The Concepts of Efficiency and Effectiveness - Literature review Example

A Research Paper on Management Table of Contents Table of Contents 2 Introduction 3 Discussion of Theories 3 Evidence of Wider Research, and Analysisof Scenarios 6 Conclusion 9 Reference List 11 Introduction The paper tends to evaluate the concepts of efficiency and effectiveness such that it aims in understanding its basic meaning and also its relation to the current business world. The paper would focus on comparing and contrasting the two concepts and also in reflecting the actions of the business organization to rightly incorporate the above themes in countering the growth of external business competition. It also reflects on the cases where the business firms are required to operate in an effective fashion to help in meeting the changing needs of its different stakeholders. Discussion of Theories The term efficiency is evaluated as the amount of productivity gained based on the employment of a specific quantum of input and resources. The measure of the amount of efficiency gained is however not an end in the measure of the amount of success generated. Efficiency in more specific terms can be observed as a factor that contributes in the reduction of the impact of an ineffective initiative taken in achieving stated aims and objectives. Employment of the resource base though in popular terms tends to indicate on the financial resources yet it also tends to reflect other types of resources related to human and other non-financial resources. Measurement of efficiency is made based on the level of benchmarking standards both relating to the internal and external business environment. Units used for measuring the level of efficiency gained relates to the use of time and money. The concept and measurement of efficiency is also observed to be greatly linked to the operation management perspective and thus fails to suit the need to measure the potential of the total organizational performance (BSI British Standards Institution, 2003). The term ‘effectiveness’ on the other hand, relates to the measure of the level to which a set of pre-identified objectives and aims has been rightly achieved by a business organization. Objectives or aims that is ought to be effectively achieved relates either to the internal and external frontier of the organization. Similarly the level of effectiveness is also measured based on meeting the legal and regulatory objectives and also in meeting the needs of the different stakeholders. Measure of effectiveness to rightly match the degree of success of the performance generated by the organization is required to potentially match the right amount of objectives and aims. The term effectiveness also aims to measure the potential of the performance generated in helping in generating the right quality of solutions to the existent problems and challenges. Effectiveness in contrast to efficiency aims to reflect on conducting the right thing or activity in meeting the stated objective (Müller, 2013). Relating to management the term effectiveness not only focuses on conducting the right activity but also aims in conducting such in a cost effective fashion. The term effectiveness also reflects on the level of results generated by the managers and employees in an organization. Thus effectiveness in terms of performance relates to the generation of quality results by the organizational manpower (Covey, 2004). Differences related to the concepts of ‘efficiency’ and ‘effectiveness’ can be rightly identified and evaluated based on the use of the parameters reflected by the Balanced Scorecard. Firstly in terms of the financial factors where the efficiency factor tends to determine the level of cost incurred relating to a particular channel and the level of profitability generated in terms of the investment made. The level of effectiveness relates to the level of contribution and the profitability generated by the different channels employed. Relating to customer value the level of efficiency is measured on the amount of customer or visitor traffic to the different channels. It also relates to the amount of investment required to be generated to help in driving sales pertaining to the different channels. Measurement of effectiveness related to the customer value aims to evaluate the number of customer conversions and growth of new customers and the current market share of the organization (Ausenda, 2003). It also relates to the level of effectiveness generated in terms of enhancing the level of customer satisfaction and the loyalty parameters of the customers to the organization. In terms of the operational processes, ‘Efficiency’ tends to measure the number of conversions gained by the company and the average basket size and the revenue generated. Relating to the ‘effectiveness’ parameter the operational process indicates on the frequency and duration of the responses generated from the customers. It also requires to evaluate the number of times the needs of the customers are rightly and effectively fulfilled to generate due satisfaction (Stevenson, 2002). Though the terms ‘effectiveness’ and ‘efficiency’ tends to be used in an interchangeable fashion yet the two terms are observed to reflect potential differences that can be identified as follows. In the first case, the term ‘efficiency’ indicates on the relationship gained between the level of input and output parameters in operational management the term ‘effectiveness’ tends to measure the degree at which goals and objectives have been achieved. Again where the measure of ‘efficiency’ tends to reflect on the internal potential of the organization the measure of ‘effectiveness’ aims to understand the manner in which the company tends to effectively interrelate with the external business environment. In this fashion the level of effectiveness relates to the degree of flexibility gained by the organization in adapting to the external changes (Chary, 2009). The term ‘efficiency’ is more linked to the technical and financial aspects of the organization while ‘effectiveness’ is more linked to the human factors of the organization. The difference between the two concepts indicate on the greater significance of the ‘effectiveness’ concept such that it aims in formulating the path for the achievement of pre-stated goals and objectives and thus is long term oriented in nature. In contrast the existence of the ‘efficiency’ concept is narrow focused such that it aims to identify and employ the business resources for generating revenue and profitability. An organization is required to use to both effectively the existing resource base to gain needed efficiency and also plan in the right fashion to help in meeting the business aims and objectives (Gupta, 2008). Evidence of Wider Research, and Analysis of Scenarios For generating the internal efficiency in the organization the management body of the organization is required to firstly reduce the existence of redundant measures and controls and in place generate effective controls that would contribute in addressing and countering the emergence of risks. It would also focus on the generation of automated controls in place of existing manual controls. The generation of automated controls in terms of the deployment of computer based controls that not only helps in reducing the element of risks but also helps in meeting the requirements of the different regulatory frameworks. The business organizations are required to enhance the internal level of controls such that the level of improvement generated in the above accord contributes in generating the level of competitive advantage of the firms (Hauswirth, 2007). The level of internal control can be enhanced in the business organization through the mode of rationalization, optimization and also through the mode of redesigning. Through rationalization the organization aims in focusing on reduced use of resources and thereby the need to generate and enhance the level of effort required. Further in addition to enhancing the level of automation in the internal control process the business organizations are