Systems Thinking and Effectiveness, Efficiency, and Productivity

For many, focusing on effectiveness, efficiency, and productivity isn’t very exciting work. In fact, a lot of people find it downright boring. It’s not flashy, doesn’t excite many people, and the benefits aren’t always immediately identifiable.

While this is true for most people, setting up efficient structure and systems are critical to the long-term health and scalability of your organization. Having efficient, effective systems in place will allow you to achieve more with less, get things done in less time, and allow you to scale your operation.

This also means delivering more value to your customers and defending your business against competition.

If you don’t spend a little bit of time thinking about optimizing your operation, a competitor that doesn’t find this work boring (or is strong enough to push through it) will come along and provide better products at lower prices.

The Right Mindset

Understanding a few key things will go a long way in helping you focus on the right things to get the most out of your systems.

The term system is often used to refer to software, but it’s important to think of systems as more than just software or technology. Anything you do can be thought of as a system. A system is made up of people, processes, and technology that is used to get something done (desired outcomes).

Systems can be personal – you have a system for washing the laundry, making dinner, getting ready to leave the house in the morning, and anything else you do.

Systems are also found in our work lives. A business a collection of systems that generate value that customers are willing to pay for. Note that systems don’t have to be good, consistent, organized, thought out, planned, or any other descriptive word you might think of.

Once you start thinking of everything as a system, you will be able to better understand the productivity, efficiency, and effectiveness of the things that you do, as well as work to improve your systems in these areas with some standard improvement tools.

People exist in systems to do manual tasks to move the processes along. In the case of laundry, a person is loading the machine, measuring and adding soap, selecting options on the washer/dryer, etc.

Technology exists to automate parts of the process. The washing machine removes the need for a person to have to hand scrub laundry, saving time and energy for the people involved.

Systems exist with all different combinations of people and technology. Some systems are fully automated, not requiring any human involvement. Others are completely manual with no technology used to automate any piece of it.

In a system, there are one or more processes that take inputs and convert them to outputs. Think of the laundry example: You take dirty laundry, soap, and water (inputs), follow a series of steps (process), and eventually end up with clean clothes (output).

The reason systems exist (i.e. the reason we do anything) is to add value. That value could be measured in many ways: we do things in our careers to earn money, we do things at home to improve our lives, we do things for fun to be entertained, and so on.

This value is critical inside a business – without real value that is effective in solving Customers’ problems, the organization will eventually go out of business. If the value is too little, or isn’t there, Customers will be unwilling to pay for the company’s products and services.

To summarize –

Anything you do, professional or personal, is a system (or part of a system)
Systems are made up of people, processes, and technology
Systems have all different combinations of people, processes, and technology
Systems take inputs and produce outputs
Systems exist to add value

Effectiveness, Efficiency, and Productivity

These terms are often confused and not consistently used by many people. It’s important that you have a consistent understanding of these terms to get the most from your efforts.

Effectiveness is a quality that identifies how well a system output meets the needs of the Customer. Another way to think of effectiveness is that it measures how well a product or service solves a Customer’s problem. For example, a home security system that doesn’t go off when someone opens the front door isn’t very effective for its intended purpose.

Effectiveness can be improved by improving your understanding of your Customer’s needs/wants and better aligning your systems to produce outputs that better meet the Customer’s needs and wants.

Efficiency is a quality that is measured by the amount of resources (time, energy, money, etc.) that are used by your system to produce a given number of outputs. For example, assume a factory is producing 1000 widgets a day (outputs/productivity) and uses 1000 pounds of steel (inputs). The efficiency of the factory is a ratio between the amount of steel used to the amount of widgets produced.

Efficiency can be increase in three ways.

Reducing the amount of inputs and creating the same number of outputs (1000 widgets with 800 pounds of steel)
Using the same inputs and creating additional outputs (1200 widgets with 1000 pounds of steel)
Producing the same amount of outputs with the same amount of inputs, but in less time

Productivity is a measure of outputs of your system. In other words, productivity is a measure of how much your system creates (outputs, value) in a given time period. As an example, if you are working as a travel agent, your productivity for your work could be measured in how many trips you book in a day.

Productivity can increase by adding more inputs into the system, letting the process run its course, which will in turn create more outputs. (easier said than done!)

Many times people associate work with productivity. This isn’t always the case and this is part of the reason why you might find yourself working tirelessly day after day but you don’t see different or better results. Doing more work doesn’t mean you’re being more productive. Only by increasing the outputs and outcomes that matter are you creating true increases in productivity.

