Tax & admin · 21 June 2021

Efficiency and Productivity: Which is better? Are they different?

Efficiency and Productivity: which is better? Are they different?

In business you will hear the words “productivity” and “efficiency” used a lot. These characteristics are considered essential to the successful functioning of a business, but it is unclear what the difference is and how they work together.

Efficiency and productivity are related, but they are not interchangeable and knowing the difference will help you to view your business and workforce differently. Different business strategies and processes will help or hinder efficiency and productivity in different ways. Knowing where your business is struggling allows you to better address the problems and gives you the correct terminology when looking for solutions.

When your business is both efficient and productive, it will succeed, but not all businesses hit this mark. Some are very efficient but not very productive, while others are incredibly productive, but not efficient.

 

What is Efficiency?

Efficiency can be measured as the ratio of useful work performed to the total energy expended in its production. Simply put, it looks at how much work is produced over a period of time and with given resources.

The word “useful” is important to note in this definition. Although a process might yield results that use minimal materials and energy and take little time, if the results are not useful then the process is not efficient. The product at the end of the process needs to serve its purpose, whether that is production of a product or collation of data.

In order to be highly efficient, something needs to produce the least possible waste while producing the best possible outcome.

The term “energy efficient” is helpful in understanding this definition because it is a term that is familiar. If something is energy efficient it means that less energy is used to produce the same outcome as a similar product with higher energy requirements. There is less waste produced and less energy used to achieve the same outcome.

What is Productivity?

Productivity is measured as the ratio of outputs to inputs. Unlike efficiency, productivity is less interested in the quality of the product and more interested in the quantity produced. Productivity is easily measured, but is not always the best measure for a business because it rarely takes into account time used for corrections or waste being produced. In business, it is typically measured as the amount of work produced over a set period of time. This work is rarely reviewed in productivity reports.

Generally, there are more tools to measure and improve productivity than there are for efficiency. Businesses that focus on productivity can streamline systems and implement new procedures that cut down on time drastically. Certain checks and regular updates can also be implemented to ensure high productivity.

But when a business puts too much emphasis on productivity, they may find that their outcomes are less desirable and they start to lose customers.

 

Is efficiency better than productivity?

The question of productivity vs efficiency is therefore an important one. Depending on your business, you may choose to focus more attention on one than the other, but to be truly effective and successful, you will need to strike a balance between the two.

Productivity is not better than efficiency and efficiency is not better than productivity. But the two need to be used together.

A company that is all about productivity may be able to produce masses of work over a short period, but without efficiency they may also face losses. Too much productivity without enough efficiency will result in more waste, which will become expensive. Businesses may also find that they have higher rates of returns, fewer return customers, increased time spent dealing with complaints, and lower staff morale.

On the other hand, a business that focuses too much on efficiency and not enough on productivity may find themselves getting side tracked by finding new methods or reducing waste (thereby creating more time waste). Because efficiency is concerned with quality over quantity, the amount of work produced is likely to go down. And although there will be benefits to efficiency such as return customers and improved outputs, there will be fewer outputs which results in lower income.

It is clear that without both productivity and efficiency, businesses are unlikely to achieve all they are capable of.

What does it look like to be both productive and efficient?

In order to be successful, a business needs to properly balance productivity and efficiency. The result of a proper balance is referred to as total productivity. This looks different in each industry, but there are some general ways to measure total productivity.

 

In output

If efficiency focuses on the quality of output and productivity focuses on the quantity of output, then total productivity is the quantity of work produced that works as intended and delivers on all requirements.

For example, a productive social media marketer may produce 400 pieces of content a week but only engage with 500 people on each post. An efficient social media marketer may only produce 50 pieces of content a week, but have 4000 people engaging on each post. In order to achieve optimum total productivity, the social media marketer should be producing 200 pieces of content that reach 2000 people. Although this looks like both the productivity and efficiency have gone down, the total weekly reach will have doubled from 200,000 to 400,000.

 

In performance

Performance refers to the process involved in any task or function, and it can be good or bad. But performance can also be a measure of efficiency and productivity. A person who is performing efficiently may be producing outstanding work, but less regularly. A person performing productively may be producing a lot of work, but at a lower general quality.

There are advantages and disadvantages to both efficient and productive performance alone. Ideally, there should be both. When measuring performance for a business, you should be able to see high quality work being produced regularly and quickly.

In some industries, performance is one of the key indicators for measuring business targets. High fashion designers will need to be more concerned with efficiency than productivity because they may only need to produce a few garments a month, but these garments need to be the highest possible quality. In a discount fashion outlet, productivity will take precedence over efficiency because customers are less discerning about quality and are focused instead on low price points – something that can only be achieved if efficiency isn’t the main goal.

