ORGANIZATIONAL PERFORMANCE: EFFECTIVENESS AND EFFICIENCY

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In our previous post, we defined management as ''the utilization of the resources of an organization in the most efficient and effective pursuit of organizational goals".

But, What is Organization?

An organization is a social entity that is goal-oriented and deliberately structured. By social entity, we mean the organization is a collection of two or more people. 

Goal-oriented means an organization is created to achieve certain goals, such as making a profit or advancing a social cause. 

Deliberately structured means that an organization is made up of tasks that are allocated to and completed by organizational members.

To achieve the organizational goals in the right manner, management needs to be both efficient and effective.

Efficiency describes the number of resources used to achieve organizational goals. It is determined by the number of raw materials, time, human resources, and money used to achieve the goal.

More formally, we can define efficiency as the level of performance that measures the amount of input (resources) utilized to produce an output (result).

The goal of efficiency is to achieve maximum results with the least amount of resources. It's all about "doing things right". That is, doing things the right way to avoid wastage of resources.

Efficiency shows the relationship between input and output, or resources-to-result ratio.

Effectiveness, on the other hand, describes the degree to which the organization achieves its predetermined goal. It describes how well the organization has achieved its goals.

The goal of effectiveness is to achieve the organizational goals in the way and manner earlier planned. It is all about "doing the right things". That is, doing the rights things that will yield the pre-stated goal.

DIFFERENCES BETWEEN EFFECTIVENESS AND EFFICIENCY

1. Effectiveness describes the degree to which the organization achieves its goal while efficiency describes the number of resources used to achieve an organizational goal.

2. Efficiency is determined by the input-to-output ratio whereas effectiveness is determined by how well an organization achieves its goal.

3. Effectiveness is about "doing right things" whereas efficiency is about "doing things right".

4. While efficiency focuses on the process, effectiveness focuses on the result.

Because effectiveness entails "doing the right things'' and efficiency entails ''doing things right'', Organizations, as well as individuals, could be in any one of these four quadrants.

1. Effective and efficient: This simply means the organization is "doing the right things" and "doing things rights". For example, a company spent $10 on advertising intending to reach 10 customers and was successful in doing so.

2. Effective but inefficient: This means the organization is "doing the right things" but ''doing things wrong". Suppose the company was able to reach 10 customers at $15, the firm will be said to be effective but inefficient

3. Ineffective but efficient: Here, the organization is "doing the wrong things" but ''doing things right".  

4. Ineffective and inefficient: Here, the organization is "doing the wrong things" and ''doing things wrong" also.

Related posts

Managers generally strive for high performance, which is often interpreted as high efficiency and effectiveness.

While effectiveness and efficiency can both be high in an organization, it is important to stress here that improving efficiency can sometimes hurt organizational effectiveness. 

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