On Effectiveness vs. Efficiency

Comparing two ways of thinking about team management

“Efficiency is doing things right; effectiveness is doing the right things.”

— Peter Drucker

We throw around these words indiscriminately in business, not making a distinction between them. They’re treated as interchangeable synonyms for being “good” at something.

I think about effectiveness and efficiency as two dimensions on a grid, often (but not always) in tension with one another. More focus on one means less on the other.

That Drucker quote is a solid one-liner: pithy and memorable. But like many quotes, it compacts meaning and erases useful detail. It’s more memorable than it is helpful.

“Doing things right” is too amorphous. What do we mean by “right”? I’d redefine the two dimensions like this:

• Efficiency is concerned with being well-run, applying resources with minimal waste; having an economical approach

• Effectiveness is a focus on fit, fitting the right solution to the appropriate problem, being specific and surgical in approach

One can be effective in hitting a target but costly and inefficient to make it happen. Conversely, optimal management of time and resources doesn’t imply reaching the objective.

Let’s look at some differences through the lens of product and company-building. What does it mean to index on one over the other? Which one matters more, and when?

Comparing the two

One common analogy compares a company to a machine. You may have an incredibly efficient machine that does nothing useful, or one that produces golden eggs while wasting a massive amount of energy, money, and time. Now let’s imagine two teams on this spectrum.

With one model, a team leans toward methods and processes that efficiently deploy resources:

• Uses just the right number of people on a project

• Creates infrastructure that’s low-cost

• Instruments processes to measure resource consumption

• Spends less on tools along the way

With this sort of focus, a team gets lean, minimizes waste, and creates repeatable systems to build scalability. All sounds great!

On the other dimension, the team puts more attention on effectiveness, doing the right things:

• Spends lots of time listening to customers to map out their problems (demand thinking!)

• Seeks constant feedback on whether or not what we’re making helps customers make progress

• Tests small, incremental chunks to stay close to the problem

• Makes deliberate progress, taking small steps frequently, not going too far down blind alleys with no feedback

Another great-sounding list of things. So what do we do? Clearly we want a balance.