Efficiency vs. effectiveness in business: Which comes first?
Operational efficiency gains do not equate to operational effectiveness. Expert Dan Morris explains efficiency vs. effectiveness in business process automation.
The quest for operational efficiency has not always helped companies. In the drive to cut costs, companies have often decimated their knowledge worker ranks, because these people are the highest-paid. The cost-cutting is achieved, but at what impact to the effectiveness of the business in the marketplace?
A major enabler of this approach to cost reduction has been business process automation. The automation not only allows the company to cut a big expense -- its employees -- but to also increase efficiency, because machines outperform humans. That's the theory. But what is the reality? Most organizations I see today, despite automation, have people doubling up on work, resulting in more errors, poorer decisions and reduction in the quality of service. Moving work offshore -- another avenue to cutting costs -- doesn't help, because customers avoid interaction with people they cannot understand.
In the quest to cut costs, companies are often blind to the difference between operational efficiency vs. effectiveness and the impact of one metric on the other. Indeed, statistics show that current implementations of automation, unless carefully designed, can cause serious problems. A telling metric shows the perils of a pell-mell push to automate: IT project failure rates, which had gone down with the use of Agile methods, are climbing back up to over 50%, according to numerous studies. A recent study by Geneca found that up to 75% of software projects will fail.
BPM and RPA rekindle the efficiency vs. effectiveness debate
As an expert in robotic process automation (RPA) and business process management (BPM), I posit that a major factor in the rise in IT failure rates is related to how companies are implementing these two technologies.
I believe that while most of these RPA and BPM projects eventually deliver something useful, they often deliver less than expected, cost more than anticipated and take a lot longer than the vendor hype promises. While there are several major reasons for this -- I'll hold off on that discussion until a future column -- there is one key objective that appears to be missing from most companies' cost reduction strategies: the drive for market dominance.
While we constantly hear managers brag about how much money they have saved the company, we rarely hear about the impact of these cost-cutting automation projects on operational effectiveness. CIOs and the business need to ask the hard questions: Is the business operation functioning better as a result of the cost-savings? Is there less error, or fewer problems with customer interactions, or, at manufacturing companies, less waste?
Ignoring the negative impact that your efficiency gains could have on business effectiveness sets you up for failure: In the efficiency vs. effectiveness debate, I submit that efficiency is nowhere near as important as effectiveness -- and efficiency does not equate to effectiveness.
Automation without optimization makes the wrong things go faster
One of the reasons BPM became a meaningful way to understand a company's operation is that it is separate from the objectives of Six Sigma, which focus on efficiency and continuous cost reduction. The separation is important, because it recognizes that there is a difference between efficiency vs. effectiveness. However, many companies today are using BPM primarily to find ways to improve efficiency and cut costs, rather than making the process more effective.
From my experience in leading dozens of business improvement and transformation projects, I know that a great many business operations have lost sight of the need to become effective before they take radical steps to become efficient. Without reengineering the business before you build any solution, you simply automate the bad with the good and, as a consequence, do the wrong things faster.
Effectiveness means the ability to do the right thing, at the right place, at the right time and in the right way. Few business operations can make this claim about more than a few random workflows.
For this reason, I tell people that what I care most about is effectiveness and I'll get to increasing efficiency later. To many, especially finance and continuous improvement types, that is business doctrine heresy. But think about it. Taking the time to understand what is really needed to deliver the service or product of any business group and then making the operation as effective as possible will give an operationally meaningful improvement. Of course, it will also reduce waste and error, but those are byproducts. Once you have maximized the value of the business group to the business, you are ready for the second step: making the effective, efficient.
Effectiveness vs. efficiency approach has IT implications
The effectiveness-before-efficiency approach has design and construction implications for IT. The first of these implications is related to the project approach -- projects need to begin with an honest evaluation of automated support value and capabilities.
Effective operations are dependent on understanding the operational context of the workflow and how activity builds as the work moves: Is IT aligned to support the entire process? Do the applications help make the work more effective, or do they just automate what's there? Is IT an impediment to both efficiency and effectiveness improvement?
If you don't understand the way activity is really changing and the way the changes affect operational context, implementation will not go well. This is where I have personally seen senior business managers tell CIOs to take out the new support and throw it away. They demand that the old process, with all its faults, be reinstalled. Severe, yes, but I have seen it happen.
Efficiency vs. effectiveness in a digital marketplace
So, what is the operational context in a digitally connected marketplace -- how does everything fit together? How can you make the business improve every interaction with the customer -- the so-called customer journey? The past has focused on efficient customer interaction. It was needed. The future will focus on making the buying experience both easy and fun. Are you ready for this kind of shift? Can IT support it? For some of your competition, the answer is Yes. If you are not among this group, you will have a problem.
Making customer interactions fun and easy will help improve the value that IT solutions bring to the business. But remember to keep the real objective uppermost in mind: Every IT solution must also look at how the business workflow -- and every step in it -- delivers operational effectiveness, and how that translates into improved quality, customer interaction and product support. These are the things that will lead to marketplace growth and put the company on a path to market dominance.