Efficiency + Effectiveness = Productivity of Purpose

by Dr. Ross Wirth

The need for improved efficiency is one of the top ten “significant shifts facing organizations today” (McKinsey, 2023). However, this statistic from their research carries a lot of baggage tied to the Industrial Era that can be absolved with a higher order shift — a mindset of what is possible in a post-Industrial world.

Roots of the Industrial Era found in the survey (and comments on New Era Thinking) include:

· Enabling value by doing “something consistently better than competitors do.” (This is obviously focused on efficiency but without any connection to differentiation and how the organization’s purpose might be better delivered with increased focus on their target customers for increased effectiveness.)

· Plugging gaps that originate from “insufficient resources or inconsistent commitment.” (An entrepreneurial mindset flips the focus on resource allocation to doing what is possible with available means and supplement that action with what is possible with strategic partners. This New Era thinking focuses on progress while deemphasizing worries that are often outside of one’s control. There is also a problem in how “commitment” is defined and produced. Too often, employee engagement and commitment are fuzzy goals without clear actions needed to attain them. Drilling down into leadership functions to DAC (direction, alignment, and commitment) there is a clear focus on commitment that comes from leadership, not necessarily from a leader since leadership can be achieved in many ways including sharing the leader role and how artifacts are developed and employed. In this way, involving people in decision-making is a first step in purpose alignment while also releasing people’s passion for making a meaningful contribution.)

· Some inefficiencies come from “many cases, [where] more than half of all direct reports to a CEO don’t have profit-and-loss responsibility, and there can be as many as 12 layers between the CEO and the front line.” (This is a bureaucratic symptom of how power over decision rights is not delegated either explicitly or through distributed decision-making processes. It is also symbolic of staff functions having significant input to decision-making without a clear line-of-sight to the customer-purpose. Moving past the organization chart as the sole structure for organizing for work to thinking of the organization as a network of networks permits a shift where all internal functions serve internal customers through performance agreements or micro-enterprises. The traditional response is to downsize by removing organization layers on the org chart and increasing manager span of control with more direct reports. However, rethinking how work can best be produced irrespective of previous reporting lines opens up new ways of thinking about structure that are not tied to power delegation. Of course, this comes with the necessity of rethinking the decision-making process where decision rights are clarified separate from hierarchical power structures.)

· Communication was also mentioned as a source of inefficiency — “What’s more, many organizations have become bloated, with endless meetings and incessant emails among the unnecessary interactions.” (This probably relates to the issue above with having the hierarchical reporting structure responsible for cross-organization communication, complemented with meetings for sharing information. Rethinking what is necessary to support the organization’s purpose, communication can be simplified through the network of networks, often directly connecting those who need to share, use, or know something. This can be complemented with a principle of transparency and open information availability. AI can further help in pushing information to those who need it as well as finding needed information in the far reaches of the company’s information systems.)

· Another factor of inefficient decision-making mentioned was “many organizations are plagued by excessive interactions and a need to include too many people in decision making. (This cannot easily be solved within an Industrial Era mindset that involves people along reporting lines, which increases the number of stakeholders as decisions span horizontally across organization silos. Examples of companies that have reduced meetings include Netflix placing a 30 min. time limit on meetings and Shopify having a “no meeting Wednesday.” However, these changes to meeting protocols only force better preparation for the reduced face-to-face time spent in meetings. While the meetings will be more efficient, the total time requirement will only partially be reduced and will still fail to address the underlying issue of knowing who to involve in the problem-solving processes and the decision-making that will require commitment for its implementation.)

The fact that these inefficiencies are baked into Industrial Era thinking comes out in the section addressing obstacles for removing inefficiencies where change challenges are foreseen in organization resistance (likely driven by lack of involvement of people who should be involved) and “lack of buy-in from senior managers” (probably driven by changes to the power structure where they have privileged rights). Recommended responses for these obstacles are the traditional responses to be bold in action, empower others, identify barriers, role model, and track results. Missing is thinking what might change if the Industrial Era management practices were put aside and organization structure and operating style were approached as a greenfield.

Nevertheless, the McKinsey consultants do make three specific recommendations.

· First is “clarity of roles and responsibilities as well as to structural complexities around spans and layers.” The need for clear roles and responsibilities make sense but the McKinsey focus remains within the existing organization structure that is driving the confusion and nonalignment of activities. Instead of shifting toward thinking about organizing for work with a different structure, the focus remains on downsizing through elimination of organization layers and increasing span of control as a traditional management approach. Granted, this will increase efficiency but does not yet reach into effectiveness of the structure for best delivering the organization purpose. Communication will have to go through fewer message transfers but will still take a longer route than required with direct connection without restrictions. And, decision-making will be increased in having fewer levels involved but those most knowledgeable and impacted by the decision could still be excluded from the decision-making process if they are outside the persisting reporting hierarchy.

· The second recommendation is to increase the frequency of resource (both financial and talent) allocation to areas of higher strategic value. However, increasing the frequency of resource allocation may only gain short-term efficiency by shortening the time resources are employed in low value activity, the purpose alignment function is still periodic and treated as a fight for resources. Politics are also likely to drive this resource allocation and not an improved alignment with purpose. Further, a Purpose Alignment Team can shift this to a continuous process that raises questions of resource allocation in real-time as issues are encountered. Going further with an internal marketplace of ideas and career pathing will effectively crowdsource this process as employees are given an opportunity to vote with their feet to work on higher value projects. Of course, this will require purpose clarification and alignment, complemented with transparency and open communication that will also have other benefits mentioned above.

· The third recommendation addresses the inefficiencies that have occurred with new communication technology (email, Zoom, Slack, etc.). However, these technologies have not added inefficiencies as much as they have increased the efficiency of an inefficient process for sharing information and making decisions. In moving toward a new way of thinking about decision-making, the recommendation focuses on changing the decision-making paradigm using a “new decision framework that empowers individuals to make a final decision rather than group votes.” Unfortunately, this is where the recommendation stops, without providing how this new paradigm will be crafted and implemented. Further, group votes as used here assumes that delegated decision-making to a team requires a consensus process that overlooks other ways of group decision-making such as advice or consent processes that are very efficient and involve those who need to be given voice in the decision.

This brings us to how efficiency and effectiveness are not independent but tightly connected when delivering the organization’s purpose — the ultimate productivity that is desired. The above survey focused on efficiencies without any mention of organization effectiveness. However, efficiency alone is insufficient, as is effectiveness alone without execution. Both are required and are commonly differentiated as

· Efficiency is going things right —
focused on resources, minimizing waste, generally with a short-term orientation, with quantitative measures of success.

· Effectiveness is doing the right things —
strategically aligned with goals, longer term time horizon, and qualitative in how the goal is defined.

Traditional Industrial Era management overemphasizes efficiency while New Era thinking places increased focus on purpose and the effectiveness of attaining it. However, purpose clarification and alignment are insufficient without effective implementation which implies efficiency. This is to say that — both are necessary, but each is not sufficient alone.