Was Drucker Wrong About Knowledge Workers? A Book Review

The following is a review of a book that I recently read, which I shared internally with my VeraSage colleagues. Warning: It’s long, about 2,400 words.

It deals with a vital topic: how to increase the effectiveness of knowledge workers, what Peter Drucker said the well-being of our entire society depended upon.

After reflection, I thought our readers might like to weigh in on these issues, so I’m posting the entire review and asking everyone to contribute their thoughts through the comments section of this post.

If you are firm leader who employs knowledge workers, this is the most important task you face in creating a dynamic, sustainable firm—one you’d be proud to have your son or daughter work for.

Book Summary: Reinvent Your Enterprise: Through Better Knowledge Work by Jack Bergstrand, Founder, Brand Velocity, Inc.

This is a thought-provoking book, one I wanted to share with everyone at VeraSage. The Foreword is written by Rick Wartzman, Director, The Drucker Institute. This is an organization I have tremendous respect for, as they are trying to advance the legacy of Peter Drucker.

Drucker identified the greatest challenge of the 21st century: enhancing knowledge worker productivity. Drucker coined the term in 1959, when about 1/3 of the workforce was engaged in manufacturing (compared to about 10% today).

The author’s mission is to explain how businesses should actually go about doing these things. He is attempting to advance a framework to enhance the effectiveness of knowledge workers, to tackle Drucker’s warning: “The well-being of our entire society depends increasingly on the ability of…large numbers of knowledge workers to be effective.”

The author gets it. He worked for more than twenty years at Coca-Cola, running the global information technology function until 2001. A recurring theme in the book is that Knowledge Workers (KWs) has been constrained to a significant degree by the same scientific methods that helped companies successfully manage manual work for much of the 20th century.

The author has also done his homework, with an extensive bibliography that cites many of the same books we have read. I truly appreciated the level of thinking that went into this book.

We at VeraSage know how hard these ideas are to transmit to most business audiences. It sounds like a management fad to talk about KWs, even though the idea is 50 years old, and demonstrably true. We simply don’t have a framework for KW efficiency/effectiveness, which is why I greatly admire this contribution. He’s thought about it quite a bit. And has even prototyped a consulting firm based on KW principles.

That said, there’s much in the book I don’t agree with. It will cause great cognitive dissonance. Perhaps some of it is linguistic, but that’s the entire point if we subscribe to the Peter Block notion that all change is linguistic. Half of wisdom is calling things by their proper names.


We are all familiar with the debate between efficiency and effectiveness. But let’s start with a clear definition of these terms, as the author does.

  • Efficiency focuses on doing things right.
  • Effectiveness concentrates on doing the right things.
  • Productivity is about doing them both at the same time.
  • Knowledge work is how individuals and groups use ideas, expertise, information, and relationships to get things done.
  • Knowledge work productivity is the effectiveness and efficiency of these tasks.

He goes on: productivity improvement, through inventing and reinventing Enterprises, is what generates the surpluses that pay for our standard of living.

My dictionary defines “productivity” this way: the effectiveness of productive effort, esp. in industry, as measured in terms of the rate of output per unit of input.

Later in the book, he admits that productivity is output divided by inputs, and knowledge is one of the chief inputs in a KW environment. This leaves a glaring void with respect to effectiveness.


Yet the entire debate centers on effectiveness. Just because you are efficient doesn’t mean your effective. Examples abound: buggy whip, slide-rule, typewriter, and dot matrix printer manufacturers might have been at the apogee of their efficiency. So what?

There’s nothing more useless than being efficient at something that shouldn’t be done in the first place. A business is not paid to be efficient.

So it’s clear that efficiency and productivity are always a measurement—a ratio of outputs divided by inputs. Effectiveness, on the other hand, is always a judgment.

There is no such thing as “generic efficiency,” as Thomas Sowell has explained in his Basic Economics book, and I’ve written about extensively. It depends on what you’re trying to accomplish and the price you are willing to pay.

Our automobiles are inefficient from an output/input ratio calculation, since they are idle a majority of the time. But they are highly effective at taking us where and when we want to go.

So what? Well, after discussions with many of you, here are some iron laws that are beginning to formulate:

  • Effectiveness always and everywhere trumps efficiency.
  • It’s possible to increase effectiveness and efficiency at the same time.
  • It’s not possible to increase efficiency and increase effectiveness.
  • Efficiency does not provide a sustainable competitive advantage; only effectiveness can.
  • Efficiency is a table stake, like having restrooms. Effectiveness is what creates a competitive differentiation.

We are looking for anomalies to these propositions. I thought of computers doing tax returns, which greatly reduced mistakes and thus led to more effectiveness. But Ed pointed out that the end result was just a correct tax return, which could have been hand-checked under the old method several times, albeit with less efficiency, yet the result would have been the exact same—a correct tax return.

