using your products, whether they’re digital or physical. Your Customers are having reactions to your products and those reactions are going to help you understand “Is your product effective?”
You can use things like digital surveys to gather information from your Customers about how effective your product is. You can gather statistics around usability.
If you’ve got a digital product, say selling courses as an example, you can go look and see how many people are going through your courses and actually completing them.
Are they all getting stuck at a certain point?
There’s all kinds of data and information that you can capture and analyze around how your digital products are being used.
If you’re selling a course that is all written and comprised of different workbooks, you can go look at how many times book one, book two, book three, etc. are downloaded and start to gain some information about how effective is your product at helping or doing the things that you wanted to do.
If you’ve got a physical product that requires support, your support system is going to provide information about your product’s effectiveness. If you have a system or application used to track tickets or people’s complaints or things like that, that is information about how effective your product is.
That’s how technology can help you understand effectiveness better. It’s about understanding “how well is this thing doing its job?”
Switching to efficiency, technology is really going to help you automate. That’s the biggest one thing that tech is going to do for you in terms of efficiency. It’s going to allow you to do things that you wouldn’t otherwise be able to do as a business because you don’t have enough resources in the form of people to do all of these manual things.
Technology allows you to do things that are powerful and you can do them relatively easily. There’s usually an initial investment that’s involved with technology. But once you make that investment, most of the time (not all the time, but most of the time), your ongoing operations cost for that piece of technology are fairly low in comparison to if you had to pay a human to do that same work 40 hours a week.
The technology, over time, is going to usually be cheaper than having a person do many tasks. Technology is also going to scale a lot easier. People don’t scale. The only way to scale people is to hire more people.
With technology, oftentimes you can click a button you can go up a level in your plan or you can turn a dial and add more resources. If set up properly, it’s very easy to scale technology as your business grows.
Technology doesn’t take holidays or sick days or personal days or anything like that.
So from the efficiency side of things, technology is about automation. It’s about doing tasks for you so that people don’t have to do them and giving you the ability to quickly increase your resources without having to go hire a bunch of people.
Speaking of Hiring…
The other example around efficiency versus effectiveness is around hiring employees. When we think about hiring somebody into our business there are a couple ways to think about it.
As I mentioned at the beginning effectiveness can be used to look at any one thing so you can look at the effectiveness of the person that you hired.
How well does that person meet their intended objectives?
If their intended purpose for hiring them was to build us a website, how well are they doing that? How well is our website functioning? Is it meeting our needs? That’s the effectiveness of the employee.
You also have systems to bring employees into your business. You might not have thought of these as systems previously, but they’re there regardless of whether you intentionally put them in place or whether they’re just happening haphazardly. You have systems there that are used to bring employees into your business.
There is effectiveness to that system that you’re using to hire. Are you hiring the right people?
For efficiency, now we’re looking at how much time we spend bringing a new employee into our business. How much time do we spend researching the job? How much time do we spend doing the recruiting and the interviewing?
Maybe we have a recruiter in our business or we use a third-party. We spent actual money there. There are a lot of different inputs involved in bringing a person into your organization.
The efficiency is then about how much that you put in to get that one employee.
One important point to understand here is that effectiveness and efficiency work separately.
This is important to understand because increasing or improving one can actually degrade the other.
Let’s continue on this hiring example.
Let’s say you spend 20 hours to hire one person into your business and that 20 hours is doing all the things we talked about. It’s doing the job research, writing the job description, doing the screening, the interviewing, writing the offer bringing that person in, and getting them to day one.
After bringing in a few employees, yuou decide that you’re not quite getting the right employees through your hiring system and you want to make improvements there. You want to get better quality people into your business.
You decide to go make change the hiring system and in the process, you might decrease your efficiency by increasing your effectiveness.
Now you’re doing more research, you’re getting better keywords, and you’re spending time building relationships with candidates that you weren’t doing in the past. All of that takes more time so you now might be spending 30 hours to get one good employee into your business.
You have made it more effective because you’re getting better results but in doing so you’ve made that system less efficient.
You are spending more money, more time, and more energy to get the same output – that one employee. The employee is better quality but it’s less efficient, but that’s okay.
Anytime you’re improving a system, you’re probably going to make it less efficient if you’re trying to make it more effective. This goes back to what I said at the beginning, you always want to work on your effectiveness first, because the process of improving your effectiveness is sloppy. It’s messy and it causes a lot of extra waste while you’re doing it. You’re trying to figure out what is the most effective by trying different things and not everything is going to work. It’s ok though because that’s part of the process of Optimizing For Outcomes.
Once you’ve got effectiveness pinned down, you can start looking at your efficiency. So back to the hiring example, you blew it up and now it’s 30 hours a week but you’re getting more effective hires into your business.
Now you can go through all of the efficiency tools and start looking at removing waste from the system.
You might find as you look at those 30 hours and what you’re doing, because of the changes that you made to get more effective, you’re now doing things that were part of the old way that you don’t need anymore in the new way. So now you can take that out and you can reduce the time that you’re spending and the money that you’re spending and get those 30 hours back down to 20.
You get back to the same level of efficiency that you had before, but now you’re getting a better employee and a better hire into your business. Over time, you have improved your effectiveness and you’ve maintained your efficiency and you’re getting better results and better outcomes from your hiring process.
The Quick Recap
So to recap, effectiveness is how well does something meet its purpose. Efficiency is the ratio of inputs to outputs. How much did you have to put in to get this thing out? Keep that in mind as you’re looking at your business and as you are Optimizing For Outcomes.
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