Two terms that have been overused among technologists and businessmen alike are efficiency and effectiveness. These words are often (and incorrectly) used interchangeably. The objective of this post is to tease out their differences, and their implications to business in today’s world.
Let us start with the similarities. Both efficiency and effectiveness pertain to outputs based on a given input. High efficiency and effectiveness alike refer to getting more for less. The difference is that efficiency deals purely with quantitative measures, while effectiveness is qualitative. Efficiency is calculated. It is a science. Effectiveness is perceived. It remains an art.
We can choose to play the efficiency game in the market – launching a product whose benefits can be quantified. The speed of an internet connection, the fuel-efficiency of a car, or the rate at which a particular machine can manufacture widgets are all efficiency measures. The advantage here is that your value can be clearly communicated. On the flip side, your competitor can do the same thing. Moreover, this value can, at best, only scale linearly with performance. A car that is twice as fuel efficient can only run two times the distance for the same amount of fuel. This is regardless of how much harder it is to actually develop and manufacture something twice as efficient. Value that is pegged on efficiency can diminish rapidly.
Value can also be based on effectiveness. The job market is a perfect example. Most companies are looking for “effective” employees – a vague description that can only be supported by adjectives like creative, open-minded, empathetic and so on. Value is communicated not in numbers, but based on feelings and satisfaction of the user. This property also makes it hard to compete against, because the value of effectiveness is subjective, and highly biased towards familiarity and existing relationships. Additionally, value can scale non-linearly. An executive who is perceived to be twice as effective as another, can demand 5 times the salary.
As the world becomes a smaller place, comparison becomes easier. Consequently, a value proposition based on efficiency faces enormous competition, which can rapidly diminish returns. It can turn the best products in the market into commodities. The only way to guard against this threat is to position ourselves based on effectiveness.
Empty notebooks lose their value as soon as a competitor can print them more efficiently. A well written book can stay effective for centuries.