I’m also pondering Wal-Mart, obviously greatly concerned with efficiency. They squeeze costs out of the system with technology, reduced inventory, etc., then pass these costs on to customers through price discounts. Is that efficiency or effectiveness? Southwest does the same. How does this fit?

Consider another example: the ratio of overhead to spending for a charitable organization. This one measure is often touted as the single biggest clue as to the charity’s effectiveness. But is it?

You still have to judge the results. What if Jonas Sulk’s foundation spent 60% on administration and overhead but still developed the cure for polio? Is that inefficient? How about the Manhattan Project spending the same ratio? If the Bill and Melinda Gates Foundation cured AIDS but spent 90% on administration and salaries, should we care?

No matter how good our measures are we still need judgment. And this is where the efficiency experts fail miserably, especially in a knowledge environment. Was Einstein efficient? How would you measure it?

Efficiency is like painting by the numbers. It’s no doubt more efficient; but it produces crappy art. If we believe KWs are artists—and I know this is debatable because of Dan’s contention that most professionals aren’t KWs—aren’t efficiency experts (Lean, Six-Sigma, etc.) doing nothing more than creating paint-by-the-numbers kits?

Back to the book

This book needs to be read with this profound difference between efficiency and effectiveness understood. I’m not sure the author understands it completely (hell, I’m not sure I do either, but I think we are closer to the truth). I don’t agree with his political comments in the book, they are economically illiterate when discussing budget and trade deficits, healthcare, education, and energy challenges, so I’ll just focus on his business advice.

For example, it’s hard to disagree with this:

Efficiency focuses on inputs and tries to reduce them whereas productivity [his definition] concentrates on outputs and tries to increase them. Cost cutting does not drive productivity. Reinvention does.

True. What good is it to be producing dot matrix printers efficiently right before Apple produces the LaserWriter and decimates your market? Reinvention is what capitalism is all about. I have severe misgivings that large organizations are as capable of this as the author wants them to be.

But it doesn’t matter. The market will produce the Black Swans, either from existing organizations or new ones (who used Google 12 years ago?). I, for one, am glad the buggy whip manufacturers are gone. Henry Ford reinvented them without their consent.

How KWs Are Different

I liked how the author contrasted knowledge work with manual work, with our bracketed language added:

Manual work

  • Define the task
  • Command and control
  • Strict standards
  • Focus on quantity [measure]
  • Measure performance to strict standards
  • Minimize cost of workers for a task

Knowledge work

  • Understand the task
  • Give Autonomy
  • Continuous innovation
  • Focus on quality [judgment]
  • Continuously learn & teach
  • Treat workers as an asset not as a cost [Volunteers]

The author points out that waste in a manual environment is seen by everyone, but with KWs it’s not nearly as visible. He suggests the following litmus test for productive knowledge work:

Ultimately, these results should be judged based on whether one of the following occurs:

  • When something successful that never existed previously is now up and running.
  • When something successful that existed previously has been improved or expanded.
  • When something unsuccessful that existed previously has been stopped.

Notice he used the words “these results should be judged,” not measured! This is why I believe the author is confused by this essential difference.

Since knowledge and good ideas have a short life span, the author continuously emphasizes that speed is important:

In the Knowledge Age, what matters most is not what you know but how fast you can apply it.

But this reminds me of the husband whose driving aimlessly and when his wife asks him where they are, he replies: “I have no idea, but we are making great time.” Effectiveness is more important than speed, though I’ll concede speed shouldn’t be ignored.

Framework for KWs

The author suggests the following framework for KWs:

  • Envision—subjective knowledge. Where do we intend to go and why?
  • Design—objective knowledge. What do we need to do and when?
  • Build—objective work. How can the work best get done?
  • Operate—subjective work. Who is responsible for which tasks?

The middle of the book explains each of these steps, and along the way makes some excellent points on the difference between KW and manual environments.

That said, I found the framework complicated. It was as if he substituted Frederick Taylor’s framework with his own, needlessly complicated system. He certainly understands the difference between the parts and the whole, since a company is an interdependent system that you can’t simply break into parts and impose 100% efficiency on each. This reduces the effectiveness of the whole.

Yet, my head began to hurt reading the details of this framework. I believe a shave with Occam’s Razor is in order, and I think Google Time (20% for KWs to work on what they want), combined with Before Action Reviews and After Action Reviews, accomplishes the same objectives.

Prototyping a Pure Knowledge Firm

Perhaps the most interesting part of the book is the last section where the author describes founding a consulting firm, Brand Velocity, Inc., on the basis of Drucker’s KW principles.

