Efficiency drives productivity but kills creativity

30th May 2012
Simon Baker

Change and creativity always take us by surprise. Being efficient doesn’t help us cope with this.

The more adapted something is to a particular environment, the less able it is to adapt to changes to that environment. Greater efficiency comes with being more finely tuned to the environment in both process and practice. Everything gets locked into one way of doing things. From the inside it looks like a well-oiled machine. From the outside it might look fluid but it also looks mechanical, limited to a finite set of predefined movements. Any movement outside that set breaks the machine.

Effectiveness on the other hand facilitates the capability to sense and respond, to adapt to changes internally and to changes in the surroundings. Most competitive advantages are built on effectiveness, not efficiencies. Andy Grove, former Intel CEO said “disruptive threats came inherently not from new technology but from new business models.” Are businesses grokking that?

In his book Implementing Value Pricing, Ronald J. Baker takes a look at where a company might be with its innovation given its efficiency and effectiveness:

  • Luddites: The luddite companies resist technological advances and other innovations that are considered to be table stakes by the market. They’re not very efficient at doing things right and they’re not very effective at doing the right things.
  • Buggy whips: Drucker said that no amount of efficiency gains would have saved the buggy whip manufacturers from the automobile. When an industry is at the apogee of its efficiency, the companies in that industry face the risk of being made obsolete by new technologies or business models. These companies are the buggy whips.
  • Innovators: The innovators are the companies willing to invest a portion of today’s profits to experiment with tomorrow’s possibilities, and at the same time, sacrifice efficiency so they can respond to change and adapt effectively to keep delighting customers.
  • Humpty Dumpty: The Humpty Dumpty companies are highly efficient and highly effective. That sounds ideal but these companies risk a precarious future. That level of efficiency makes their operations rigid and brittle, no matter how effective they are in the market. If Humpty falls he becomes a buggy whip. It’s safer and better to become an innovator and sacrifice some of that efficiency for innovation, making the company more valuable to customers.

Effectiveness is a more capable capability than efficiency

Creativity is intrinsically surprising and ultimately the source of profit and growth. Innovation, creativity and end-to-end service quality are antitheses of efficiency. To clarify: creativity is thinking up new things and innovation is doing new things – according to Theodore Levitt. Good things like research and development and investing in and supporting learning (and not just some training) all reduce the efficiency metrics. Unless companies make these essential investments and retain their effectiveness they’re not only resting on their efficiency laurels, they’re coasting on their current intellectual capital. That’s risky in today’s economy. Knowledge becomes obsolete fast so you need to be effective to respond quickly and adapt successfully.

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