During my school years I was never called a, “math maven.” I preferred the flexibility and descriptive power of words and the adventure of ideas as opposed to the exactness and preciseness of numbers. But some of the arithmetic took hold of me. For instance, I know a fraction represents the quotient of two numbers: the numerator and the denominator. The former being the part of the fraction above the line, the latter being the part of the fraction below the line.
Organizations have above the line and below the line agendas—a numerator that stresses the external effectiveness of its relationship with its customers; and a denominator that represents the internal below the line efficiency of the organization. The numerator is focused on delivering the “Wow” service that exceeds customer expectations; while the denominator is focused on achieving a “no-fat, no-waste” operation.
I have observed that organizations with a denominator only (bottom-line) orientation often emphasize efficiency while jeopardizing effectiveness. This internal focus overlooks the reality that an organization is not a profit center but a cost center because all activity of the organization involves costs.
Profit opportunity exists outside the organization and resides in the hands of customers or potential customers willing to exchange their money for the products and/or services the organization has to offer.
Customers expect you to operate efficiently and thereby provide competitive pricing. Being efficient in your operation is the cost of entry and enables you to compete for the customer’s business. Numerous opportunities exist in companies to drive down costs. That’s good for the bottom line and contributes to the outlook of the organization.
Effectiveness is the way you acquire business. Therefore, the more effective you are the more business you are going to generate. In all sectors that touch your target you want to maximize effectiveness and distinguish yourself from the competition.
If you cannot deliver customer effectiveness, as defined by the customer, you must make quantum improvements in efficiencies. Increased efficiency helps drive cost down enabling you to sell for less. At some point you reach the point of diminishing returns and come face-to-face again with the effectiveness issue.
It is well known that efficiency is every employees business. The search for efficiencies is the driving force behind most employee reward programs. Indeed, employees are encouraged and often rewarded for creative ideas that lead to cost savings and increased productivity. The emphasis is to get everyone to think and act like owners of the business.
While not as obvious or well known as the internally efficiency programs, external effectiveness programs have as big, if not bigger payout potential. The effectiveness-numerator reflects the service orientation toward the customer. While you are always open to denominator changes, only change the numerator when it is to the customer’s advantage.
Focusing on Efficiency
Focusing on efficiencies is often based on two assumptions: one about the past and one about the present.
First the assumption is made that the past predicts was yet to come. History is just that, history. Past performance is a consideration, not a deck of tarot cards. The second assumption is that the forces at work today will continue to shape what is to come. This leads people to assume that they can make internal improvements based on current trends.
Basically, denominator planning is planning to operate in the future based upon a mixture of historical facts mixed with voodoo and hubris that ignores the power of changing customer expectations. None of these factors are predictive of long-term success.
Focusing on Effectiveness
Focusing on effectiveness involves a different set of assumptions. First, you find out what your customer expects of you, without considering what you are currently offering. Your past and present customer service platform has no bearing on how you plan to please your customer in the future. Customer effectiveness is defined from the customer’s point of view, not yours.
Customer effectiveness is not measured by number of orders or by total dollar sales. Number of orders and dollar sales is a measure of activity. Customer effectiveness is defined by profitable sales and is a measure of how well you please your customer. Only efficient, well-oiled organizations have the opportunity to become truly effective. The challenge is to remember that efficiency is mastering internal processes. Effectiveness is maximizing customer satisfaction. Profit is the reward for knowing the difference.
The company or organization that most effectively serves their customers or clients has the goal of being indispensable. If you reach that goal, remember it’s a precarious position and only continued improvement in effectiveness and efficiency will keep you there.
What mathematics calls an improper fraction—a fraction whose numerator is equal to or greater than its denominator—business calls a proper mixture for success. The above the line striving for effectiveness must always be as great as or greater than the below the line crusade for efficiency. Success emerges when linkage between efficiency and effectiveness merge to produce the desired result.
In mathematics we reduce fractions to their lowest terms. In business the goal is to reduce the relationship between effectiveness and efficiency to its basic terms. The effective manager doesn’t over emphasize efficiency or under stress effectiveness. Too much efficiency and we take the focus off the customer. Too little effectiveness makes the situation worse.
Business Week, in a November 28, 2005 cover story, called Peter Drucker, “The Man Who Invented Management.” Mr. Drucker wrote 39 business books among them his classic, “The Effective Executive.” As I recall, he never wrote a book about The Efficient Executive.
HOG THOUGHT: Sustained commitment to customer effectiveness blocks competitor inroads and results in increased market share. Becoming more efficient allows you to deliver the service and products your customer wants at a more competitive price. Effectiveness should be your organization’s driving force; efficiency is the fuel that powers effectiveness.
HOG QUOTE: “Efficiency is doing things right; effectiveness is doing the right things.” — Peter Drucker
HOG ACTION: Always look for ways to improve effectiveness; see to it that your team continually looks for numerator opportunities to serve the customer better; challenge them to ask the customer, “What more?” and then listen to what the customer has to say.
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