Peter F. Druker has defined managerial performance in two terms that bring about the relationship between successful organisations and managers. The two terms are efficiency and effectiveness.
Efficiency means doing things right. It is an input-output concept. The manager has to minimize the total cost of production i.e. cost of labour, materials and time to achieve set goals. If he is doing so then he is considered as efficient.
Effectiveness means the ability to do the right thing. This involves choosing the right goals or ends. Thus, effectiveness not only requires a manager to be efficient but also to understand the overall goal of the organization to be able to deliver the output effectively.
As per Indian wisdom, under value driven management, both means as well as ends must be driven by the values of the organization. Hence, skill-giving efficiency must recognize human values, and goals must be based on them. Then only both the company and the society will be happy and prosperous.
Thus, effectiveness is regarded as the key to the success of the organization.
Example:
The US car manufacturers in the late 1970’s and 80’s were concentrating on manufacturing large, luxurious but fuel ineffective cars. At the same time the nascent Japanese car manufacturers were manufacturing small but fuel-efficient cars. The same era was marked by the fuel crisis of the mid 70’s. Thus the Japanese manufacturers were doing the right thing at the right time. This strategy of theirs helped them to gain recognition world over and even in the US markets.
Thus, this example highlights the importance of effectiveness in today’s business.
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