Organizational Efficiency

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Organizational Efficiency is the organization's ability to implement its plans using the smallest possible expenditure of resources. It is an important factor in the firm's organizational effectiveness, this being the ease and degree of success with which the organization is able to accomplish its aims. Organizational efficiency is all about figuring out how you can be more effective by using fewer resources, as well as less time and less money to achieve the same goal. Organizational efficiency is time-based, effort-based and measurable. The main question you must ask when you’re trying to determine efficiency is this: “How can I maximize the desirable results, using the least amount of money and time?"[1]

Organizational efficiency is a measure of the relationship between organizational inputs (resources) and outputs (goods and services provided) and in simple terms the more output we can achieve with a given amount of inputs or resources, the more efficient we are. For example, if we can make 100 cars with X value of resources we are more efficient than someone else who only makes 80 identical cars with the same value of resources. Efficiency relates to the term productivity and a major focus of all managers is to maintain or improve the level of productivity of their work unit and organization.[2]

Organizational Efficiency
source: 17QQ

Organizational Efficiency Factor[3]
An organization’s efficiency factor is the ease with which it can make use of the resources it has available to produce the maximum of goods and services. This factor can affect both large and small companies. Large companies have greater resources; their inefficiency might not affect short-term returns, although in the long run, there could be issues. Small businesses, however, need to remain efficient at all times if they want to survive and grow.

Businesses can gauge efficiency by analyzing resources, time or costs. With resource efficiency, you use your organization’s resources effectively to minimize waste, while time efficiency refers to achieving goals within a set time frame or sooner. If your operations are cost-efficient, your company creates, manufactures and delivers products inexpensively and generates profit.

  • Management Efficiency: Several factors contribute to an organization’s efficiency level, and the most important among them is management. Those in management must be well trained to deal with diversity in the workforce. They also must be ready to coordinate their efforts for better efficiency. They constantly look for ways to improve their operations, eliminating inefficient and redundant processes. They need to be open to change and evolution in their products if they want to meet changing market conditions.
  • Workforce Efficiency: An organization’s efficiency depends on its employees and how well they are committed to the company’s goals and priorities. Employees must be clear about their roles and responsibilities, and the company needs to implement programs to enhance employee skills. The company also needs to encourage and motivate its employees. To make sure that employees are content and that they remain efficient, business owners need to acknowledge and compensate employees for their efforts. They also can outsource specific tasks in their operations for added efficiency.
  • Manufacturing and Production Efficiencies: Companies can increase their efficiency by running production processes well. By using state-of-the-art technology and eliminating processes that don’t add value to their products, they can lower production costs. Advanced technology often results in quicker production, better-quality products and fewer product defects. Flexibility in production processes allows companies to make adjustments where required so they can meet customer specifications. Companies can manage production and inventory efficiency by avoiding overproduction of products and overstocking of inventory.

Organizational Efficiency and Control Model[4]
Focusing on output-efficiency is fine up to the point when your workers go strike or stress leave. Alternatively, perhaps you cut one control too many and the auditors or the police are at your door. In other words, organizations must balance improving their processes, their people and their need to govern and/or control everything. These three factors form the Organizational Control and Efficiency Model:

Organizational Efficiency and Control Model

Organizational Efficiency and Control Forces

  • Explicit efficiency seeks to reduce the cost of an output through better use of inputs and improved conversion of the inputs. Six Sigma, lean manufacturing or Total Quality Management can help with this objective.
  • Implicit efficiency is the ability of resources (staff, contractors, etc.) to work effectively together toward a common objective. Resources can be efficient despite poor systems and processes. Alternatively, the poorly trained, disengaged or unmotivated resources can negate/thwart the most efficient process. Most business models acknowledge this through concepts such executive buy-in or proper change management. Implicit efficiency is subtly bigger than these concepts, it is how well does your organization play together?
  • Controls ensure organizational objectives are achieved. This may be through governance, automated controls, segregation of duties, etc. Controls protect the organization but are often a drag on explicit efficiency or can negatively affect staff morale (implicit efficiency).

Organizational Efficiency and Culture [5]

Organizational efficiency may seem focused solely on the bottom line, but it’s not. Efficient operations, policies, and procedures contribute positively to employee engagement. Researchers consistently make the connection between employee engagement and organizational performance.

Unengaged workers cost employers in many ways, one of which is an inefficient use of their time and resources. The degree to which employees are engaged determines how effective they will be. Something as simple as the organizational structure can make or break how engaged an employee is and, in turn, how efficiently they’re able to perform their necessary duties.

Bain cites an example of an Indian consumer goods company that successfully built an efficiency-focused culture that added to their competitive advantage. “They encouraged calculated risk-taking and tolerating failure as part of their process. One team delivered significant savings by working with research and development to experiment with value engineering of packaging.”

As you look at ways to deploy employee engagement solutions, create a culture that values effectiveness. Find tools that increase efficiencies and reassure your employees that they’re making an impact. A culture that appreciates and inspires organizational efficiency is one way to show employees you care about how they spend their time and how you’re focused on making the most of their contributions.

Organizations that successfully embed efficiency in their culture enjoy a competitive advantage. Instead of focusing on making budget cuts to “gain efficiencies,” leaders must focus on how to remove obstacles, thereby enabling the organization to improve output using existing resources. This approach will serve to enhance efficiencies and inspire their workforce in a way that drives results and growth.

Organizational Efficiency Survey[6]
Unlike financial performance or achievement in different sectors in an organization, employee perception and/or thinking patterns throughout the organization is difficult to perceive. Organization Efficiency Survey (OES) enables management to see beyond the surface to the employee’s real perceptions, identifying perceptual gaps in understanding (between management and employees, different divisions, etc.), enabling management to grasp quickly what is happening in the organization. OES is developed by Business Consultants, based on the Congruence Model for Organization by Prof. Michael L. Tushman from Harvard Business School.

The Organizational efficiency survey model describes seven domains of organizational processes. Planning of organization activities start from building “Strategy” that fit “Environment”. In order to produce expected “Organizational efficiency” from the strategies, four elements of implementing strategy have to be aligned with each other, which are “Tasks”, “Structure”, “People” and “Organizational culture”. “Organizational Culture” is subdivided into "organizational orientation" and "management behavior". These eight domains can be seen as Key Performance Indicators (KPI's) to measure organizational efficiency.

Organizational Efficiency Survey
source: Business Consultants Inc.

The survey assesses eight domains of organizational processes.

  • Environment: Questions about awareness of business environment, appropriateness of response to the environment, understanding of customers and competitors, and orientation towards trying new things.
  • Strategy: Questions about understanding and diffusion of organizational purpose and mission, corporate values, implementation of growth strategy and satisfaction with the strategy.
  • Tasks: Questions about operational efficiency, existence of unreasonable workload on people.
  • Structure: Questions about clarity and effectiveness of roles and organizational procedures when implementing the strategy.
  • People: Questions about understanding of the purpose of work, level of talent (knowledge and skills), confidence and motivation (self-esteem), acceptance of diversity, drive towards growth.
  • Organizational Culture (Management Behavior): Questions about improving the quality of work, solving problems quickly, and developing people in daily management practices.
  • Organizational Culture (Organizational Orientation): Questions about the five different orientations that unconsciously affect people's views on the organization or its environment, and how strong that effect is.
  • Organizational Efficiency: Questions about organizational results such as its growth, expectation to change, vitality, pride, and achievement of goals.

See Also