GUEST POST from Mike Shipulski
Efficiency is a simple measurement – output divided by resources needed to achieve it. How much did you get done and how many people did you need to do it? What was the return on the investment? How much money did you make relative to how much you had to invest? We have efficiency measurements for just about everything. We are an efficiency-based society.
It’s easy to create a metric for efficiency. Figure out the output you can measure and divide it by the resources you think you used to achieve it. While a metric like this is easy to calculate, it likely won’t provide a good answer to what we think is the only question worth asking– how do we increase efficiency?
Problem 1. The resources you think are used to produce the output aren’t the only resources you used to generate the output. There are many resources that contributed to the output that you did not measure. And not only that, you don’t know how much those resources actually cost. You can try the tricky trick of fully burdened cost, where the labor rate is loaded with an overhead percentage. But that’s, well, nothing more than an artifact of a contrived accounting system. You can do some other stuff like calculate the opportunity cost of deploying those resources on other projects. I’m not sure what that will get you, but it won’t get you the actual cost of achieving the output you think you achieved.
Problem 2. We don’t measure what’s important or meaningful. We measure what’s easy to measure. And that’s a big problem because you end up beating yourself about the head and shoulders trying to improve something that is easy to measure but not all that meaningful. The biggest problem here is local optimization. You want something easy to measure so you cull out a small fraction of a larger process and increase the output of that small part of the process. The thing is, your customer doesn’t care about the efficiency of that small piece of that process. And, improving that small piece likely doesn’t do anything for the output of the total process. If more products aren’t leaving the factory, you didn’t do anything.
Problem 3. Productivity isn’t all that important. What’s important is effectiveness. If you are highly efficient at the wrong thing, you may be efficient, but you’re also ineffective. If you launch a product in a highly efficient way and no one buys it, your efficiency numbers may be off the charts, but your effectiveness numbers are in the toilet.
We have very few metrics on effectiveness. But here are some questions a good effectiveness metric should help you answer.
- Did we work on the right projects?
- Did we make good decisions?
- Did we put the right people on the projects?
- Did we do what we said we’d do?
- After the project, is the team excited to do a follow-on project?
- Did our customers benefit from our work?
- Do our partners want to work with us again?
- Did we set ourselves up to do our work better next time?
- Did we grow our young talent?
- Did we have fun?
- Do more people like to work at our company?
- Have we developed more trust-based relationships over the last year?
- Have we been more transparent with our workforce this year?
If I had a choice between efficiency and effectiveness, I’d choose effectiveness.
Image credit: Unsplash
Sign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.
Drum roll please…
