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Here's a question..."what's the effing difference?"

 

Way back, we wrote a post about the relative merits of effectiveness and efficiency as the focus for growing your business. We’ve always argued it’s often more important to think first in terms of the former but balancing it with the latter. Just recently we’ve had some interesting discussions on exactly that point.

 

So it’s time to revisit the issue.

 

A good place to start is to offer up a couple of definitions:

 

  • Effectiveness we define as the extent to which an activity (in business or elsewhere) produces a predicted and desired outcome. In other words, the certainty with which outcome B will result from input A; and,

 

  • Efficiency is the completion of a certain task without wastage of time or other resources (especially, in the business context, money).

 

Both effectiveness and efficiency are objectives which any business should rightly pursue. In our view though, each can be relatively more important depending on circumstances prevailing in a business at any given time.

 

We’re starting to sound a bit like a business text book so let’s get a bit practical.

 

And if you’ve been a reader of our posts in the past or have looked over our website you won’t be surprised to know we believe business purpose is an important underlying driver of each.

 

Ok…let’s say you’ve recently started a business...

 

You know your business purpose, are clear on your vision and the strategy required to achieve it. You also know what you’re good at and what products or services you’re going to deliver.

 

You’re about to embark on some business planning aimed at taking the business through its first stages of growth focusing on customers, your team (if you have one), and processes to achieve financial outcomes.

 

Customer acquisition

 

Pursuing efficient customer acquisition will focus you on bringing on as many customers as possible in the shortest possible time in the least expensive way. Which is great, but this approach may not be effective in the long run if the customers you bring on don’t match your “ideal” customer profile as closely as possible.

 

Taking the “anyone with a pulse” approach to customer acquisition, as efficient as it may be, will ultimately see one, some or all the following occur:

 

  • Customers may not be prepared to pay the price you need for your offer to be profitable, most likely because they don’t ascribe the appropriate value to that offer;

 

  • Some customers might be prepared to pay the price you’re asking but will ask you to heavily customise your offer. This is likely to increase your cost to service those customers, again eroding profitability;

 

  • Repeat business may not reach expected levels because you’re not giving some customers a compelling reason to continue doing business with you; and/or,

 

  • Only a small proportion of customers might become advocates for your business.

 

So your customer acquisition processes might be as slick as possible in terms of rapidly building quantity but after a while you’ll likely be questioning just how effective those processes are. 

 

We’d argue that a new (or growing) business should be addressing the customer quality issue right up front - devising and sticking to an approach that attracts more or your ideal customers. Or at least a much larger proportion of customers who closely resemble the ideal.

 

The result might be longer customer acquisition lead time and perhaps (though not necessarily) more expense but you’ll improve your chances of creating a customer base happy to buy the right things at the right price. 

 

Ensuring your business purpose is clear and articulated to prospective customers at every opportunity is one way to make your customer acquisition process more effective and attract more of your ideal customers.

 

Customer retention

 

Similarly, the “customer experience” as it relates to ongoing service must focus on meeting the needs of your ideal customers as closely as possible. Once again, designing this experience in the context of your business purpose will create “sticky customers”. 

 

Too often the over-riding objective becomes one of creating efficiency in dealing with customers on an ongoing basis. That’s fine on one level - customers hate dealing with businesses that they believe waste their time.

 

But it’s easy to fall into designing a customer experience that mainly benefits the business at the expense of delivering real value to customers.

 

That can happen when the business loses sight of its purpose.

 

The ongoing customer service proposition then becomes less effective in retaining quality, profitable customers. Profit enhancement is achieved by cutting expenses relating to servicing customers rather than creating value for them and that’s a scenario that can only go so far.

 

Team engagement

 

Your team members will care deeply about efficiency - there’s no doubt about that. They don’t want to feel like they’re wasting time any more than customers do.

 

However, they care more deeply about seeing and understanding the value of the contribution they’re making.

 

They care more deeply about working in a business that’s purpose-driven and being effective in terms of delivering great outcomes for customers. These are the things that will raise team engagement and encourage discretionary effort. 

 

Recruitment, induction, and performance management activities in particular should all be built to reflect exactly that. Here’s what we mean:

 

Recruitment

 

It isn’t all about getting team members through a process and into your business. It’s about making sure you’re recruiting the right people with the right talents and skills for the right reasons.

