Within the course of your study you will frequently come across the terms organisational efficiency and effectiveness. Because in everyday language the terms efficiency and effectiveness are often used interchangeably but have quite specifically different meaning within the context of organisational management, some explanation needs to briefly made here.
Organisational efficiency is a measure of the relationship between organisational inputs (resources) and outputs (goods and services provided) and in simple terms the more output we can achieve with a given amount of inputs or resources, the more efficient we are. For example, if we can make 100 cars with X value of resources we are more efficient than someone else who only makes 80 identical cars with the same value of resources. Efficiency relates to the term productivity and a major focus of all managers is to maintain or improve the level of productivity of their work unit and organisation.
In simple terms, organisational effectiveness relates to goal attainment. An individual, group or an organisation, that achieves their goals are said to be effective, and have used their resources to achieve an effective outcome. But does this also mean they have used their resources efficiently?
Perhaps a couple of examples will easily clarify the difference between the two concepts. Consider a manager who develops and implements a training course and then trains the maximum number of employees, in the shortest period of time and at the cheapest possible cost. This person would be considered highly efficient because no-one could have done it better, their output for inputs expended is the maximum possible. What though, if this training course had nothing to do with the organisation's objectives and was a complete waste of time for everyone who attended? We would then qualify our evaluation and state that whilst the manager was highly efficient he/she was not effective.
Likewise if the same person developed a training program that was critically important to the ability of the organisation to achieve its objectives, we would define this person as effective. However, if the program used five times the amount of resources that it could have used it would be considered effective but not efficient.
The achievement of organisational efficiency has always been a prime interest of organisational managers. However over more recent times, with the realisation that efficiency and effectiveness do not necessarily equate (ie, our previous example highlights organisational activity may be efficient but not effective or effective but not efficient) there has been a strong emphasis on the attainment of both these concepts.
The aim is to be both efficient and effective; ie, to use our available resources in the most productive way in the achieving of organisational objectives.
Within strategic management, organisational success if often expressed in terms of efficiency and effectiveness, though in reality such measures are more complex than often expected. For example, in many production oriented businesses that manufacture or produce tangible goods the measure of efficiency may be a direct almost mathematical relationship between inputs and outputs as discussed above and therefore easily measured. In many service industries, this relationship is not so clear cut and consequently our ability to accurately measure efficiency in a simple relationship between inputs and outputs is difficult or the result meaningless. Take, for example, the case of a mechanic servicing cars. At the end of one week he is asked why he has been so inefficient that week given that his average cost of resources used per client was 30% higher than the average of all other workshop mechanics doing the same job. On the surface it appears the mechanic is highly inefficient until he explains that he had to service three cars that hadn't had a service in over two years, one that had major mechanical repair requirements, two cars that had been returned for re-service after a former mechanic had failed to undertake various critical adjustments and eight cars where the diagnostic equipment failed and provided incorrect readings requiring the entire number of services to be redone at no cost to the customers. In fact, the mechanic believed he had never worked so efficiently before in his life.
In this example, it can be seen there can be many issues that can influence and distort a straight measure of efficiency. Consideration of many other service functions (eg, a doctor treating patients) will readily support this.
Similarly, effectiveness can require significant qualification. Issues such as attainment of short term versus long term goals, whose goals, whether the goals were valid in the first place (eg, too easy or unrealistically hard to achieve, etc) can distort this concept.
Consequently care needs to be taken in using these two terms.