Wednesday 25 February 2009

Effectual vs. Efficient

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This particular blog article has been running around in my head for some weeks now. But having listened to Barack Obama's speech to congress this week and come across an article by the BBC business editor, Robert Peston. I decided that I could delay no longer. Originally I was planning to write about effectiveness vs. Efficiency, but as you will read even those terms did not get across the key difference.

Some of the very positive feedback I received in the Cost vs. Waste article started to make me worry. The reason for the worry was that people were very positive about chasing out waste and the benefits that will bring to them. Many of them even relating to the damage caused by previous cost cutting campaigns. People were still looking to use it as a technique to increase efficiency.

So why would people doing great work in chasing out efficiency worry me? It worries me because I see people around the globe using efficiency to try and rescue/recover/grow their organizations. The danger being that we are using the same mindset that created the problem to solve it. Something which Einstein warned us against with his quote ""We can't solve problems by using the same kind of thinking we used when we created them."

So, as with other articles in the series let's start by taking a look at some dictionary definitions. As we can see at first glance the differential between the terms efficiency and effectiveness is not as clear cut as in other areas we have considered.

ef·fi·cien·cy

a) the quality or degree of being efficient

b) efficient operation

c) effective operation as measured by a comparison of production with cost (as in energy, time, and money)

d) the ratio of the useful energy delivered by a dynamic system to the energy supplied to it


ef·fec·tive

a) producing a decided, decisive, or desired effect <an effective policy>

b) impressive , striking

c) ready for service or action <effective manpower>

d) actual <the need to increase effective demand for goods>

e) being in effect : operative <the tax becomes effective next year>

Again I am using the Merriam-Webster online dictionary as the reference point. Further reading of the definition of "effective" produces, to my mind at least, the bigger clues to the differential. From the reading of the synonyms we can see that while efficient is all about "avoiding" (loss, waste, energy, money etc.) something we need to do. Effectual is about actually "accomplishing" desired results.

synonyms effective ,effectual, efficient mean producing or capable of producing a result.

  1. effective stresses the actual production of or the power to produce an effect <an effective rebuttal>.
  2. effectual suggests the accomplishment of a desired result especially as viewed after the fact <the measures to stop the pilfering proved effectual>.
  3. efficient suggests an acting or a potential for action or use in such a way as to avoid loss or waste of energy in effecting, producing, or functioning <an efficient small car>.

Now, do we need to be efficient, well of course we do! But, what if we are efficient without being effective? One of my favored examples here is the auto industry. Whether we consider the ailing US firms or the almost totally non-extant UK firm is of no consequence. In both cases in response to pressure from Asian car companies the US/UK manufacturers seemed to chase two things in particular. Quality, they woke up to the fact that they needed to drastically improve their quality and efficiency, they tried (and are still trying) to become more efficient, producing their cars at lower costs. They have all to a greater or lesser degree made some major strides in both of these areas.

However, notwithstanding the current financial crisis, as Barack Obama says, they have still not made the changes they need to in order to give themselves a real shot at long term survival. To my mind unlike their Asian counterparts they were too focused on efficiency and not enough on being effectual. If we look at the world market for auto's over the past 10-15 years we see that it is Japanese companies who have consistently delivered the products that customers wanted, not merely trying to find innovative ways of getting customers to buy what the manufacturers wanted to make!

Another way of looking at the difference between the two is that efficiency tends to be an inside out perspective - what can we do to be more efficient (improve OUR processes, cut OUR costs, remove waste from OUR system). On the other hand effectual is an outside in perspective - it does not matter what we want to do, what does the customer want from us and how can we deliver it to them to the quality they seek at a price they are willing to pay (causes to only do the steps we need to and therefore eliminates unnecessary work and doing things that customers won't pay for.

Anyone who has spent time on process analysis will have countless stories to tell of how when they looked at a process from the outside in the waste became obvious. Going further when the process is looked at properly from end to end the amount of "craziness" that exists in organizations is sad.

Truly successful organizations in every sector have proven that understanding what the customer wants and will pay for is critical. To operate processes that deliver to these criteria makes sense. To then identify ways of ensuring that the required activities are executed efficiently is obvious. It is these things when taken together that means we are and can be effective and makes our processes effectual. To do anything less is to waste time, money and other resources and to risk the entire health of the enterprise.

By way of an example of how "efficiency" by itself can be misleading, consider the following quote:

"RBS was a slightly odd organization in those days. In many ways, it appeared remarkably successful. Having acquired NatWest and expanded massively in the US, it was one of the world's biggest and most profitable banks. But it was always rather secretive and surprisingly defensive: I'm struggling to remember a single on-the-record interview given by Goodwin to a broadcaster or newspaper. It was more inward looking than most huge international companies, and was very prickly about even mild criticism. That said, many in the City, and many journalists,
admired the bank for its efficiency and Goodwin for his "Fred-the-shred" moniker - his reputation as perhaps the most fearsome and effective cost-cutter in UK corporate life. So it's striking that the new chief executive, Stephen Hester, has identified some £1.5bn to £2bn of cost savings at the bank, which are apparently above and beyond what has already been disclosed. And Hester will announce as much this Thursday"

Robert Peston, BBC Business Editor in Feb 2009

Here Peston is talking about a company that was seen as successful as measured by its industry peers and its apparent efficiency. The key points being that it was defensive, unwilling to accept criticism and inwardly focused. How many organizations can we think of that these terms could apply to?

