Efficiency and Effectiveness – Managers and organizations

Efficiency – the ability to do things right is an “input-output” concept. An efficient manager is one who achieves outputs, or results, that measure up to the inputs (labor, materials, and time) used to achieve them. Managers who are able to minimize the cost of the resources needed to achieve goals are acting efficiently.

Effectiveness, in contrast, involves choosing right goals. A manager who selects an inappropriate goal say, producing mainly large cars when demand for small cars is soaring is an ineffective manager, even if the large cars are produced with maximum efficiency. Managers at General Motors learned this lesson the hard way. When the demand for fuel efficient smaller cars increased in the 1970s, GM ignored the competition created by the Japanese and Germans, believing that the trends were an aberration and that Americans, loyal to American products, would not continue to buy foreign cars. As a consequence, they continued to produce large, fuel-inefficient cars, and in so doing lost enormous competitive ground to these new rivals.

No amount of efficiency can make up for a lack of effectiveness. In fact, Drucker says, effectiveness is the key to an organization’s success. Before we can focus on doing things efficiently, we need to be sure we have found the right things to do.

Since the late nineteenth century, it has been common practice to define management in terms of four specific functions of managers: planning, organizing, leading, and controlling. Although this framework has come under some scrutiny, it is still generally accepted. We can thus say that management is the process of planning, organizing, leading and controlling the efforts of organization members and of using all other organizational resources to achieve stated organizational goals.

A process is a systematic way of doing things. We refer to management as a process to emphasize that all managers, regardless of their particular aptitudes or skills, engage in certain interrelated activities in order to achieve their desired goals. In the rest of this article, we will briefly describe these four main management activities and how they involve relationships and time.

Planning implies that managers think through their goals and actions in advance and that their actions are based on some method, plan, or logic rather than on a hunch. Plans give the organization its objectives and set up the best procedures for reaching them. In addition, plans are the guides by which (1) the organization obtains and commits the resources required to reach its objectives; (2) members of the organizations carry on activities consistent with the chosen objectives and procedures; and (3) progress toward the objectives is monitored and measured so that corrective action can be taken if progress is unsatisfactory.

The first step in planning is the selection of goals for the organization. Goals are then established for each of the organization’s subunits – its divisions, departments, and so on. Once these are determined programs are established for achieving goals in a systematic manner. Of course, in selecting objectives and developing programs, the top manager considers their feasibility and acceptability to the organization’s managers and employees.

Organizing is the process of arranging and allocating work, authority and resources among an organization’s members so they can achieve the organization’s goals.

Relationships and time are central to organizing activities. Organizing produces a structure for the relationships in an organization, and it is through these structured relationships that future plans will be pursued. Another aspect of relationships that is part of organizing is seeking new people to join the structure of relationships. This search is called staffing.

Leading involves directing influencing and motivating employees to perform essential tasks. Relationships and timing are central to leading activities. In fact, leading gets to the heart of managers’ relationships with each of the people working for them.

Finally, the manager must be sure the actions of the organization’s members do in fact the organization toward its stated goals. This is controlling function of management, and it involves these main elements: (1) establishing standards of performance; (2) measuring current performance (3) comparing this performance to the established standards; and (4) taking corrective action if deviations are detected.