Efficiency is getting the most ‘bang for your buck’. A company spends money on resources and inputs. These are converted by the process of work into outputs. Efficiency concerns the level of outputs a company gets for its spending on a particular area.
The level of outputs can be measured in two ways:
- Quantity of output.
- Quality of output.
Efficiency gains means improving either quantity or quality while keeping the other factor at least constant. All too often companies concentrate on quantity because it is easier to measure. This can result in increased quantity and reduced quality. Such a result is not an efficiency gain although it is often presented as such.
Most companies spend a great deal of time on efficiency. Indeed it is the major responsibility of most line managers. The problem is that improving efficiency suffers from diminishing returns. Once a company has cut out obvious fat and has installed good expense control systems then further efficiency gains become very difficult. Such further gains often depend upon considerable investment in new processes and systems.