He laments that many of the incentive structures in business were founded by Scientific Management principles in order to control workers. Retention incentives, fur-lined handcuffs, the author argues, can have the long-term effect of keeping the least productive people while scaring off the best and brightest.

He also understands that a small proportion of the best KWs create an overwhelmingly disproportionate amount of output (this is true across knowledge sectors, from programmers, to lawyers, and is backed up by many studies). Bill Gates once said that Microsoft was essentially 20 programmers, and this was in the late 1990s, not when it was a start-up. The same was said of Pixar when it sold to Disney, except it was three people.

Another principle the author articulates is that if firms can’t manage KWs outputs from a distance, they probably aren’t managing them productively in their office buildings either. He believes, just like the number of farms has shrunk over the last century while farming output soared, so will the number of offices housing KWs.

If, as the World Bank writes, 75% of wealth resides in human capital, this leads to another important principle: people have value, not jobs. KWs will need to be “compensated based on their personal contributions, without the company taking more than its fair share. At the same time, KWs will need to directly feel the pain when the goals of the Enterprise aren’t achieved.”

Brand Velocity he calls an economic pass through, and as such, there are no caps to compensation and there are very few socialized costs (Category 3 spending in our lingo) linked to personalized benefits.

The author writes, “if you have an Enterprise where employees aren’t able to earn more than their bosses, your company probably won’t be as productive as it could be.”

Given VeraSage’s discomfort with the partnership model, and our search for an alternative model, here’s how Brand Velocity distributes its income:

At Brand Velocity, there is a 20% structural cost advantage, so operating income is capped at this amount. All surplus profits are redistributed to employees based on their contributions tracked by “points” within the firm related to the company’s top three business drivers: selling great work, delivering great work, and recruiting and developing a diverse group of great people. …Other activities are important, but they don’t earn points.

The result is that high contributors—regardless of rank—can earn more at Brand Velocity than they can if they start their own company or work for another firm.

From a technology perspective, employees have complete choice of their own tools. Some have Macs, some use windows, some iPhones, some Blackberries. They also advance money for expense accounts at the beginning of every quarter. If the employee has any left over at the end, they earn it back, after taxes. This takes them out of Category 3 and places them into Category 1 spending—a smart way to align incentives.

And here’s a thought-provoking idea: they work to increasingly replace judging with coaching. He writes, “dogs perform and people contribute.” No performance reviews, with the author wondering how effective a performance review for Einstein would have been.

The author also puts employees through strategic profiling, such as Myers-Briggs Type Indicator, and this is where he lost me (but Michelle would love it). You can see his individual profile at www.StrategicProfiling.com. There are fifteen categories! Occam’s Razor anyone?

This needless complexity made me think that he’s substituting Taylor under the rubric of knowledge work principles.

In the final portion of the book, the author writes that “Scientific Management helped develop the profitable mass market. Now, the challenge is to profitably develop the tailored market.”

Also, “innovation is important. But, it needs to be productive innovation created with customers.” This belies history, as Henry Ford said: “If I had listened to my customers I would have produced a faster horse.”

Not Final thoughts

If Drucker was right, if the major challenge facing the 21st century is to increase KW effectiveness, why aren’t more companies doing it, especially among PKFs? There are examples: Best Buy’s ROWE program; Google, Apple, Intel, Cisco, Novartis, etc. But the list is sort of short.

One possibility is Drucker was wrong. We have to face this possibility.

Alternatively, just as with implementing Value Pricing, this is just too hard, and most firm leaders don’t know how to tackle the issue.

There is a 40 minute interview with the author and director of The Drucker Institute here.

Of course, I am interested in all of your opinions on these issues. Please post your comments and let’s start the dialogue.


  1. Thanks Ron.

    Ordered the book. Truly interested in their method of
    distributing income:

    “At Brand Velocity, there is a 20% structural cost advantage, so operating income is capped at this amount. All surplus profits are redistributed to employees based on their contributions tracked by ‘points’ within the firm related to the company’s top three business
    drivers: selling great work, delivering great work, and recruiting and developing a diverse group of great people. …Other activities are important, but they don’t earn points.

    The result is that high contributors–regardless of rank–can earn more at Brand Velocity than they can if they start their own company or work for another firm.”

    Somehow it sounds like he is trying to quantify effectiveness, but I’ll wait and read the book.

    Mark Bailey

  2. There’s a 40 minute video of an interview with the author and Director of The Drucker Institute, at:

  3. Matthew Tol says:


    Interesting post.

    I think the issue is one where what is trying to be measured is so intangible that it just fries your brain trying to work out a way that will do so. The truth of the matter is that effectiveness is such a subjective concept that it becomes simply too hard to measure in any meaningful way.