Had they been more focused on being "effectual" I suggest that they would have been better able to find the learning from criticism, would have been more open about their failures and would have been thinking about their business from the outside in. Now, given the problems in the whole financial sector, it would be naive to suggest that these things alone would have prevented failure, but, I strongly believe that they would have a) made even more profit on the good days b) reduced some of the bad lending c) won even more customers as a result of being easy to do business with and d) had a more understanding ear from governments, shareholders and customers when things went wrong.

As a footnote to the story it is also interesting to note that even one of the most apparently efficient organizations in their industry can mysteriously find such amazing amounts of additional savings when push comes to shove.

I suggest the questions we need to pose of our organizations, as well as each of us as individuals is

1. Are we willing to take and learn from criticism? - If not what can we change now so we can

2. What is it that customers really need? - What do we need to do to ensure that we only conduct operations that do just that.

3. How can we be more open - With our customers, staff and other stakeholders.

If we start to approach business in this way then we will start to be more effectual, it will also cause us to change the way we think about business and avoid the perils as suggested by Einstein above.

On the flip side if we don't then we will I am certain enter a death spiral of "Legislation which will increase business costs. Increased business costs will cause price increases. Increased prices will mean losing customers. Losing customers will result in decreased profits. Decreasing profits will reduce investment. Reduced investment will stifle innovation. Lack of innovation will cause stagnation - all of which will cause governments to think passing legislation!" - Hardly what we could call evolution or progress methinks Charles Darwin would be turning in his grave!

Finally as a reminder to those who are looking at saving struggling businesses by removing waste (cost if they prefer), it is probably already too late. Companies like GE, Toyota, South West etc. never stop removing waste and they know that the time to really keep your foot on the gas is while business is booming and you still have the resources you need to restructure and make changes. Sure these companies will struggle too, but I would bet on them coming out stronger in the upturn. Of course in the process community this is not news, in fact it is history repeating itself. The same could be said for many of those who came late or not at all to the Business Process Reengineering (BPR) party in the early 90's.

Monday 9 February 2009

Mapping vs. Modelling

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If we think about maps the most familiar to us is the road map. Then we can have many maps together and create a road atlas. These are great for allowing us to see where we are and where we might want to go. We could even use our maps to trace a route in order to plan a journey. However, if there had been a new road built or an old one dug up, we would at best waste time and at worst be unable to complete our journey. Our maps or atlases are static representations of the world and once drawn they are difficult to edit and change, especially if a change on one page or map has an impact on another. So in process terms if we are simply drawing pictures on a page then the chances are we are creating maps and most maps are just that – pictures. Visio and PowerPoint being the two most common mapping tools used today.

Something else that we should bear in mind about maps is that we can have many different types. We would not want to use a road atlas to go walking in the hills, or detailed ordnance survey map for driving. We know instinctively that each form of a map has a specific purpose. Maps are also only representations of the world as perceived by the creator of a map, think for a moment about how maps themselves have evolved over the years. You would not want to use a map from even 10 years ago to navigate around the world today.

If having created a map you wish to undertake any kind of analysis, be it impact, time, what-if, resource or any other kind then maps will not be suitable, in order to do this you will need a model. In today's world the best example of rich models which we use can be thought of as GPS Navigation systems. With these devices we can asses multiple route options based on a whole host of criteria. Compared to our road atlas the maps in these devices are seamless. It takes much longer to build a model than a map, as for each shape on the chart one will be required to input additional data about such things as resources, cycle times, wait times, costs etc. The richer the "definition" contained in the chart, then the then the richer the analysis that can be performed. In part this is why modelling tools are perceived as being harder to use, they are designed to provide a richer analysis experience and to allow the use of the computer to do some of the comparisons and calculations for you. Maps can only really be compared with other maps by using the human eye and a whole host of other spreadsheets and calculators. Even then such analysis is not especially efficient.

Whether to use a map or a model depends on your purpose, it may be that using a simple map as a first stage in knowing what the process is and how to simplify it is a good step. Indeed this is the approach taught in my classes and seminars, as first step tremendous waste opportunities can be discovered.

However, if you want to do more detailed analysis you will need to take the simplified map and enter it into a modelling tool for that to happen. It is also better in the long term to store maps in a modelling tool as it makes it significantly more practical to maintain both the map and the interdependencies. Many suggest that the effort to build models is not justified; perhaps what they are really saying is that they cannot be bothered to undertake proper analysis? Or maybe they do not care about calculating timing or cost information – this would be surprising today.

Certainly for those who wish to undertake any kind of automation the models will need to be built. The cost of implementing a badly designed process or procedure is just too expensive. There is also an assumption here that your business contains more than one process and that understanding the interdependencies would add value and enable better business decisions.

In summary, use a map to understand or define a process or problem, then use the map to look at waste reduction or other quick hit opportunities. Then when you have eliminated wasted activities, rules, moments of truth etc. then you would be better to capture the resultant map in a model, adding details as required.