Effectiveness Isn't Everything, It's the Only Thing

Source: VeraSage Institute Blog

This blog entry describes a continuing debate between Ron Baker (and his VeraSage colleagues) and CPA Jim Caruso. The debate raises interesting questions about the roles of efficiency and effectiveness in management of a professional service firm.

Baker argues that “competitive advantages are built on effectiveness, not efficiency — period.” (See “Stop Worrying About How Efficient You Are; Effectiveness is the Only Thing that Matters.”) He also suggests that “Efficiency and effectiveness cannot be ‘balanced' like tires, because they are entirely different things.” (See “The Seven Moral Hazards of Measurements.”)

Caruso takes issue with the latter statement, arguing that firms need to “balance short-term profitability with longer-term growth initiatives.” Baker counters that efficiency should not be ignored, but rejects the idea of balancing the two concepts, because only focusing on effectiveness can provide a competitive advantage, while efficiency is easily copied by your competitors.

Caruso also raises an interesting question: “If it takes my firm 20 people to handle a portfolio of audits that another firm can handle with 15 people, how can that not be relevant?” In response, Baker warns against the dangers of being too focused on “internal metrics at the expense of outputs, results, and value.” Perhaps it takes 20 people at one firm to handle the audit portfolio,

Baker suggests, because they are “delivering a higher level of customer experience, delivering more value-added services, etc. If you price it right — meaning your customers are willing to pay for it — having 20 people may be very economically viable, and more profitable.”

For the complete blog entry, read “The Efficiency vs. Effectiveness Debate Continues.”

From VeraSage Institute, http://www.verasage.com/index.php/community, November 26, 2010.