    If I may posit that effectiveness is different things to different people at different times. What a customer’s perception of what has been effective may/will change depending on their circumstances. This makes it impossible to develop or maintain any measure of this concept that is reliable and replicable.

    I think this is where we have an issue in moving our colleagues away from their timesheet fixation – they won’t be able to measure what they have previously measured. I’ll leave the discussion as to whether this is a good thing or not for the moment.

    Similarly to us now being astounded that the Church spent years arguing over how many angels could fit on the head of a pin – we’ll, I’m sure, be amazed in years to come that people actually kept track of the time they spent doing their work.

    Effectiveness is about results. That’s what we should be about. Knowing how long it took to get them is, pretty much irrelevant.

    Now, I might not have been terribly efficient at detailing the thoughts above – but, have I been effective? There will be a range of thoughts as to this – and there rests my argument.

  4. Eric Fetterolf says:

    Thank you, Ron, for this post.

    I find myself in disagreement in the ?iron? designation of one of your “iron laws”: ?It?s not possible to increase efficiency and increase effectiveness?.

    It holds that, once we?ve identified effectiveness (right things to do), doing those things wrong will not automatically make us effective.

    The problem occurs when efficiency becomes the goal. The goal is to become effective. So you have a choice: follow efficiencies (doing things right), or follow effectiveness (doing right things). Most people seem to forget the original goal was effectiveness. They implemented some efficiencies (doing things right) and so became more effective than prior to the efficiency.

    When the ?things? never change, like industrial or manufacturing environments, focus on efficiency can be sufficient.

    For Knowledge Workers, the ?things? we do are constantly changing.

    So we must constantly focus on effectiveness (doing right things).

    But increasing efficiency on those things that are effective will increase our effectiveness.

    So I can increase efficiency and effectiveness.

    As long as I do NOT lose the vision that effectiveness is the goal, not efficiency.

  5. Thanks Matthew, great points. You are right: effectiveness = value, which is totally subjective and cannot be measured precisely.

    It also goes back to the idea that there’s no such thing as “generic efficiency,” since it depends on what your purpose is, and how much you’re willing to pay. I’ll tolerate a lot of inefficiency in the military if they are effective at defending our country.

    And yes, you’ve been highly effective.

  6. Eric,

    You may be right, it may be possible to increase efficiency and effectiveness, but please provide a specific example. This is the anomaly we are looking for I cited in the post.

    I cannot find one, with the exception of Wal-Mart being more efficient (driving out costs) to lower price to customers. But that’s also its entire strategy, so it’s increasing effectiveness as well.

    And in a PKF it’s even worse. If you increase efficiency, you actually lower revenue. At best, it is zero-sum, even if you get new clients with the increased capacity you got with the increased efficiency.

    I also don’t agree that things don’t change in manufacturing. See General Motors and Chrysler vs. Toyota, BMW, and Porsche.

    And here’s another point: you can increase efficiency in a PKF. But so what? What are you going to do with that increase? Lower price, increase price because it leads to better customer value?

    You’d be surprised at how many businesses have lost the vision of effectiveness at the expense of efficiency, which is my entire frustration with this topic. A business isn’t paid to be efficient, it’s paid to create wealth.

    Efficiency does not provide a sustainable competitive advantage, unless you utilize to achieve your purposes. like Wal-Mart. I don’t see that in PKFs, especially those who price by the hour.

  7. Eric Fetterolf says:


    Brief examples:

    Take Reading. Do you read the same way as you did in 2nd grade: speaking each word out loud? How about ?automobile university?? Do you ever listen to educational or motivational material while riding in a car, train or plane?

    Take contact management. Do you still keep only written ?little books? of each person you know with a history of your conversations?

    Take your website. Obviously you can reach more people than standing on a physical soap box on a street corner in downtown Chicago. (I know that isn?t where you live). You effectively reach a greater audience, and create more dialogs, with this tool.

    Each is an efficiency that allows you to become more effective in learning and communication.

    I agree that certain manufacturing environments do change and change greatly. Others change rarely if at all. I was trying to state that you need an ?unchanging? environment to focus entirely on efficiency.

  8. Eric,

    Great examples. Though I must add that listening to a tape, like talking on a cell phone, can also cause accidents–not very effective.

    Contact management doesn’t really increase effectiveness, as I could do it all manually if I were meticulous, just like I could do tax returns by hand, albeit both with less efficiency.

    The website does increases my effectiveness, but I didn’t do it to increase my efficiency. It may make me less efficient, as I spend a lot of time on it.

    I’m still not satisfied or convinced with these examples. Give me something more concrete from a business perspective.

  9. Matthew Tol says:


    I take your points but have to agree with Ron. There are incremental efficiencies from the issues you have highlighted – this is part and parcel of normal learning and adopting technological developments. This is what will happen anyway with anyone who has a reasonably developed brain. It is pretty easy to measure too.

