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

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  • 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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