Be Effective Before Being Efficient

Businesspeople are obsessed with efficiency. They want to know how to increase their throughput and productivity. Yet, too many executives forget that efficiency isn’t a goal in and of itself.

Founding management guru Peter Drucker’s magnum opus is called The Effective Executive, after all, not The Efficient Executive. The hardest thing for executives, especially managers, is to know what the right thing to do actually is.

Effectiveness First

Effectiveness is about knowing the right things to do. Efficiency is about doing things quickly and inexpensively. The worry is that too much focus on efficiency can preempt the much more important question of effectiveness.

A Harvard Business Review article promises “ 5 Strategies for Getting More Work Done in Less Time” and argues that “ To Be More Productive, Become More Efficient “. Yet, even this article states that prioritization must come before any talk of efficiency. Increasing efficiency should only come after establishing what you should be doing and why.

This is especially evident when evaluating software tools. For modern businesses, such tools are indispensable. But executives should be wary about automating processes and decision making before they have spent the requisite time determining what their goals are and how to get achieve them.

That is why we so strongly recommend that companies focus on questions of strategy, people, and processes before addressing sophisticated pricing and automation tools. Otherwise, we will make ourselves efficient at the wrong things.

The right strategy, organizational framework, and business processes are a critical foundation for effectiveness and must come before efficiency.

Better to be Inefficient?

In fact, you should prefer being inefficient if you’re doing the wrong things. Being good at doing bad things is just going to result in more badness piling up. If you’re doing the wrong thing to achieve your desired outcomes, the very best thing you can do for those outcomes is to be terribly inefficient.

An illustrative example comes from the realm of public policy. Libertarian Washington Post author Radley Balko uses a similar inefficiency argument against private prisons in the US. Whereas libertarians typically prefer market-based and private solutions as more efficient, Balko argues that a goal of efficiency simply isn’t relevant for incarceration:

“Private prisons may be more cost-efficient than public prisons, but the move toward them has created an entire industry whose bottom line is dependent on keeping as many people as possible behind bars for as long as possible.”

If the goal of the prison system is to incarcerate the worst offenders with an eventual outcome of rehabilitation, then a system that is efficient at maximizing the number and tenure of prisoners is exactly the opposite of the system we want.

The same is true in the business world. Discover what it means to be effective at pricing before trying to become efficient.

Ask yourself: is your business efficient at any of the following?

  • Creating tension between the sales, marketing, and finance departments
  • Designing a new product with no path to profitability
  • Rewarding customers for negotiating steep discounts
  • Collecting unactionable competitive intelligence
  • Providing pricing analysis that no one uses
  • Quoting the wrong price to the wrong customer
  • Incentivizing the sales team to chase revenue instead of profit

If so, it’s time for a reset.

Originally published at https://wiglafjournal.com.

Manager at Wiglaf Pricing

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