Discuss the role of efficiency and effectiveness in the creation of value This requires a definition of value, a relationship between quality or performance of a product and its price and discussion of the trade-off between efficiency and effectiveness. Creating value means striking the most appropriate balance between efficiency and effectiveness for the market need the product will satisfy. Efficiency means doing something at the lowest possible cost.
It is optimizing the use of all your resources to deliver the goods or service at the best way possible. Efficiency will dictate whether or not as an operation you will be able to deliver consistently at the profit margin and deal with the fluctuations of your industry in a way that keeps you on top as an effective entity. Efficiency is about resource optimization, but without being effective it is irrelevant how efficient you can be, because it is not sustainable in the long term.
Efficiency without effectiveness will develop a perception in your industry as a cost cutting bottom-feeding organization and cannot lead to sustainable profits. Effectiveness means doing the right thing to create the most value for the company. Effectiveness is more however about meeting the contractual requirements in all areas, and this equals a perceived value in the marketplace. Some process efficiency measures are: * cycle time per unit, transaction, or labor cost; * queue time per unit, transaction, or process step; resources (dollars, labor) expended per unit of output; * cost of poor quality per unit of output; * percent of time items were out of stock when needed; * Percent on-time delivery; and inventory turns. Some effectiveness measures are: * how well the output of the process meets the requirements of the end user or customer; * how well the output of the sub process meets the requirements of the next phase in the process (internal customers) * how well the inputs from the external suppliers meet the requirements of the process.