Efficiency and effectiveness are two widely used terms while measuring the performance of individuals and organizations. People often confuse the two terms with one another and use them interchangeably. However, in reality, they substantially differ from each other in respect of their meanings and applicability.
Efficiency means achieving certain tasks in the most optimal manner, using the least amount of time and other resources. On the other hand, effectiveness refers to carrying out the right tasks, irrespective of the time taken and resources utilized to fulfill those tasks. In other words, efficiency is the state of achieving the highest productivity by making the least effort, while effectiveness is the degree to which the required result is successfully achieved. Hence, effectiveness refers to achieving an objective, whereas efficiency refers to the best method of achieving that objective.
In this article, the definitions of the two terms will be put forward and the differences between them will be explained.
Definitions and meanings
Efficiency is the ability to generate the highest output from the inputs, while generating the lowest amount of waste in terms of time, money, raw materials, effort and energy. It is possible to obtain a quantitative measure of efficiency by obtaining the input-output ratios of the company’s resources, such as labor, costs, energy, material, etc.
Efficiency is one of the parameters used to compute the productivity and performance of a company by comparing the planned output with the actual outputs generated, with the inputs remaining fixed. It is the capability to perform activities in an organized manner so that the standard output can be attained.
There is an internal outlook of efficiency as it evaluates operations, procedures, costs, time, manpower, etc. within the organization. Efficiency is critical for optimum use of resources. This is because there are limited resources, as well as alternative use of these resources; hence, it is imperative to use them in the best possible manner. Hence, efficiency clearly concentrates on decreasing expenses or wastage so that unnecessary costs can be removed and outputs can be attained with a fixed number of inputs.
Effectiveness refers to the extent to which the outcome attained is close to the planned outcome so as to determine the viability of the entire organization. Effectiveness is result-oriented, depicting how successfully a task has been carried out that brought about the accomplishment of the desired outcome close to perfection.
The outlook of effectiveness is outward in nature, i.e. it reveals the organization’s relationship with its macro environment and concentrates on becoming competitive in the market.
When companies are determining whether their planned strategy is effective, they need to determine the following before moving ahead:
- Identify the target solution to the problem
- Determine the ideal response time to attain the target
- Determine the balance between cost and benefits.
Difference between efficiency and effectiveness
The main difference between efficiency and effectiveness is given below:
Efficiency is the ability to generate the highest output using limited resources, while effectiveness is the extent to which the actual output is close to the planned output.
2. Refers to
Efficiency refers to doing things in the perfect manner, while effectiveness means doing the right things.
3. Kind of perspective
There is a short-term perspective of efficiency as it pertains to the attainment of short-term goals. In contrast, effectiveness has a long-term perspective as it seeks to achieve long-term benefits and sustainable development.
The focus of efficiency is on completing a task by using the least amount of resources and time, whereas the focus of effectiveness is on attaining the result and not on the use of resources. That is, efficiency is yield-oriented while effectiveness is result-oriented.
Efficiency is effort-oriented, time-oriented and process-oriented, whereas effectiveness is goal-oriented.
Efficiency is confined to within the organization as it pertains to performance issues (cost, resources and time) related to the organizational activities. On the contrary, effectiveness has an external approach as it is determined by measuring the performance against that of other organizations.
7. Type of analysis required
Efficiency requires objective analysis as it can be determined quantitatively using input-output ratios. However, effectiveness calls for subjective assessment as it cannot be measured easily.
Efficiency vs effectiveness – tabular comparison
|The best way of achieving an outcome||Achieving the planned objective|
|Doing things perfectly||Doing the right things|
|Kind of perspective|
|Concerned about the best possible use of resources||Concerned about achieving the result|
|Time, process and effort oriented||Goal-oriented|
|Type of analysis required|
Conclusion – efficiency vs effectiveness
Efficiency and effectiveness both occupy a significant place in the organization because their success depends on these two measures. If organizations wish to maximize their productivity, they should combine efficiency and effectiveness.
Keeping in view the technological developments and increase in global competitiveness, it is important for successful organizations to use their time and resources to do the right things in the right manner. That is, they need to work according to the objectives of the company and do so in the most efficient manner. This can be done when organizations first identify what should be done (effectiveness) and then determine the way it can be done in the best possible manner (efficiency). Doing the right things less efficiently (effective but inefficient) is better than doing the wrong things efficiently. This is because when organizations efficiently perform the tasks that they are not supposed to be doing at all, they end up wasting the resources as well as time, leaving them with fewer resources and time to accomplish the things they are actually supposed to do. This is why companies should seek to first become effective and then bring in efficiency in their operations.
It is important to determine the optimum balance between these two measures, for which, the following steps can be taken:
- Determine a solution
- Put it into action, review it and determine how it can be done better
- Use the knowledge gained from the process to repeat the process more efficiently.