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The terms EFFICIENCY and EFFECTIVENESS are often used interchangeably, yet they are very different from one another.

Efficiency

Doing something at the lowest possible cost.

Effectiveness means doing the right things to create the most value for the company. For example, to be effective at a grocery store it is important to have plenty of operating check-out lines even though they may often stand idle. This is a recognition that the customer’s time is valuable and that they do not like waiting to be served in the check-out line. Often maximizing effectiveness and efficiency at the same time creates conflict between the two goals. We see this trade-off every day in our lives. At the check-out lines, being efficient means using the fewest people possible heading the lines. Being effective, though, means minimizing the amount of time customers need to wait in line.

Effectiveness

Doing the things that will create the most value for the customer.

Related to efficiency and effectiveness is the concept of value, which can be abstractly defined as quality divided by price. Here quality is the attractiveness of the product, considering its features and durability. If you can provide the customer with a better car without changing price, value has gone up. If you can give the customer a better car at a lower price, value goes way up. A major objective of this book is to show how smart management can achieve high levels of value.

QUESTION/DISCUSSION: Review your company or a company with which you are familiar. Identify how, in the past year, the company has been EFFECTIVE. AND Identify how, in the past year, the company has been EFFICIENT.