required to incorporate needed standards and benchmarks relating to the internal control process (Kreitner, 2006). The above process contributes in optimally integrating the different units operating in the different countries. Finally another process relates to the redesigning the internal structure of the organization to generate needed productivity. Redesigning the terms of the organizational design focuses on generating new roles, responsibilities and also in identifying of new tasks and responsibilities. Planning and management of change in the business organization also helps in generation of effective controlling policies in the organization (Markos and Sridevi, 2010). An effective tool of management control that can be exercised to generate efficiency relates to the need for auditing and financial planning that helps in enhancing the dimension of accountability of the organizational members. Working accountably contributes in enhancing the parameter of organizational efficiency. Generation of financial and performance audits through the incorporation of activity of internal auditors contributes in enhancing the parameter of cost-effectiveness for the organization. Other types of internal controls relate to the development of financial information systems in the sharing and reporting of financial information among interested stakeholders. The sharing and evaluation of financial data effectively contributes in the development of effective benchmarks contributing in creating sustainable business and financial practices (Bui, 2012). Management controls evaluated in generating organizational effectiveness can be essentially divided along three parts like the incorporation of effective information technology in the organizational system for the sharing of effective information helping in planning, structuring and in generation of potential feedbacks to help in modifying the conducting of business activities to help suit the external needs. Another management control exercised to generate organizational effectiveness relates to the introduction of new forms of organizational structures like horizontal or parallel that contribute in the reduction of span of control for taking of effective decisions. Similarly a change brought about in the organizational culture is taken to largely contribute in influencing the activity of organizational members to help in generating needed effectiveness. Thus change in the existing value sets of the organization contribute in enhancing the effectiveness of the existing organizational culture (Pfister, 2009). Effectiveness is considered as the primary aim of the business organization in cases where the business organization is required to perform in a customer responsive fashion. The need for the business organization to work in a flexible fashion to help in meeting the variegated needs of the customers in the external environment requires operating in an effective manner. Further the continual changes in the regulatory and legislative environment also requires the business organizations to embrace effectiveness as the primary goal such that it contributes in the growth and development of the internal knowledge of the organizational members through the conducting of training and knowledge sharing activities. Service organizations like retail and hospitals are required to work in generating due effectiveness through the mode of continual development of the internal productivity of the staffs (Forster, 2001). Similarly the requirement of an organization to perform effectively in a competitive business setting also requires the development of effective leadership such that changed management strategies can be effectively formulated and implemented to help generate needed productivity. Working in an effective manner requires the organizational members to operate in a collaborative and integrated fashion such that the same helps in generation of holistic productivity in the business organization. Operating in a collaborative fashion contributes in sharing of new ideas and thoughts needed for the generating due effectiveness in the business organization (Bateman and Snell, 2009). Similarly the requirement for business organizations to operate in a timely fashion in helping in meeting of project management and business objectives also require them to work in an effective fashion. Working in an effective fashion contributes in enhancing the accountability and commitment of the organizational management in meeting the objectives of the business organization in a highly involved fashion. Similarly need for effective decision making also requires the business organizations to work in an effective fashion such that the same helps in generation of decisions in a timely manner to suit the business needs (Frankel, 2008). Conclusion The paper effectively reflects on the concepts of efficiency and effectiveness through the generation of theoretical discussions. It reflects that efficiency tends to relate more to a technical concept such that it tends to identify the process through which the inputs generated can be put to generate the needed quantity and quality of output. Further the measurement of the level of efficiency is generated or unitized based on time and cost parameters. On the other hand the concept of effectiveness relates more to the non-financial factors like development of the human capital in the organization and also the development of policies and regulations to help in meeting the changes in the external business environment. Thus working on a flexible and adaptable business environment contributes in enhancing the level of effectiveness of the business organization in meeting the needs of its different stakeholders. The concept of efficiency is thus identified to be an internal concept in contrast to the level of effectiveness which is identified to be an external concept. The paper further researches relating to the management strategies that can be exercised relating to the development of efficiency and effectiveness in the business organization. Where strategies like the generation of performance and resource based audit and also the development of the financial information system contribute in enhancing the level of business efficiency the generation of effective strategies to help reform the existing cultural and organizational framework of the business organizations contributes in rightly helping the business organization to adapt to the changing business environment. Finally the paper reflects on the different circumstances that require the business organization to focus on generating needed organizational effectiveness. Effectiveness gains significance related to such business organizations that aim in serving the needs of its stakeholder groups and thus are customer responsive in nature. Further the same stands significant for organizations required to perform effectively based on a specific period as in the case of project organizations. Reference List Ausenda, G. 2003. On Effectiveness. United States : Boydell Press. Bateman, T. S., and Snell, S. A. 2009. Management: Leading And Collaborating In The Competitive World. New Delhi: Tata McGraw-Hill Education. BSI British Standards Institution. 2003. Effective Records Management: Performance Management for BS ISO 15489-1. United Kingdom : BSI British Standards Institution. Bui, A. T. 2012. Financial Management for Water Utilities: Principles of Finance, Accounting, and Management Controls. United States : American Water Works Association. Chary, S. 2009. Production and operations management. New Delhi: Tata McGraw-Hill Education. Covey, S. R. 2004. The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change. New York : Simon and Schuster. Forster, S. 2001. The Role of the Mental Health Nurse. 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Managing Organizational Culture for Effective Internal Control: From Practice to Theory . Germany : Springer Science and Business Media. Stevenson, S. G. 2002. Managerial Accounting for Libraries and Other Not-for-profit Organizations. United States: American Library Association. Read More