    Effectiveness is far more subjective (as I posted earlier) and has to do with the perception of others. You can believe you’ve been effective in solving an issue, but if the customer doesn’t see it or believe it, then, in real terms, you haven’t been effective. Therefore, it is largely irrelevant as to how effective you think you’ve been – it’s up to others to assess that against their particular compass points as they stand at that time.

    Using Ron’s point of the tax return – sure, you can do it very quickly (efficiently). If the customer needs the return for their bank, and they need it quickly, they will see you as being effective. If, however, there is no rush but you belt through it very quickly, then it means nothing to the customer. Same output, far different result. The effectiveness of responding to a customer in an “at need” situation is far more impoprtant and valuable to them than ripping it out quickly when it doesn’t matter.

    Again, effectiveness is assessed by others. Efficiency is really only an internal assessment.

    I’d rather be perceived as effective by my customers. They really couldn’t care (within reason) if I’m efficient or not.

  10. Great conversation Matthew and Eric.

    Here’s another way to think about it. Customer value is determined by two things: subjective preferences, and technology. When I was 10 years old, my dad assigned me to the mow the lawn. I wanted to do it with a BB gun, but even at the wages of a 10 year old, he forced me to use the lawn mower.

    Efficiency is really a table stake, the minimum you need to be in the game. It’s not a differentiator, unless you do something with the gains, like Wal-Mart and pass them on to customers (an increase in its effectiveness, which is driving it to increase efficiency, something that can be done).

    Matthew is right about effectiveness as perceived by customers. Examples of this abound–companies doing efficiently what customers don’t value. Drucker lamented it; we are just trying to put some iron laws around it for PKFs.

    So, I stand by the you can’t increase efficiency to get an increase in effectiveness.

    Another point: how many knowledge workers want to work for a firm that is ruthlessly fanatic about increasing efficiency? Good luck.

  11. Eric Fetterolf says:

    Ron and Matthew,

    We need to spend more energy and effort and, yes Ed Kless, time on those actions that our customers value and find effective. We may have to spend energy, effort and time on actions that our customers don?t value before we can be effective. Finding efficiencies in our practices to perform the work that is necessary but not valued by our customers can increase effectiveness. Research is one such example.

    Take for example, a lawyer needs to research case law and statues on the books for her customer. The faster she can plow through that information, the more time she can spend developing trial strategy with the customer before the trial date. The more she can retain from her first reading, the more energy, effort and time she can spend on developing trial strategy.

    There is training available to learn speed reading. From what I?ve been able to research, those trained in the method and practice the discipline retain more of what they read than those without the training, on average.

    Speed reading is an efficiency that produces more effective results. You get through the data faster and retain more data in your head by mastering this discipline.

    The trial strategy is valued by the customer. The research, while necessary, is not valued by the customer. The efficiency of speed reading, faster with more retention, increases the quantity and possible quality of the energy, effort and time spent in strategy. Thus, it did allow you to increase your effectiveness where someone without the discipline would take longer on the research.

    The research is not the end goal. The strategy is the end goal.

    I think we actually might be in, how does Ed Kless say, ?violent agreement? on this subject. Where the cross communication might be occurring is the interpretation of mastering the discipline of speed reading. I call it an efficiency because reading and retention is not an end product that the customer values.

  12. Eric,

    Question: What would you do with a knowledge worker who was a slow reader but was incredibly brilliant and formulating and executing strategy for customers?

    You put him through speed reading courses and he just can’t do it. Do you let him go, or tolerate his inefficiencies.

    I do believe this is the essence of the matter. I will take effectiveness over efficiency any day. We can’t price for 100% efficiency, especially in a PKF full of fallible human beings.

  13. Eric Fetterolf says:


    Answer – of course you keep him!!!

    My questions to you: If I acquire the efficiency of the discipline of speed reading, can I increase my effectiveness as a result? If you are effective without the discipline, does the possibility exist that you could become more effective with the discipline?

    My objection is the “iron” in the iron law: It?s not possible to increase efficiency and increase effectiveness.

    I object to the phrase “not possible”.

    It is possible to increase efficiency and increase effectiveness. The speed reading example is one such example. If you CAN increase your reading efficiency, you CAN increase your effectiveness.

    Whether you actually do or not is up to the individual.

  14. Eric,

    Sorry, I don’t agree that you increase effectiveness of the strategy by speed reading. Just because it allows you to spend less time reading and more time on strategy doesn’t mean the RESULT of the strategy will be any different. Speed reading is an input, not an output, as far as result to the customer is concerned.

    This again goes back to the idea that I would give this person more time to create an effective result (including slow reading), not caring about the time it takes.

