Business and academia characteristically use a variety of terms and definitions to describe notions of effectiveness, efficiency, and productivity, as used in the workplace. However, the terms are not always defined, interpreted, or accepted consistently within and across industries and organizations. The definitional confusion is typically concerned if the terms are related, synonyms, or merely two sides of the same coin. While many business people may point to terminology dissimilarities, all will generally agree to the correlation of the underlying concepts and use with the business cycle and process measurement and reporting.
Creating successful business strategies with specific effectiveness, efficiency and productivity goals and metrics, within a strategic alignment framework model, are very different. Executives, in the current environment, need to understand and appreciate the value of embedded a productivity factor within each corporate business and technology strategy.
In simple terms:
- Effectiveness: Doing the right things
- Efficiency: Doing things right
- Productivity: Output / Input
A further clarification is outlined below.
Effectiveness refers to the level of quality with which a task or process is carried out that ultimately leads to high quality outcomes and a higher overall business performance.
Efficiency is an internal measure of performance that calculates how well the organization converts inputs into outputs. The more the ratio of outputs to inputs approaches 100%, the better the efficiency of the process will be.
Efficiency is the ability to do something or produce something in a cost-effective manner without wasting resources, materials, time or energy.
Productivity is the rate at which goods are produced or the work is completed. It is a calculation of the output of goods and services to the inputs of the resources used in the production of the goods and services.
Productivity is also described as combination of efficiency and effectiveness that measures how well a business transforms resources into products Thus, an organization that focuses on either efficiency or effectiveness is either partially productive or not productive at all. To achieve total productively success, executives needs to be focus balancing the effectiveness and efficiency goals.
Focus on efficiency alone, has the potential to endanger business competitiveness. For instance, emphasizing only efficiency may overlook or discount the contribution of the business activity to customer value creation. Similarly, exclusive attention on efficiency disregards the cost-effectiveness of the activity. productivity improvement has the potential to expand competitiveness by lowering costs, improved use of human and other resources, and positive impact on the financial plans.