Paul Kennedy weighs in on Effectiveness vs. Efficiency debate

As a follow-up to our blog post on Was Drucker Wrong About Knowledge Workers, senior fellow Paul Kennedy sent me his “brain dump” on the topic.

As usual, Paul contributes a more holistic view of this topic by introducing the concept of positioning.

In this short essay, Paul explains why you can only be more effective in the context of an objective.

Michael Gerber distinguishes efficiency and effectiveness with “what” and “how” questions so:

Efficiency—How do we do this faster? How do I do this with less waste?

Effectiveness—What should we be doing?

But other than that I think definitions as you present them work.

If the challenge is to “how to create and capture value through knowledge workers” then there may be another step in the chain (can you have a step in a chain?)—positioning.

Calling things by their proper name is a big part of the problem. To confuse terminology, Michael Porter in his famous HBR article “What is Strategy?” distinguishes between Operational Effectiveness (OE) and strategic positioning. He defines OE as “performing similar activities better than rivals”—nearer our definition of efficiency.

He goes to explain “OE includes but is not limited to efficiency. It refers to any number of practices that allow a company to better utilize its inputs, by for example, reducing defects in products or developing better products faster” (still sounds like our definition of efficiency!). He goes on to write “In contrast strategic positioning means performing different activities from rivals’, or performing similar activities in different ways.” This sounds more like our definition of effectiveness!

Porter goes on to explain that improvements in OE do not create sustainable advantage as such improvements are quickly copied. Porter points to rapid diffusion of best practice, the outsourcing of some activities often to the same organisations competitors use and role of consultants in ensuring that advantage is at best temporary. OE effectively shifts the bar for everyone but relatively for no one. Becoming more efficient is just a hygiene factor.

Has tax software made the accounting profession more profitable? No, because it has merely raised the bar. It has become a table stake.

Porter argues that to create and capture value in any organisation (including organisations of KWs) in the long term strategic positioning is the only way. My understanding of his theory of strategic positioning is that it is about alignment (he uses the term fit). I think that for a KW to be effective a KW’s capabilities need to be aligned to the needs of the organisation’s customers and the customers need to be chosen to optimise this chance. I think this optimisation of alignment goes beyond effectiveness.

Jim Collins talks about putting people in the right seat of the bus and Kaplan and Norton seek to align intangible assets to financial objectives through the use of strategy maps. These maps articulate an organisation’s theory of value creation and capture through a series of cause and effect links. They make explicit how it is hoped intangible assets are developed, orchestrated and aligned to target customer needs and how this value creation is then captured to meet overall (often financial) objectives.

It seems to me that you can only be more effective in the context of an objective and these cause and effect diagrams we call Strategy maps, go some way to articulate an organisation’s plan for being more effective in the context of an overriding objective. In my experience this is a good way of getting KW alignment to organisational objective and thereby enhancing effectiveness.

But understanding a theory of value creation does not give you a better way of measuring KWs nor, in my opinion, does it matter. Even Kaplan and Norton for all their preoccupation with scorecards don’t try to measure this stuff!

Thanks, Paul, as always your comments are extremely cogent and logical. I missed the topic of positioning, taking it as a given.

Yet as you and Paul O’Bryne teach everyone so well, you can’t value price the wrong customer—hence, positioning and strategy is crucial to this topic.

Comments

  1. Eric Fetterolf says:

    Paul, excellent take on this issue. I especially like the second definition of efficiency: ?How do I do this with less waste??

    Too often, those caught up in the efficiency vs effective debate develop tunnel vision on the TIME factor of efficiency ? doing things faster.

    Efficiency really means less waste. Time, of course, is the only resource that can never be replaced. But you can waste other things as well. Ron put it very well by stating that I can have a very fast car but if I?m pointed in the wrong direction, I?m being efficient but not effective.

    But I?d argue that I also not being efficient. I?m not only wasting time but other resources as well like gas, wear and tear on the vehicle, money, my passengers trust in my guidance to name a few.

    For PK Firms, time becomes the only factor because that is all they measure. For those firms focused on time, any waste can be reduced back to time lost. And for many customers, time lost is trust lost.

    Perhaps this is the point that was missing from our discussions in the previous post. I took a much broader view of efficiency without articulating to the group very well.

    If I can accomplish a goal, I am effective.

    If I can accomplish the goal with less waste, then I am more effective both to the customer and to my firm.

    The iron law from before clearly states that no effective behavior can result from an efficiency acquired or implemented. But we all agreed in the previous post that removing all efficiencies from your practice and processes will result in less effectiveness.

    Therefore, I?m going to throw the question back to the group from the negative perspective. What efficiencies can we NOT give up to remain effective? Or, if you?d like: What are the ?table stake? efficiencies that allow us to become effective?

  2. Dear Ron Baker, I happened upon your debate on Effectiveness vs. Efficiency debate at LinkedIn. Let me add few comments.
    @ Ron Baker: ?It seems to me that you can only be more effective in the context of an objective and these cause and effect diagrams we call Strategy maps, go some way to articulate an organisation?s plan for being more effective in the context of an overriding objective.?  In my understanding, this statement adds new dimension to the debate. If effectiveness is about an objective and organisation simultaneously deals with different and sometimes even opposing objectives, then effectiveness is secondary evaluation criteria to the assessment of synergy between all pursued objectives in a given organisation.
    @Eric Fetterolf ?The iron law from before clearly states that no effective behavior can result from an efficiency acquired or implemented. But we all agreed in the previous post that removing all efficiencies from your practice and processes will result in less effectiveness?.  this distinction says that effectiveness (what?) will not necessarily result from improved efficiency (how?). But also, that effectiveness implies efficiency as a narrower criterion. So there is a hierarchy of criteria where efficiency is narrowest in scope, effectiveness is broader and synergy is general. One actually does not operate with binary and horizontals relationship but with triadic and vertical (multilevel, embedded) relationship.
    @ Eric Fetterolf: Therefore, I?m going to throw the question back to the group from the negative perspective. What efficiencies can we NOT give up to remain effective? Or, if you?d like: What are the ?table stake? efficiencies that allow us to become effective?  Organisations are machines for increasing efficiency. But organisation employs various types of resources with different approaches to increasing their effectiveness. Material end energy costs result from use of scarce resources, so their use must become cost efficient. Non-material cost of organisation such as for human resources, relate to relatively abundant wealth. Human resources increase in supply when they are used, not decrease, because they are able to learn, adapt, create and innovate. Efficiency in human resource use will not be reduced to monetary costs. Human capital is wasted in productive terms if creativity, learning (?) of human capital is not progressively improved.

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