 

It’s about finding people who believe in what the business is doing and truly want to be part of it. If that means your recruitment process needs an extra step or two to create more effective outcomes, then so be it. Any additional cost (in either money or time) will likely be repaid through lower staff turnover and higher engagement.

 

Induction

 

This is your new team member’s first experience as an employee. And first impressions count.

 

Planning your induction process should take account of both efficiency needs and effective delivery because without both, there’s a high chance you’ll disappoint your new team member.

 

Again, this is not a point at which time should be wasted. That said, rushing through a half-baked process won’t produce the result you’re after. The question every business needs to address is how to balance time-efficiency with time-effectiveness.

 

The answer lies in the commitment you have as a business to enabling new team members to truly understand your business, its purpose and their contribution to it.

 

Performance management

 

This is a tough area in business. That’s clear.

 

And it’s one area we believe effectiveness absolutely eats efficiency for breakfast.

 

The most efficient performance management process in the world won’t be effective if team leaders don’t drive the process in the interests of team members.

 

The last thing any business wants is a performance management system that’s been engineered to within an inch of its life only to be treated as an exercise of going through the motions.

 

A truly effective performance management process is one designed around your business purpose and where regular, open and honest performance feedback is provided - where there are no surprises. It will almost never be “efficient” in the true sense of the word because of the human and emotional elements involved. 

 

As we said above, your team cares about efficiency. But there’s a point you don’t want to go beyond - that’s the point where team members begin to feel like a tiny cog in a big machine. 

 

Processes and operations

 

Here’s where efficiency becomes a big ticket item. And quite rightly. Many an otherwise healthy business has come unstuck because of clunky, inefficient processes that wasted time, sucked up money and frustrated everyone involved.

 

It’s also clearly an area where technology plays a big role.

 

There’s still though, an interesting tension at play between efficiency and effectiveness when it comes to actually “getting stuff done.”

 

And getting the right balance in our view comes down to being very clear on the outcomes you want to achieve before putting process design pen to paper. And those outcomes again should have a laser like focus on your business purpose.

 

It doesn’t matter whether a process is front or back office, customer or operations related, or something you have to do from a regulatory point of view…the most highly efficient process will be totally ineffective if it doesn’t result in the desired, expected outcome. The challenge for every business is to consider every single process it can identify in exactly that light. 

 

To achieve the right balance, every process should have a start point, a clear end point and a series of logical steps to get from start to finish. It should ideally have an owner whose responsibility should be to keep the process under constant review for improvement.

 

The customer’s experience should be paramount in terms of process design.

 

In a new and growing business, efficiency should take something of a back seat to effectiveness. Not permanently and not to the extent it’s ignored altogether. But enough that your new business doesn’t bury itself in process design to the point where customer acquisition and satisfaction of their needs are overlooked. 

 

That’s a great way to kill growth.

 

Financials

 

We’re fond of saying that the financial health or otherwise of a business is quite simply a result of everything that happens in that business.

 

Of course setting of revenue and expense targets is important. 

 

Without them it’s like using Google Maps without entering your destination. In keeping with that analogy it’s also important to be flexible - if along the road you see a turnoff to somewhere that looks really interesting, you ideally want to do some exploring. You never know what a side trip off the road most travelled will uncover.

 

Dogged pursuit of efficiency will likely keep your expenses in check. On the other hand, dogged pursuit of effectiveness based on your business purpose will open up opportunities to enhance revenue. And that’d be a different challenge entirely.

 

What about your business?

 

We’ve focused a lot of this post on new and growing businesses. The reality is everything we’ve covered is equally relevant in the business planning process of nearly any business you can name.

 

What we find just a little frustrating when chatting with businesses is the fixation on efficiency and cost control. The thing is, identifying ways to save money is simple.

 

But if cost cutting is the key plank in your business story, you’re in a race to the bottom. 

 

More challenging - but so much more rewarding (and fun) - is looking to purpose-based effectiveness as a means to identify true growth opportunities. That’s where your “next level” will come from.

 

If you believe some or all of this post is relevant to you and your business and would like to know more about how we can bring these concepts to life in your business, please do give us a call or drop us a note and we’ll get back to you.

 

Join the conversation

 

If you have any thoughts on this post or experiences you’l like to share please feel free to leave a comment below. We’d love to know what you think.

 

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