    The fact that you are stretching to defy the iron law illustrates we are on to something.

    But keep trying, as will I.

  15. Eric Fetterolf says:


    I agree that just because you gain the discipline does not follow that you increase the effectiveness.

    Let?s state the law negatively: If you increase efficiency, you can not also increase effectiveness.

    That statement addresses what is physically possible and what is physically impossible.

    So I?ll ask my question negatively: Do you claim if I achieve the discipline of speed reading that I cannot (physically impossible to) increase my effectiveness as a result of achieving the discipline?

    I think you are on to something, though, with your comment of inputs and outputs. I focused on efficiency of inputs. Customers do not care about inputs. They do not value what they are nor the time spent on them. They care about outputs. I would define outputs to be any communication to the customer, whether in final product, invoice, or even request for feedback.

    I think that perhaps a change to the law to the effect of: if you increase the efficiency of outputs, you decrease or eliminate the effectiveness of those outputs.

  16. Matthew Tol says:


    It would seem that, again, we’re dancing around the issue. The client wants an outcome. They want comfort that you can produce it and they want clarity that the outcome will be relevant to and, preferably, exceed their needs.

    How efficient we are at producing this (and I take your point Eric that more efficient reading will speed up the process) will be somewhat irrelevant. It’s the effectiveness of the outcome/strategy developed that is what matters.

    The only circumstance where I can possibly see Eric’s argument holding up is where the customer is under significant time pressure – in that way, by performing your research faster, you are actually contributing to effectiveness because speed is one of the critical factors on the customer’s wish list.

    So, we come back to the original issue – the efficiency with which things happen is (and I will change my argument slightly here) occasionally important to the customer, but then it is only a part of the overall effectiveness assessment made by the customer. A fast outcome which doesn’t provide an effective result is useless. AND the assessment is ultimately made by the customer – they’re the one who wants the outcome.

    Over to you….

  17. Eric, Yes, that’s what I am saying. Effectiveness is output, efficiency is input. Bottom line: it’s no use being efficient at something that shouldn’t be done at all.

    I side with Matthew. Output, results and value are what matter. That’s all effectiveness.

    The Iron Law stands.

  18. Eric Fetterolf says:

    Ron and Matthew,

    Could I please get a yes or no to the following questions:

    1) If I achieve an efficiency then it directly follows that the is no physical possibility on this planet to increase effectiveness as a result of achieving that efficiency?

    2) Is the only way to increase effectiveness is to decrease or utterly eliminate all efficiencies, personal and policy driven, in my professional knowledge firm?


  19. Eric,

    1) Yes, because efficiency is a measurement (outputs/inputs) and there’s no such thing as “generic efficiency.” It depends on your definition of effectiveness, value and what you’re willing to pay. See Thomas Sowell on this point.

    2) No, we are not arguing that you should pay no attention to efficiency. It’s a table stake, like having bathrooms. We are saying it does not provided a competitive differentiation.

    Sometimes in a PKF you have to allow inefficiency to increase effectiveness, like Google’s 20% time.

    I’m curious how Matthew, Ed, and Michelle answer this.

  20. Sorry it has taken me a while to weigh in here.

    I submit that by definition increasing efficiency will not EVER increase effectiveness.

    Increasing efficiency means doing T-task faster, cheaper, less errors, whatever. However, T is a constant. T which takes two seconds and T which takes two years are both still T. If you make any change to T, you are changing the effectiveness and therefore is it not T anymore.

    Ron touched on this in the original post, but I think Peter Block again, but it best. “Speed is indifferent to destination.” If I want to fly to San Francisco from Dallas by 6pm tonight and I get on a plane going to New York. The plane could fly 10 times faster and I still would not reach my destination on time. Destination is effectiveness, a result. Speed is efficiency, an input.

    Speed would be a result in one case – surpassing the speed of light. I think that is profound, but it is late, it might be just stupid.

  21. Great comment Ed, as always you said it in much fewer words (you are more efficient!).

    Just because I love looking for anomalies, here’s one that might support Eric’s contention: a doctor in a MASH unit. If he’s more efficient at surgery, he could save more lives and be more effective, which is result a MASH unit goes for. However, he still has to perform the surgery correct no matter how fast.

    The fact that we have to stretch this far to find an example (and I’m not sure it works) shows the Iron Law is looking less and less falsifiable.

  22. Matthew Tol says:


    Sorry for the delay in replying.

    1) Yes (maybe) – this will depend on the customer’s perception of their “need for speed”. Efficiency is about (in many respects) the time taken, but it can also be lower error rate, fewer rejection events or things like that. In these later situations, I believe, as Ron says, they’re table stakes and thus a given. As stated in earlier posts, if time is a driver for the customer, then efficiency/speed will increase their perception of your effectiveness. Efficiency for efficiency’s sake is a bit of a self-satisfaction approach (could use other descriptors here!) If you’re incredibly efficient but no-one wants your output because you’re ineffective (buggy whips et al) then you really don’t have a business….

