Table of contents Introduction 2

Table of contents

Introduction 2

Chapter I. The characteristics of effectiveness and efficiency 2

1.1 Difference between effectiveness and efficiency 3

An Example 4

1.2 Types of efficiencies 5

Identifying allocative and productive efficiency points 6

Economic Efficiency 7

Chapter II. The assessment of effectiveness and efficiency of an organization 8

2.1 The importance of effectiveness and efficiency in organizational assessment 9

2.2 Factors that influence the efficiency of labour in an organisation 13

Conclusion 17

Literature references 17

Introduction

Efficiency and effectiveness are central terms in assessing and measuring the performance of organizations, as well as inter-organisational arrangements such as strategic alliances, joint ventures, sourcing as well as outsourcing agreements. Despite the obvious relevance of assessing and measuring performance, it appears that business managers rarely understand the exact meaning of efficiency and effectiveness and rarely assess the full impact of their actions on key financial indicators(Barwise, Marsh and Wensley(1989), Myers,1999).And yet managers are often reaasured by efficiency indicators achieved by cost cutting, outsourcing activities or under-funding marketing or research and development, even if these indicators are not measures of effectiveness in the marketplace(Ambler,2003)

Chapter I. The characteristics of effectiveness and efficiency

Efficiency is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and without waste. In more mathematical or scientific terms, it is a measure of the extent to which input is well used for an intended task or function (output). It often specifically comprises the capability of a specific application of effort to produce a specific outcome with a minimum amount or quantity of waste, expense, or unnecessary effort. Efficiency refers to very different inputs and outputs in different fields and industries.

Efficiency is very often confused with effectiveness. In general, efficiency is a measurable concept, quantitatively determined by the ratio of useful output to total input. Effectiveness is the simpler concept of being able to achieve a desired result, which can be expressed quantitatively but does not usually require more complicated mathematics than addition. Efficiency can often be expressed as a percentage of the result that could ideally be expected, for example if no energy were lost due to friction or other causes, in which case 100% of fuel or other input would be used to produce the desired result. In some cases efficiency can be indirectly quantified with a non-percentage value, e.g. specific impulse.

A common but confusing way of distinguishing between efficiency and effectiveness is the saying "Efficiency is doing things right, while effectiveness is doing the right things." This saying indirectly emphasizes that the selection of objectives of a production process is just as important as the quality of that process. This saying popular in business however obscures the more common sense of "effectiveness", which would/should produce the following mnemonic: "Efficiency is doing things right; effectiveness is getting things done." This makes it clear that effectiveness, for example large production numbers, can also be achieved through inefficient processes if, for example, workers are willing or used to working longer hours or with greater physical effort than in other companies or countries or if they can be forced to do so. Similarly, a company can achieve effectiveness, for example large production numbers, through inefficient processes if it can afford to use more energy per product, for example if energy prices or labor costs or both are lower than for its competitors.

Efficiency is often measured as the ratio of useful output to total input, which can be expressed with the mathematical formula r=P/C, where P is the amount of useful output ("product") produced per the amount C ("cost") of resources consumed. This may correspond to a percentage if products and consumables are quantified in compatible units, and if consumables are transformed into products via a conservative process. For example, in the analysis of the energy conversion efficiency of heat engines in thermodynamics, the product P may be the amount of useful work output, while the consumable C is the amount of high-temperature heat input. Due to the conservation of energy, P can never be greater than C, and so the efficiency r is never greater than 100% (and in fact must be even less at finite temperatures).

1.1 Difference between effectiveness and efficiency

The relationship between effectiveness and efficiency is that effectiveness is a measure of 'goodness' of output, while efficiency is a measure of the resources required to achieve the output. Thus effectiveness of the system refers to the quality of outputs from the system

What is the difference between effectiveness and efficiency? They are two buzzwords that are popularly used by CEOs and Sales VPs in charting the course of their organization. Yet, they are also commonly misused and misinterpreted, not just in the lexicon of business-speak but also in daily use. For all intents and purposes, let’s begin by defining efficiency and effectiveness in general terms, borrowing from Dictionary.com:

Effective (adj.) – Adequate to accomplish a purpose; producing the intended or expected result.

Efficient (adj.) – Performing or functioning in the best possible manner with the least waste of time and effort.

The difference between effectiveness and efficiency can be summed up shortly, sweetly and succinctly – Being effective is about doing the right things, while being efficient is about doing things right. Companies usually seek to increase and improve the efficiency of their operations and sales processes

Another way to illustrate the difference between efficiency effectiveness is with the 2×2 grid below. By referring to this chart, CEOs and sales leaders can find an optimal balance between effectiveness and efficiency:

Figure 1

Source: www.insightsquared.com

Companies usually seek to increase and improve the efficiency of their operations and sales processes. After all, when working with limited resources, they would prefer to maximize the use of each of these resources, from budget and technology to time and sales reps. However, by pursuing efficiency at all costs (irony intended), some of these companies are missing a valuable chance to take a step back and look at their overall effectiveness from a big picture perspective.

The grail for every company is to always pursue the top right box – pursuing the right goals and being efficient, by making use of technological advances, not wasting time, and having better alignment and collaboration of between employees. Many companies have their hearts in the right place – they know what goals they want to achieve, but are inefficient in achieving those goals. Other companies are tightly run ships, with all employees working together, humming along and all singularly focused on the task at hand but what if the task at hand is the wrong goal?