Efficiency is accomplishing something with the least waste of time or effort, or at minimum cost. Effectiveness does not refer to costs but measures instead the extent to which objectives are achieved or problems solved. We are all no doubt familiar with the statement that ‘efficiency is doing the thing right and effectiveness is doing the right thing’. I had an opportunity to observe this in practice over 50 years ago.
When I started in economics I was impressed, as were many others at the time, with the notion of Time and Motion study. a business efficiency technique combining the Time Study work of Frederick Winslow Taylor with the Motion Study work of Frank and Lillian Gilbreth. The Gilbreths were famous for their 1950 film Cheaper by the Dozen and I was very excited to be introduced to Mrs Gilbreth, an elegant lady, then well over 80, when she visited our department. Naturally, this encouraged me to further consider time and motion study as a career. And I might well have continued in this direction had I not gone to India the following year.
My host in Bombay (now Mumbei) was very rich by the standards of the time. He owned numerous large apartment houses in the city and several paper mills in Poona. One day he had work to do in his paper mill and asked me if I would like to come along and see it. While he worked in his office I trailed around the factory and was apalled at what I considered to be waste. I put my time and motion study interest to work and mentally catalogued all the many efficiency improvements he could make. I figured he needed less than half of the employees he had. Well, after he finished his work my host introduced me to the staff – and they were all members of his extended family. He considered it his responsibility to take care of them and he was proud that he could provide an income and a good work life for so many. They loved and appreciated him and he was clearly a happy man so I kept my business efficiency improvement ideas to myself! The business may not have been efficient, but if the goal was to maintain his lifestyle whilst caring for others, you might argue it was effective.
I also have a efficiency vs effectiveness story, as it happens also based in India: we were sitting in a car stuck in traffic, and while waiting I looked across to the kerb where two guys were perched on bollards apparently just sitting there. What were they doing? Well the answer appeared in a minute as a pedal cart appeared, loaded up with goods. One of the guys leaped off the bollard and started running behind the cart. As our vehicle moved, we turned the corner and the answer became apparent: the waiting man was now helping push the cart up the hill, to which the pedal operator would not have been able to get up on his own. So the pusher was providing an effective service. Overall though, the transport service was inefficient as there were other options for moving the goods.
Efficiency is usually measured in terms of shortest time and least waste, to provide the defined service. Perhaps in the case of the Indian mill, the service included employing all the extended family? So he was efficient in providing the service of ‘producing goods while employing the whole family’ (ignoring the obvious question as to why not make the whole operation larger so more goods can be produced with the same number of people…). The word effectiveness is more a qualitative measure of delivery of the service, which could include an aspect of doing things at the right time, but not so much in the shortest time. The Indian mill operation may not have been effective if the quality of product was low, or vice-versa may have been very effective if the quality was high.
Being both efficient and effective would be the desired objective, a form of continuous improvement like the Japanese system of Kaizen.