Examples From Heating Systems

Here’s a real-world illustration of the differences between productivity, efficiency, and effectiveness – I have two fireplaces in my house along with a furnace. One of the fireplaces is wood burning, while the other runs on natural gas. The furnace also runs on natural gas.

In producing heat for my home, I could build the biggest fire and generate the most heat with the wood burning fireplace. The productivity of the wood fireplace is greater than both the gas fireplace and the furnace. This productivity comes at a pretty heavy cost – I have to cut/store massive amounts of wood, use a ton of it to build a big fire, and keep feeding it to keep the fire going and the productivity high (high outputs, but the process requires significant inputs).

The gas fireplace is much more efficient. It creates a smaller flame, but the flame is more intense. It’s also fed from a gas line which requires me to do nothing other than flip a switch. The gas fireplace cannot be as productive as the wood fireplace (generate as much heat), but the heat that it does generate costs me a fraction of the money and none of the effort, making it much more efficient (lower outputs, but significantly lower inputs).

Neither of these fireplaces are effective at heating the whole house. Only the furnace, with its extended, insulated duct work, can heat the whole house effectively (outputs that meet the requirements of heating the whole house).

Note that effectiveness is partially determined by the lens you are using to view the situation – the gas fireplace is ineffective at heating the whole house but very effective in heating the room that it’s in.

The wood fireplace is the most productive, the furnace is the most effective (when considering the whole house), and the gas fireplace is the most efficient.

Relationships Between Productivity, Efficiency, and Effectiveness

While these concepts all have relationships with each other, it is important to understand that success in one area does not guarantee success in all areas. Here are some examples –

Becoming more efficient can make you more productive, but just because you are productive does not mean you are efficient.

People often mistakenly believe, “I am already super productive, so I don’t need to work on my efficiency.” This belief that productivity equals efficiency leads people to overlook improving the things that they do. Even if you are highly productive, working on efficiency can help you –

Be as productive as you are now with less effort
Be more productive than you are now with the same effort

You do not HAVE TO be efficient or highly productive to be effective. You can meet your Customer’s needs perfectly while being largely inefficient with systems that produce very little. The downside here is the quantity of Customers you can serve will be very low until you increase efficiency and/or productivity.

Becoming more effective does not make you more efficient or productive.

Great organizations are improving all three of these areas to stay ahead of the competition, maximize value to Customers, and maintain an agile organization that will be adaptable in the future.

So Now What?

You’ve made it this far, and have picked up some basic understanding of systems, processes, productivity, efficiency, and more! The logical question now is, “what do I do with all this new knowledge?”

Whether you are a solopreneur or running a large team, there are some things you can do to start benefiting immediately from your new knowledge.

Start thinking about the things you do as systems. In any organization, you should be able to break down what you do into 6-12 systems. Say you’re running a restaurant – your first list of systems might look something like this –

Seating Customers
Taking Customer Orders
Preparing and Delivering Food
Managing Food Inventory
Social Media Management
Other Ads & Marketing Management
Staff Hiring & Training

With your core systems identified, think about which of these systems has room for the biggest improvements. It could be that you’re spending too much time in an area, you’re not getting the outcomes you desire, you end up with an overflow of work in an area and are always behind, etc.

Laser focus on the one system that you believe will return the biggest benefit.

Yes, there are more scientific ways to do this, but those take much more time and resources, and often lead to similar results. You know your business, and you know where there is opportunity. Trust in yourself and you will find that you’re usually right.

With the system identified, here are three things you can start doing today that will return benefits quickly.

First, have anyone involved with the system track how they’re spending their time for a week. What are the activities that they are really doing within that system? How much time are they spending on each of these activities? This doesn’t have to be complicated – you can use an Excel or Google spreadsheet, although there are some fancier tools for this kind of thing available like Harvest or Timecamp.

Second, identify the steps with more detail you are doing within the system. Identify which of these steps are adding Customer value and which aren’t. The way to think of this is, “will the Customer pay more because we are doing this?” If the answer is no, do what you can to get rid of that step. If you can’t get rid of it, try to minimize it, automate it, or outsource it so you can focus time and energy on the activities that Customers are willing to pay for.

Third, think about things you can easily see in your system to measure the system’s health. This could be data that you’re already gathering or observations that could be made. For example, in the restaurant example, you might look at data around reservations made through Facebook as a measure of how well your social media is performing. Be sure to think about any changes you’re implementing and how you can measure their effectiveness in changing the system and monitor the changes to make sure they stick.

If you’re looking for extra guidance on how to apply this or other tools in your business, you can book a 15 minute call with me for $95 here.