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Efficient vs Effective: perspectives for a purpose-driven business.


Stick figure looking confused with a question mark above the head

That's such a great question and we're really glad you asked.


Business owners and leaders love talking about business efficiency.


On the other hand, interest in talking about business effectiveness is in short supply.


Which is a shame.


In this post, we'll explore why it’s often more important to think first about the latter and balance it with the former. Just recently, we’ve had some interesting discussions on precisely this point.


So we figure it’s time to clear up a few things.


Let’s start by offering up a couple of definitions:


  • Efficiency is the idea that “things” should get done without wasting time or other resources (especially, in the business context, money).

  • Effectiveness is the extent to which an activity (in business or elsewhere) produces a predicted and desired outcome. In other words, the certainty with which outcome B will result from input A.


Both efficiency and effectiveness are objectives that any business should rightly pursue. Each can be more important depending on circumstances prevailing in a business at any given time.


And if you’ve been a reader of our posts in the past or have looked over our website, you won’t be surprised to know we believe business purpose is an important underlying driver of each.


Let’s imagine you’ve recently started a business...


You know (or should know) your business purpose, and you’re clear (or should be clear) on your vision and the strategy needed to achieve it. You also should know what you’re good at, what products or services you’ll deliver, and to what clients.


Starting line
Your business plan should be tightly aligned to purpose and strategy

You’re about to embark on some purpose-driven business planning to take the business through its first stages of growth, focusing on clients, your employees (if you have them), and processes to achieve financial outcomes.


Let’s have a look at each of those.


Client acquisition


As a new business, the temptation will be to pursue an efficient client acquisition strategy that focuses on bringing on as many customers as possible in the shortest possible time in the least expensive way. You’ll do this because it’s important (of course) to begin generating revenue as soon as you can.


This may work in the short term, but it may not be effective in the long run if the clients you bring on don’t match your “ideal” client profile as closely as possible.


Photo of a line of people with magnifying glass highlight a smaller group
Targeting the “right” clients is essential

Taking the “anyone with a pulse” approach to client acquisition will ultimately see one, some or all of the following occur:


  • Clients may not be prepared to pay the price you need for your offer to be profitable, because they don’t ascribe the same value to that offer as your ideal clients;

  • Some clients might be prepared to pay the price you’re asking but will ask you to heavily customise your offer. This will increase your cost to service those customers, again eroding profitability;

  • Repeat business may not reach expected levels because you’re not giving some clients a compelling reason to continue doing business with you; and/or,

  • Only a small proportion of clients – if any – might become advocates for your business. They’re unlikely to be as emotionally invested in your brand as possible.


So your client acquisition processes might be as slick as possible in rapidly building quantity, but after a while, you’ll likely be questioning just how effective those processes are. Why? Because you can’t create quality, deep, lasting relationships with just anyone.

A new (or growing) business should address the client quality issue right up front - devising and sticking to an approach that attracts more of your ideal clients. Or at least those who very closely resemble the ideal.


The result might be longer client acquisition lead time, but you’ll improve your chances of creating a client base happy to buy the right things at the right price.


Scattered wooden blocks spelling out the word purpose
Research shows clients prefer to work with a purpose-driven business. Is your purpose clear to your clients?

Ensuring your business purpose is clear and articulated to prospective clients at every opportunity is one way to make acquiring them more effective and attract more of your ideal clients.

Client retention


Similarly, the “client experience” as it relates to ongoing service must focus on meeting the needs of your ideal clients as closely as possible. Once again, designing this experience in the context of your business purpose will create “sticky clients”.


Too often, the overriding objective becomes one of creating efficiency in dealing with clients on an ongoing basis. That’s fine on one level - clients hate dealing with businesses they believe waste their time.


But it’s easy to fall into designing a client experience that delivers benefits mainly to the business at the expense of delivering real value to clients.

That can happen when the business loses sight of its purpose.


And when it does, the ongoing client service proposition becomes less effective in retaining quality, profitable clients. Profit enhancement is achieved by cutting expenses relating to serving clients rather than creating value for them, which can potentially increase revenues. That’s a scenario that can only go so far.


Employee engagement


Your employees will care deeply about efficiency - there’s no doubt about that. They don’t want to feel like they’re wasting time any more than customers do.


However, they care more deeply about seeing and understanding the value of their contribution.

They want to work in a business that’s purpose-driven and effective in terms of delivering great outcomes for clients. These are the things that will lift employee engagement and encourage discretionary effort.