 

In financial planning

The financials of a business are arguably the most important measurable. No business can run on a loss and no new business owner is content to simply break even. Financial planning and outcomes need to be at the forefront of a business owner’s mind.

In reference to productivity and efficiency, financial planning can help you discover your business’s strengths and weaknesses, and where you need to focus to improve earnings.

When productivity is prioritised, underlying costs are often ignored. Because the focus is on getting work done and not on getting it done well, the quality suffers and a lot of time and money has to go into rectifying mistakes. Small expenses, such as lost time due to increased customer complaints, can build up. But bigger errors brought on by intensive focus on productivity, such as skipping a step in production, can cost a business enormous amounts of money. In addition to losing money, you run the risk of losing reputation too, which is much harder to get back than funding.

 

In measurement

Both productivity and efficiency can and should be measured in a business to ensure everything is running optimally. The biggest difference is that productivity is a simple measurement, while efficiency is more refined and nuanced. Where productivity is only about output, measurements of efficiency involve a level of in-built quality control.

To save money and time, and to increase useful production, use both productivity and efficiency measures in strategic planning.

 

How to maximise both efficiency and productivity

Productivity and efficiency need to work together. To get the most out of your business and employees, you should be building in strategies to maximise both equally. Here are a few ways to make that happen.

 

Be intentional

When a business is allowed to go into “business as usual” mode, it will inevitably fall into an efficiency trap or a productivity trap. Unsupervised and unstrategised work will inevitably stop performing well and your business will suffer.

Being intentional about true productivity means building checks and measures into your business for ongoing monitoring of both productivity and efficiency. You will need to be aware of resource stores, resource usage, past and current outputs, and targets for the business. Knowing all of these will help you to prioritise workload and set deliverable goals for your business that are realistic.

Once these goals have been set, you need to regularly monitor progress. It may seem like a time consuming task, but being intentional and monitoring outputs is the best way to keep your business healthy and help you achieve your business goals. It will also give you the most accurate insights into your business for improving productivity and efficiency and setting future goals.

 

Prioritise

Productivity and efficiency must work together but every business is unique and will need to find  a nuanced balance. As was seen with the fashion outlet example, high fashion will naturally prioritise efficiency while fast fashion will naturally prioritise productivity.

If you are a perfectionist, the biggest risk is trying to maintain equal (and high) levels of both productivity and efficiency. This is simply not possible. You will need to look at your business and targets and prioritise what makes the most sense for you. Some compromises will need to be made – this might mean slightly lower production or slightly more resource input, but if the compromise has an overall better outcome, then it is worth making.

Prioritising is not easy, and it requires incredible insights into your business and market. In order to prioritise well, you will need to spend a lot of time understanding your market and analysing the results of productivity and efficiency tests. You will also need a clear vision of where your business is headed and an idea of what targets you are willing to put aside if your goals are too broad or unattainable. Armed with this knowledge, you can accurately prioritise efficiency and productivity to reach true productivity that will help you reach your business goals.

 

Reduce waste

Reducing waste is one of the easiest ways to improve both productivity and efficiency. Waste can be seen in all areas of industry and in all business processes. The trick is to identify the waste in your own business and get rid of it.

Some of the common “wastes” that can be eliminated include:

  • Time
    • Unnecessary meetings can cost staff hours of useful work
    • Old systems, technology, or processes can be a drain on time and decrease true productivity
    • Bad communication can result in longer conversations where clarifications need to be made. It would have been more productive and efficient to have proper communication channels in place from the beginning
    • Poor filing systems can cause staff to spend more time finding documents than using them
  • Money
    • Office stationery and equipment can often be sourced more cheaply if an office manager or administrator spends more time looking or negotiating
    • Offices that leave lights on or use high energy products will lose money on energy bills. Introduce energy efficient lights, printers, screens, and other office equipment. The outlays are sometimes higher, but will save money over time
    • In a lot of offices, managerial spending can be overlooked. Corporate credit cards should have stringent checks in place to reduce waste
  • Opportunities
    • If staff work better with flexible work arrangements and it is feasible for your business, allow them to set their own hours to increase their productive time
    • Look for easy ways to connect with clients using current affairs and social media
 

The take-home

Productivity and efficiency are different, but both are essential for the healthy running of a business. Your work is to identify which one is not functioning properly in your business and improve it so that they can work in tandem.

“Nothing is less productive than to make more efficient what should not be done at all” – Peter Drucker

 

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