Return to Productivity

Effectiveness v Efficiency


  • Effectiveness and efficiency are words often confused 
  • Effectiveness measures how well a supplier’s present efforts and methods meet its customers’ needs – what customers think of what a supplier offers them



Effectiveness  Customers’ ratings of actual outcomes  =  60% say

                                   Customers’ requirement (= 100)



  • Customers’ views may be surprisingly different to what suppliers think they are
  • They may also be very different to suppliers’ views on what they offer them 
  • But, if customers don’t want what a supplier offers, whether because of price, quality or service levels, something has to change, and fast 



  • ·           Efficiency measures how well present methods are being carried out – how close a supplier is to getting the most out of one or more of the existing resources



Efficiency   =         Actual output volume           =   80% say

                            Maximum output volume    


  • Efficiency thus measures existing capacity usage and possible operator training or capital investment needs 
  • The more efficient a supplier is, the lower its unit costs will be – this increases profit margin headroom in the private sector and releases extra funds to deal with more customers in the public sector 
  • NB1 – In the private sector, a supplier can be very efficient but still go bust if the customers don’t want what it offers them 
  • NB2 – In the public sector, most service units are expected to improve their efficiency levels each year – the problem has been that targets set were only for 1% or 2% improvements per annum which is well below what is needed or possible



1 comment

    • Tamsin Stanley on April 27, 2017 at 4:25 pm
    • Reply

    Very interesting explanation. Thanks.

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