Person at laptop asleep with head on keyboard
Ignore employee engagement issues and this is what you get

Recruitment, induction, and performance management activities should all be built to reflect exactly that. Here’s what we mean:


Recruitment


In some businesses, recruitment is little more than a necessary process to get new people on board. It should be about making sure you’re recruiting the right people for the right reasons who have the right talents and skills for the job you want them to do.


It’s about finding people who believe in what the business is doing and genuinely want to be part of it. If that means your recruitment process needs an extra step or two to create more effective outcomes, then so be it. Any additional cost (in either money or time) will likely be repaid through lower staff turnover and higher engagement.


Induction


This is your recruit’s first experience of your business as an employee rather than a potential employee. And first impressions count.


Planning your induction process should take account of both efficient and effective delivery because, without one or the other, there’s a high chance you’ll disappoint your new employee.


While time should be wasted with unnecessary “fluff”, rushing through a half-baked induction process won’t produce the result you’re after. Every business needs to address how to balance time efficiency with time effectiveness.


The answer lies in the commitment you have as a business to enabling new employees to truly understand your business, its purpose and their contribution to it.


Performance management


This is a tough area in business. That’s clear.


And it’s one area we believe effectiveness eats efficiency for breakfast.

The most efficient performance management process in the world won’t be effective if team leaders don’t drive the process in the interests of employees for whom they have responsibility.


The last thing any business wants is a performance management system that’s been engineered to within an inch of its life only to be treated as an exercise of going through the motions.


Picture of a heap of interlocking cogs
This is the last thing you want…a performance management system with too many moving parts

A truly effective performance management process is designed around your business purpose where regular, open and honest performance feedback is provided and where there are no surprises. It will rarely be “efficient” in the true sense of the word because of the human and emotional elements involved.



Processes and operations


Here’s where efficiency becomes a big ticket item. And quite rightly. Many an otherwise healthy business has come unstuck because of clunky, inefficient processes that wasted time, sucked up money and frustrated everyone involved.


It’s also clearly an area where technology plays a significant role.


There’s still an interesting tension between efficiency and effectiveness when it comes to actually “getting stuff done.”


Getting the right balance comes down to being very clear on the outcomes you want before putting process design pen to paper. And those outcomes should have a laser-like focus on your business purpose.

It doesn’t matter whether a process is for front or back office, client-focused or operations related, or something you have to do from a regulatory point of view…the most highly efficient process will be ineffective if it doesn’t result in the desired, expected outcome. The challenge for every business is to consider every single process it can identify in exactly that light.


To achieve the right balance, every process should have a start point, a clear endpoint and a series of logical steps to get from start to finish. It should ideally have an owner whose responsibility should be to keep the process under constant review for improvement.


The client’s experience should be paramount in terms of process design.

In a new and growing business, efficiency should take a back seat to effectiveness. Not permanently and not to the extent it’s ignored altogether. But enough that your new business doesn’t bury itself in process design to the point where customer acquisition and satisfaction of their needs are overlooked.


That’s a great way to kill growth.


Financials


We’re fond of saying that the financial health or otherwise of a business is quite simply a result of everything that happens in that business.


Of course, setting revenue and expense targets is essential.

Without them, it’s like using Google Maps without entering your destination. In keeping with that analogy, it’s also important to be flexible. If along the road you see a turnoff to somewhere that looks interesting, you ideally want to do some exploring. You never know what a side trip off the road most travelled will uncover.


Coins accumulating in a row
Financial outcomes and growth don’t” just happen”

Dogged pursuit of efficiency will likely keep your expenses in check. On the other hand, dogged pursuit of effectiveness based on your business purpose will open up opportunities to enhance revenue. And that’d be a different challenge entirely.

What about your business?


We’ve focused a lot of this post on new and growing businesses. The reality is that everything we’ve covered is equally relevant in the business planning process of nearly any business you can name.


What we find frustrating when chatting with businesses is the fixation on efficiency and cost control. The thing is, identifying ways to save money is simple.


But if cost-cutting is the key plank in your business story, you’re in a race to the bottom.

More challenging - but so much more rewarding (and fun) - is looking to purpose-driven effectiveness to identify true growth opportunities. That’s where your “next level” will come from.



chalk drawing of man climbing stairs toward the words "what's next?"


Is efficiency "king" in your business?


Could you do with a little more focus on effectiveness?


How clear are you and your employees on your business purpose?


The advisers at GrowthCatalyst can help you create and embed purpose and put you on the road to long-term, sustainable and profitable business growth.


Why not contact us to arrange a face-to-face or virtual conversation?


Alternatively, you can book a time for an initial discussion here.


How purpose-driven is your business right now?


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