Efficiency is not the Competitive Advantage


By Patrick J. McKenna and Edwin B. Reeser

Efficiency in any firm, in and of itself, is not the competitive advantage. There is a big difference between being efficient and being effective. Far too many firms only seem to be investing in efficiency — at the expense of being effective.

Management thinker Peter Drucker addressed this topic decades ago in his book, “People and Performance”:

"Efficiency means focus on costs. But the optimizing approach should focus on effectiveness. Effectiveness focuses on opportunities to produce revenue, to create markets, and to change the economic characteristics of existing products and markets. It asks not, how do we do this or that better? It asks, which of the products really produce extraordinary economic results or are capable of producing them? Even the most efficient business cannot survive, let alone succeed, if it efficient in doing the wrong things, that is, if it lacks effectiveness. No amount of efficiency would have enabled the manufacturer of buggy whips to survive.”

Law firms are all too often focused on being efficient at doing the wrong things.

Are you being efficient or being effective, or do you even know?

Is your efficiency directed to the operation of the business and generating net revenue gains, or the consumption of your human resources for redistribution of a stagnant income pool, and thus hastening the demise of your firm? It isn’t enough to be efficient on the right things, it is critical not to be efficient at doing the wrong things.

As Drucker said, "Effectiveness is the foundation of success — efficiency is a minimum condition for survival after success has been achieved."

Things don’t always have to boil down to either/or types of decisions. Balancing entirely different things is one of the critical success factors for good leadership. With the proper perspective and focus on the right things to be doing it is quite possible to be both efficient and effective. The two concepts can co-exist so long as the focus remains on more than just short-term results.

Edwin Reeser & Patrick McKenna (Copyright Daily Journal Corporation 2013)

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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