Effectiveness or efficiency? Aim for both

The balance between effectiveness and efficiency has always been a tricky one to nail.  Effectiveness is where your product or service does the job that it sets out to do, in the market it is aimed at, to a level that meets or exceeds customer expectations.  Efficiency is where this product or service is delivered or produced in the most timely and cost-effective way.  It is easy to see how there would be such a conflict.  A Rolls Royce that does not contain hand stitched leather and hand-crafted wood inlays, or is not tailored to the needs of the individual buyer, would be more efficient to produce but would seriously damage the brand image and market share of the marque.  Similarly, if Kia were to add hand crafted luxury elements to their range, they would price themselves out of the market for low cost, reliable vehicles or sacrifice margin to keep the retail price the same.  Both of these scenarios respect the dynamics between effectiveness and efficiency, albeit undoubtedly both manufacturers will be constantly trying to reduce the gap between these factors to improve profitability or market share.  This is something that all businesses should be looking to achieve.

There is the old argument “if it ain’t broke, don’t fix it” and there is certainly some merit in that view.  It is potentially reckless to change something for the sake of making change.  Moreover, significant changes that are not supported by customer demand could result in a major reduction in market share.  Conversely, it is a fact that you seldom notice the wallpaper around you fading if you see it every day. However, this is one of the first things a buyer will spot when you try to sell your house.

This leads us to a simple solution: make sure that your product is right for the market that you are aiming at, then ensure that it can be delivered in the most cost-efficient manner.  Despite the simplicity of the solution, this is not an easy thing to do.  Over the past year, most businesses will have been looking at how they can deliver their services under a different set of circumstances and many of these new ways of working will have led to long term, sustainable efficiencies.  The degree of innovation shown by organisations in the UK is commendable and the mindset developed will help businesses remain agile and relevant.  Less obvious is the extent to which these organisations have reviewed what they actually offer to the market.  Finding new ways of doing things that, in reality, do not need doing at all, is counter-productive and does not create any competitive advantage.

To create competitive advantage, effectiveness beats efficiency hands down. Identifying what needs to be done, and what will drive customers to your business comes first (effectiveness).  Only once that has been identified should the work begin to find a way to do it efficiently.  It is better to do the right thing less efficiently (effective but inefficient) than to do the wrong thing efficiently (ineffective but efficient).   

So, how do we assess the effectiveness of the product or service?  This invariably has to be done from an external perspective, that of the customer or market.  Be highly subjective, ask yourself (and your team at large and external advisers):

  • What do our customers really want?  What features are essential to them? Are we assuming we know what they want, or do we have evidence to support these findings?
  • Which features of our offer add no tangible value to the end user? Are there things we do that customers do not notice or value?
  • Why are we doing what we do?  Does it differentiate us in the context of the market and what customers want or expect at our price point?  Does what we offer add value to our customers?
  • Who are our competitors in this segment of the market? Why are some more successful than us and others less so?  What are the elements of their offering that appeal to or deter customers?
  • What sector of the market are we aiming at?  Does our current offer align with our strategic objectives and are our strategic objectives realistic?
  • What is the direction of our market?  Will what we do now still be relevant in 2 to 5 years?
  • What does our offer (realistically) need to look like to grow our market share?

Only after the most effective offer to address the current and emerging markets has been identified should the efficiency element be addressed, but addressed it must be.  You now need to ensure that you do the right things in the most efficient fashion.   Here you will need to adopt an objective viewpoint and test all of your current processes from a product/service perspective and an operational angle.  In many ways, the back-office processes are the easiest to improve and will provide some significant efficiencies.  Think about what a 1% reduction in overheads will add to the bottom line, not to mention cash flow, of the business.  These processes should always be kept under review and technology should always be leveraged to support these changes. 

The streamlining of the product or service itself is more difficult, but will be guided by your findings on the effectiveness review.  Break down each process in an objective and critical fashion.  There can be no sacred cows. Remember also, more benefit will come from removing elements of the product that the customer does not value than will flow from making the delivery of these features more efficient.  Have you noticed, for example, changes to the cream that Tesco sells?  Until quite recently this came in a plastic tub, with a foil lid then a clear plastic top over the foil.  Overnight the plastic top has gone.  The product is unaffected and, presumably, customers still buy it.  Nevertheless, a whole component of the packaging, the cost of the materials and a separate production technique have been removed from the process.  This will undoubtedly increase the margin Tesco enjoys and they have the added bonus of improving their environmental credentials. This is the sweet spot of the balance between effectiveness and efficiency.

Craig Aitken
Portfolio Director