by Peter A. Arthur-Smith, Leadership Solutions, Inc.®

“Effectiveness is about innovation, breakthroughs and wise investments; whereas efficiency is about fiscal correctness, fine-tuning and squeezing.” The Author

 There’s plenty of room for our organizations to operate in more effective ways: through innovation, breakthroughs and utilization of resources. Resources include viewing people talent as their most valuable asset. In fact, that’s part of the issue: so many of them have become so efficiency obsessed, in order to make money – where ‘efficiency’ is the antithesis of ‘effectiveness’– that countless numbers have likely lost sight of their bigger-picture – imaginative, sustained, profitable growth.

‘Effectiveness’ is the forest and ‘efficiency’ covers the trees. By being blinded toward so many effectiveness issues, they minimize the possibility of some real people, product-service and organizational breakthroughs. If they could just switch that obsession from efficiency to effectiveness, they would probably be so much more successful. They spoil relations with their people because of it.

»Efficiency and its Antidote – As we’ve indicated on several occasions, efficiency is more about controlling costs and ‘doing things right’; whereas effectiveness is more about investing-in and ‘doing the right things.’ We seem to have become totally blindsided by efficiency over more recent years, especially as other smart economies – like Germany and Japan after the war years; and more recently China, India, Bangladesh, Mexico and Brazil – started to compete against established US market leaders. The response within US organizations was to economize – efficiency – rather than innovate by way of effectiveness.

 A likely better strategy is to place more emphasis on effectiveness, where you are likely to make bigger strides; especially through the use of effective breakthrough teams. Such a mode needs to be backed-up by governments creating stronger patent-copyright protections. More work needs to be done to ensure predators pay appropriate compensation for pirating intellectual property within certain reasonable time spans. At the same time, organizations ought to pay more attention to protecting their intellectual property for prudent periods of time, too – say 5-10 years.

Effectiveness also means dividing markets into Premium, Value-added and Economy tiers. However, efficiency-minded executives are likely to push against that notion because of their concerns about increasing ‘overhead’ due to having special discrete teams. Tell that to the smart car dealers, who focus specifically on these three market tiers. Explain it also to consumer brand oriented companies that have products for all three tiers.

 You also have restaurateurs who cater to high-paying customers through fine-dining, mid-level diners with good quality food, and then the economy, fast-food houses with basic offerings. More organizations should follow this model, or else just stick with their particular ‘knitting’ in their one tier, marketplace segment – be that ‘premium,’ ‘value-added’ or ‘economy’ products or services.

 »Effective Innovation to Replace Acquisitions – So many large organizations become particularly adept at command-and-control efficiency that it undermines their ability to innovate. For that reason they pursue the acquisition trail on a regular basis to buy innovative and profitable enterprises. They become extremely ‘efficient’ at both acquiring and shedding those entities, too.

It’s too bad that staff or ‘contributors’ on the acquired side become like wartime casualties, or collateral damage or just ‘pairs-of-hands’ to be discarded. No wonder frontline people feel somewhat alienated toward executives and the idea of acquisitions. They find at one moment they are working hard to help their venture to succeed and then the next moment they are pushed into another culture or dispensed with because their expertise just duplicates what’s already in their efficiency-minded, acquirer’s hands.

So often for efficiency reasons, the founders or acquired leaders are either pushed out or leave within a short space of time – unhappy with their new masters – and the acquired entity slowly but surely begins to morph into a conventionally managed, likely less profitable enterprise.  In fact, with efficiency rather than effectiveness as an acquirer’s guiding principle, they may well overlook that any acquired leadership could’ve been better than their own. So they end up being penny-wise and pound-foolish.

In the end, if it doesn’t meet their efficiency norms, it will be either sold off or closed-down altogether. This is the way command-and-control, efficiency based enterprises ‘innovate’ through acquisitions. Again, it falls under Schumpeter’s view of ‘creative destruction;’ although some might call it ‘short-sighted disruption.’ So, if you find yourself in a leadership team role and start hearing about acquisitions, do your best to get your colleagues to sincerely ask the question: “Could we do better by being more effective?”

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