    2) No. If you can become more efficient, that’s great, but is not your PKF/PSF about providing outcomes for customers? This is the driver. This is what pays your wages. If this this case, they want effective outcomes. They couldn’t give a toss about how efficient you are at providing them (apart from the example as detailed in 1 above).

    Enjoying this discussion. Ed, beautifully put – because it was so concise and on point, does this make it more efficient or more effective?

    Taking this a step further, the old line about “I wrote you a long letter as I didn’t have time to write a short one” – Ed’s post was very to the point – does it matter how long it took him to craft it? I posit that it doesn’t. Outcomes. The start and finish of it.

  23. Thanks, Matthew. Churchill said something to the effect of “I do not have time to compose a five minute speech, so instead I shall speak for an hour.”

    Ron, I think the exact quote is in one of your books.

  24. Eric Fetterolf says:


    Thank you for your replies. It still seems to me that we are caught in an eddy in this discussion. We travel down stream and upstream in the same reply.

    I asked two questions that approached the law from the affirmative and the negative. The answers should have been the same. A yes answer denies the law, while a no answer would affirm the law. The questions were phrased so that the answer to the first question should also have been the answer to the second.

    The fact that the answers came back different reveals an undercurrent of discord. I believe the reason for that discord lies in the words ?not possible?.

    Let?s look at the law once again: It is not possible to increase efficiency and increase effectiveness.

    Let?s reduce this to an equation.
    Let A represent the current effectiveness and B represent the current efficiency.
    Let A1 represent the new effectiveness and B1 represent the new efficiency.

    Then the law would be defined as: When B1 > B then A1 < = A. Question 1 dealt with the law directly as it is stated. If the law is true, then when I increase efficiency in any capacity, then the absolute best I can hope for is a non-effect on effectiveness. The worst that can happen is a complete destruction of my effectiveness. The fact that Ron and Matthew answered this question oppositely is very revealing. Ron affirmed the law. Matthew allowed that the law could be wrong with his Yes (maybe) answer. Question 2 changed the equation to its negative equivalent: if B1 < B, then A1 > A.

    Ron now changed his stance, bringing in the ?table stake? comment. Interestingly, Matthew now affirmed the law with is no answer.

    Here in lies the quandary. The law is designed to get people off thinking about efficiency and onto effectiveness. If you know the right things to do and do not or cannot execute those actions then you are by definition ineffective.

    If you are not capable to execute the correct actions do due to an inefficiency in your process, then increasing efficiency will allow for an increase in effectiveness. It by no means guarantees the increase in effectiveness, just that it allows for it. Hence, the increase in efficiency makes possible the increase in effectiveness.

    Thus lies my objection to the ?not possible? phrase.

  25. Eric, Your math aside, those two questions were not the same.

    We’ve never said that to eliminate efficiencies you will increase effectiveness, though there are plenty of examples of this being so (Google time, Nordstrom pianos, Snow White and 7 Dwarfs, not 3, etc.).

    Please give me a specific PKF/KW example of where you can increase efficiency and get an increase in effectiveness at the same time.

    So far, nobody has risen to this challenge. Thus the Iron Law.

  26. Katie McGrath says:


    In your response to Ron and Matthew above, you mentioned that you have a PKF.

    Since Ron asked for an example of a specific PKF why don’t you use your own firm as that example to challenge his so-called Iron Law?

    I’m still not buying this argument that you can’t increase efficiency and effectiveness at the same time.

  27. Eric Fetterolf says:


    The After Action Review Meeting immediately comes to mind. Ed Kless introduced me to this concept some months ago.

    Before I was introduced to the concept and meeting agenda, capturing what occurred on a project was an exercise in futility. Before learning the process, we were never able to capture what went right, what went wrong and what could we do differently. We often made the same mistakes on different clients. We were stumbling and it was our own fault.

    After implementing the process, we are able to capture those very details. Capturing the details allowed us to analyze and correct internal processes that caused ineffective behaviors. We could, as a firm, learn from our mistakes. We could capture new innovations and ideas quickly and effectively. We could disseminate the information to the entire firm easily.

    This is a clear example of a process, an efficiency, that ALLOWS us to be more effective. It did not CAUSE effectiveness. HOW we used the process will determine whether we become more effective or not.

    These efficiencies are really nothing more than tools. The tool itself does not do the work. Therefore, the tool does not cause the work to be done. It is the craftsman that chooses to use the tool.

    Without the tool, the craftsman is at a much greater disadvantage.

