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The idea of efficiency has been on my mind a lot recently. I’ve been doing some diagnostic work with a local authority in Scotland and their biggest challenge is the dramatic reduction in their budgets for next year. Their focus is on finding “efficiency savings” – continuing to provide the same (or better) services with less money and fewer resources. RecentlyMcKinsey suggested that the NHS should lose 130,000 jobs to save money while the government has responded that the necessary savings can be made through greater efficiency. It got me thinking: what is this thing we call efficiency?

Efficiency is, essentially, the ratio of output to input. It’s based on the idea that it is possible to reduce input whilst increasing output: in a business context, this usually means increasing outputs such as benefit and profits whilst reducing inputs such as effort and expenditure. Efficiency begins with having a very clear and sharp focus on what outputs are expected of you and gearing all of your activities towards that output. The less clear the expected or desired output, the less efficient the system is likely to be. Everyone in the system – and this is especially important in a complex system like an organisation – has to be aware of the desired outputs and then needs to have the autonomy to gear their efforts towards that output.

As organisations face increasing limitations on their resources (the forced reduction of their inputs) whilst stakeholders demand greater profits or provision of services (the forced increase of their outputs) they are driven to strive for greater efficiencies.While it may be a straightforward thing to set clear, unambiguous output targets for an organisation (or a division or team or individual) it’s vital to remember the system that has to produce those outputs is not a machine. It’s a collection of people and people are, largely, inefficient.

I don’t mean that in a pejorative sense but it’s a fact that we’re not geared to doing things in the most efficient way, all the time. We have our own quirks and foibles, our own ways of doing things, we have preferences, we do things through habit, and use our emotions and feelings to make decisions, rather than proceeding in a logical, rational, efficient manner. All of these things must have a knock-on impact on the quest for efficiency in business.

There’s conflict here as business seeks ever-greater efficiency from a system that, fundamentally, cannot deliver it. The trick, it seems to me, is to reach a balance between the efficiency needs of the organisation and the human needs of the people who populate the organisation. Great organisations will find that balance and thrive but there will also come a point where further efficiency savings are no longer possible because of the human needs and limitations of the people. What then?

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