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Managing for Business Effectiveness

Drucker on Effectiveness vs. Efficiency

Management Wisdom: 1

There is surely nothing quite so useless as doing with great efficiency what should not be done at all

-- Peter Drucker, 1963

Peter Drucker is often called "the father of modern management". Many books and Web sites are devoted to his insights, some of which I have written about previously.

This post highlights his incisive observation about the difference between effectiveness and efficiency. I have always found it to be especially memorable, and quoted it (twice) when discussing priorities and choices in my book about software performance. Unfortunately I got the source wrong, but thanks to Google I can now correct my mistake.

It appeared in Managing for Business Effectiveness, an article in the May/June 1963 edition of Harvard Business Review ("HBR"). You can also find it reprinted in a February 2006 HBR article -- What Executives Should Remember -- a collection of excerpts drawn from HBR articles by Drucker published between 1963 and 2004.

Because Drucker's remarks are equally relevant to technical performance management and business leadership, I am cross-posting this on Web Performance Matters, and here on our new UpRight Matters blog.

Three key questions

In his 1963 essay, Drucker states that there is no magic formula, checklist, or procedure that will substitute for the hard, demanding, risk-taking work of management. But he claims that "we know how to organize the job of managing for economic effectiveness and how to do it with both direction and results. The answers to the [following] three key questions ... are known, and have been known for such a long time that they should not surprise anyone."

1. What is the manager's job? It is to direct the resources and efforts of the business toward opportunities for economically significant results. This sounds trite—and it is. But every analysis of actual allocation of resources and efforts in business that I have ever seen or made showed clearly that the bulk of time, work, attention, and money first goes to "problems" rather than to opportunities, and, secondly, to areas where even extraordinarily successful performance will have minimum impact on results.

2. What is the major problem? It is fundamentally the confusion between effectiveness and efficiency that stands between doing the right things and doing things right. There is surely nothing quite so useless as doing with great efficiency what should not be done at all. Yet our tools—especially our accounting concepts and data—all focus on efficiency. What we need is (1) a way to identify the areas of effectiveness (of possible significant results), and (2) a method for concentrating on them.

3. What is the principle? That, too, is well-known—at least as a general proposition. Business enterprise is not a phenomenon of nature but one of society. In a social situation, however, events are not distributed according to the "normal distribution" of a natural universe (that is, they are not distributed according to the U-shaped Gaussian curve). In a social situation a very small number of events—10 percent to 20 percent at most—account for 90 percent of all results, whereas the great majority of events account for 10 percent or less of the results.

-- Peter Drucker, Managing for Business Effectiveness, Harvard Business Review, May/June 1963

A principled foundation

Although Drucker writes about management effectiveness in the context of business performance, specialists in software or systems performance must ask the same questions and apply the same principles. In my book on performance management [Amazon], I described these principles as follows:

  • The Centering Principle: Focus on the most performance-critical components.
  • The Efficiency Principle: Maximize the ratio of useful work to overhead.
  • The Pareto Principle: Prioritize the 20% of the problem that will return 80% of the benefits.

Drucker concludes that the most crucial requirement for effective management is having ...

... the courage to go through with logical decisions -- despite all pleas to give this or that product another chance, and despite all such specious alibis as the accountant's "it absorbs overhead" or the sales manager's "we need a full product line."

This is one small example of the characteristic I find so appealing in Drucker's writing. His advice starts from an assumption that there are relevant principles, and that you can make decisions by reasoning logically from those foundations. As a mathematician, this way of looking at the world appeals to my sense of order and logic, rather than presenting me with a collection of unsupported assertions and beliefs. The HBR introduction to its review, What Executives Should Remember, sums up Drucker's appeal as follows:

Executives had come to think they knew how to run companies, and Drucker took it upon himself to poke holes in their beliefs, lest organizations become stale. But he did so in a sympathetic way. He assumed that his readers were intelligent, rational, hardworking people of goodwill. If their organizations struggled, he believed it was usually because of outdated ideas, a narrow conception of a problem, or internal misunderstandings. His insights were ... practical idea-based essays for executives, and his clear-eyed humanistic writing enhanced the magazine time and again. He helped us all to think broadly and deeply.

-- What Executives Should Remember, Harvard Business Review, February 2006

This is why so many people have enjoyed, and like Harry Joiner, continue to enjoy daily, the wisdom of Peter Drucker.

This post is the first in an occasional series about management practice. Tags: , , , , , , , , ,

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Reader Comments (1)

Thanks for sharing. Business efficiency is important because the more efficient you are the more you get done and the more you get done the more time you have to spend on other important tasks. In the end, the more you can accomplish the faster you can advance your business and make more money. For example, if you advertise through article marketing, you would be more efficient using submission software rather than submitting manually.

Jul 26, 2009 at 09:46PM | Unregistered Commentermlgreen8753

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