    At least we were before learning about the After Action review Meeting.

  28. Katie, Eric,

    I’m not buy the Iron Law either, but the problem is I can’t find a counterexample in a PKF. There was a big article on Starbucks adopting Lean to be more efficient. Great, they are now becoming a fast food joint. People don’t go to Starbucks for speed. They may become more efficient, but the jury is way out on them becoming more effective because of this new focus on efficiency.

    Eric, your AAR example supports the Iron Law totally. AARs are not “efficient” from a output/input measure, especially in a firm that bills by the hour (it’s non-chargeable time), which is why 99.9999% of firms don’t use AARs. They are incredibly inefficient, but highly effective for PKFs. I should know, I wrote about AARs in The Firm of the Future in 2003, and have toured the world encouraging firms to adopt them. Most haven’t, since it flies in the face of the billable hour business hour.

    The problem with the Iron Law is I can find hundreds of examples where increases in efficiency destroy effectiveness, and where decreases in efficiency increase effectiveness, but have a real hard time finding examples of increases in efficiency actually increasing effectiveness.

    So far, none of the examples presented have disproved the law.

    I’m still searching…

  29. Eric Fetterolf says:


    Let?s not narrow the focus of efficiency to just billable vs non-billable hours spent. Efficiency is reducing waste.

    Look at the desired results ? capture project information, innovations, and mistakes; employ innovations, minimize mistakes; increase effective behaviors for the next project.

    Now look at the AAR example. This is a specific process to minimize waste; waste in time & emotions blame-storming the project; waste in knowledge lost when reviewing the project weeks or months later. That is all it accomplishes. It is nothing more than a tool.

    What you or I do with the tool causes effectiveness or ineffectiveness in the firm. Other tools might include speed-reading, database mappings, library indexes, tax-form preparation software. None of these tools CAUSE effectiveness. But, many PKW?s will have the opportunity to be more effective if you provide these tools.

    The law as it states claims that implementing an efficiency does not ALLOW for an increase in effectiveness. I disagree with the ?does not allow? part of the law. I propose the law be reworded to state as follows:

    No efficiency will CAUSE an increase in effectiveness.

    This places the subject of efficiency in its proper place: simply a means to an end; nothing more than tools. Providing tools and training on how to use the tools could allow for greater effectiveness. While it is possible to produce effective results without the tool, with the tool it is equally possible that effectiveness is increased. My speed-reading example from much earlier is one such tool. It is possible to be effective without it. But if you were effective without it and then learned the tool, is it possible that your effectiveness might be allowed to increase as a result of possessing the tool?

    Certain jobs require certain tools. Other jobs require different tools. Some jobs require no tools at all to accomplish the result. The PKW needs to have lots of tools at their disposal, know how to use them, know when NOT to use them, in order to accomplish the result the paying client wants.

    Earlier comments skimmed over ?table-stakes? efficiencies. The claim was that these are necessary for a PKF or PKW to possess. Why? Is it because they allow for effective behaviors? If they do allow for effective behaviors, those efficiencies violate the law. If they don?t, how are they table-stakes?

  30. Eric,

    I don’t think efficiency is just about reducing waste. It’s primarily about increasing the ratio of outputs divided by inputs–about getting more with less, however those are measured. But it doesn’t matter.

    AARs are not designed just to minimize waste, though they do that. They are designed to capture tacit knowledge. Since human capital is where 75% of a PKFs wealth-creating ability comes from, the AAR tool creates effectiveness, and increasing efficiency is just icing on the cake. Once again, effectiveness is the talisman, not efficiency, as opposed to the Starbucks Lean program, which I believe is misplaced.

    Your rewording of the law seems to me to be a distinction without a difference, but if it makes you happy, I concur. It’s what I’ve been trying to say all along.

    Table stake efficiencies are just common sense. No one will pay a firm to produce tax returns by hand, at least not by the hour. And I wouldn’t pay a 12 year to mow my lawn with a BB gun, even at the low wages of a 12 year old. I’d hire the kid with the lawn mower, and hire the other kid with a power mower. Table stake efficiencies are common sense; they don’t convey a competitive advantage. That is what table stake means–the minimum to play the game. They in no way guarantee success in that game.

    So here’s another way to say it, perhaps the way an economist would say it: At the margin, gains in efficiencies do not convey an increase in effectiveness, which is the true source of competitive advantage.

    This accounts for the table-stake efficiencies. A hotel has to change my bed, sheets, and towels. So what? That conveys zero competitive advantage, no matter how efficient they are at it., though I’ll concede they want to do more with less.

    All economic activity happens at the margin, and that’s what I’m focused on with the Iron Law.

    Thanks for making me think deeper about this, and clarify it.

    And again, I freely admit I could be wrong.

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