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29.10.2008 Business & Finance

Effectiveness Vrs Efficiency - Make Or Break Your Business

The world is shrinking. New telecommunication technologies continue to expand reach and speed up communications. Genetic engineering, automated manufacturing, lasers, and computer chips are some new technologies that are reshaping the world along with changing political boundaries and alliances.

The new technologies and new global political alignments mean that marketers face new possibilities for forging relationships that will carry their organisations into the future.

Grönroos explains that companies are aware that it is much more expensive to attract new customers than to retain existing ones.

 

Marketing-oriented companies, as it were, build relationships with their existing customers by providing satisfaction.

A normal company looks at various criteria when taking decisions. These criteria may be to increase efficiency, effectiveness, revenue, profit, but increasingly, companies expect their employees to take decisions to maximise shareholders' value, as they are considered to be major stakeholders of the company.

There is no denying the fact that profit is a legitimate goal of most businesses. Reasonable profits are required to keep stakeholders interested in running the business, and to increase the capability of the business to serve its customers better.

In that sense, customers should allow business organisations to have reasonable profits, because a lack of resources will impair the organisation's capabilities to serve customers in future.

However, a business with a single-minded focus on maximisation of profits will not survive.

 

 In such companies, customer interests are not accorded top priority, according to Kumar and Meenakshi. Customer interests are likely to be compromised if they conflict with the profit maximisation goal of a company.

They explain that customers will stop patronising such an organisation once they realise that their interests can be compromised in the organisational pursuit of profits.

The Law of the Lid

To illustrate the extent to which marketing managers will have to demonstrate their leadership ability in changing the direction of their businesses, I will like to share with you some thoughts on organisational effectiveness as suggested by John C. Maxwell.

He states that leadership ability is always the lid on personal and organisational effectiveness.

 

If the leadership is strong, the lid is high. But if it is not, then the organisation is limited.

 

That is why in times of trouble, organisations naturally look for new leadership.

For instance, when a country is experiencing hard times, it elects a new president; when a company is losing money, it hires a new management or chief executive. When a sports team keeps losing, it looks for a new head coach.

The relationship between leadership and effectiveness is also evident in sports.

 

For example, if you look at professional sports organisations, the talent on the team is rarely the issue.

 

To change the effectiveness of the team, lift up the leadership of the coach. That is what is referred to as the Law of the Lid.

The core issue

From another business perspective, one can appreciate the performance level of a business by making a distinction between effectiveness and efficiency.

 

It is generally held that an efficient company produces its products and services economically.

 

The bottom line is that its deliveries are economical. An important point in business that needs to be clarified is that the products and services produced by the company have to serve customers' needs.

There are, however, some other instances where a company can be said to be extremely efficient and yet remarkably unsuccessful, because it is not customer-centric — it does not produce what customers want to buy.

On the other side of the coin, a company is said to be effective when it serves the needs of customers.

 

To be effective, a company must know the requirements of its customers.

 

After learning the requirements of its customers, Arun Kumar says, it must proceed to serve them.

He continues that there is no inherent conflict between being efficient and being effective.

 

A company can strive to be both. But the difference between the two approaches is meaningful, and a company has to find the right balance in its emphasis and precedence.

Therefore, a company has to be effective in serving customers' requirements, otherwise, there would be no buyers for its products or services.

So, before a company focuses on costs, it should check whether its offerings meet customers' needs.

 

Only when customers' needs are being met can a company think of focusing on costs.

An inefficient but effective business can still remain in business though its profits would be lower.

 

 It can increase its profit margin by becoming more efficient without compromising its effectiveness.

On the other hand, an ineffective, but an efficient business will not survive, because it will not have buyers for its offerings.

Therefore, if a business organisation ever has to make a choice between becoming effective or efficient; it should always strive to become effective. Choosing to become effective reflects the marketing orientation of the business.

The winning way

Jack Welch, in his book “Winning”, suggests that companies win when their managers make a clear and meaningful distinction between top- and bottom-performing businesses and people; when they cultivate the strong and cull the weak.

 

Companies suffer when every business and person is treated equally and bets are sprinkled all around like rain on the ocean.

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