In my recent article – On the podium – which referred to the CIMA management series – “Rethinking the business model”, I omitted to mention a particular segment of the discussion relating to the terms “efficient” and “effective” in the context of business strategy.
When confronted with the question “which is more important” I failed to answer – instead deflecting the question.
The principal reason for the deflection was my feeling that the matter deserved a more cogent response.
A fellow panelist responded by saying that unless both elements were present, a business really
did not have the right to exist – a statement with which I concur.
Respectfully, neither of us really addressed the issue.
So, what is “efficient” and what is “effective”?
Is it possible to be efficient and not be effective? – or vice versa?
In my view the two are not synonymous.
One can be very efficient with being effective.
And efficiency, from my perspective, deals with execution – “achieving maximum productivity with minimum wasted effort’- according to the Oxford dictionary.
Effective, on the other hand, refers to results.
As in – “the implementation of the strategy yielded effective results”.
So from the perspective of managing for results, as previously stated a company needs to be both efficient and effective.
And one of the tools available to assist – in fact – guide – management to delivering effective results are financial models.
Financial models quantify strategy – and process – and help management to make informed decisions.
A key essential of effective financial models lies in the assimilation of the business case – and arising therefrom, distilling all the essential elements of revenue, costs, capex, working capital and funding – the key drivers of the business.
Colin Human
