Any efficiency measure applied relentlessly ultimately becomes inefficient
Business loves too much of a good thing. Relentlessness is a characteristic widely admired in business leaders. Efficiency is a classic area where the impact of a relentless focus on a single practice can be self-defeating. Engineers know this, but managers have not yet learned the lesson.
The first clue to this outcome is the Pareto principle which is widely misunderstood. Pareto highlighted that in many phenomenon a small part of the population has the largest impact i.e. 20% achieves 80% of the impact. Applied to efficiency it highlights that the cost of achieving incremental efficiency using the same measure will increase over time.
Nicholas Taleb has highlighted in Antifragile that slack in a system is often the source of its Antifragility. Slack is what enables systems to effectively respond to shocks. We can’t remove the shocks but we can ensure the system does not collapse when a shock hits because it has no capacity to change and respond.
Business practices are widely copied. People develop expertise in a single practice and become like those described by the phrase “to a man with a hammer every problem looks like a nail”. We over-apply efficiency measures because they worked before or they worked elsewhere. We rarely consider their systemic impact on effectiveness
Consider a few of the efficiency measure applied relentlessly in the corporate world that have created new inefficiencies and damaged effectiveness:
- Time Management: ever waited for a meeting to start because someone is so scheduled that they keep everyone else waiting? Our relentless focus on managing the efficiency of time at an individual level creates collective inefficiency.
- Outsourcing and Offshoring: the labour arbitrage and other efficiencies of these measures are often overwhelmed when pushed too far by the inefficiency of the system with fixed processes, misaligned performance standards and poor communication and collaboration. Too many organisations have discovered they no longer can respond effectively to customer needs when they overstepped the efficiency measures.
- Expense control: Organisations that ruthlessly manage employee ability to spend in a low trust approach often discover employees are far more creative and also spend what they can to retain budgets. New constraints and processes just create new wasteful behaviours because trust has broken down.
- Specialisation: Similar to outsourcing and offshoring, removing people from connection to customers and fragmenting processes unnecessarily in the name of efficiency creates its own lack of accountabilities and inefficiencies
- Scale: We live in a world where big likely means too big to sense, decide and react.
- Performance Management: Employees can calculate expected average returns too. Even with that purpose, autonomy, mastery and relationships are more likely to shape their effort than a relentlessly redesigned reward scheme. The relentless focus on efficiency of performance management schemes and the sense that the rules will be changed to suit the corporate is ultimately ineffective.
Responsive Organisations recognise that efficiency is not the only goal. Efficiency does not deliver on the purpose of the organisation. It merely ensures resources are well applied. Effectiveness delivers the purpose of the organisation and needs to be a greater part of the management toolkit. Efficiency measures need to be tempered to reflect their effectiveness and their impact on the effectiveness on the organisation as a whole.