Three Dynamics Every Business Must Master: Efficiency, Effectiveness and Resilience

Businesses that thrive in the coming decades will excel in three essential capabilities: efficiency, effectiveness and resilience. Efficiency is a measure of the cost of executing a logical process. Effectiveness is a measure of the degree to which you are producing the results you want. Resilience is a measure of your ability to meet any and all challenges successfully, to thrive whenever possible and to survive all challenges.

Efficiency improvement efforts are mechanical in nature. They have their greatest value in stable and predictable environments, where the degree of automation is high, change is slow and business is driven by logical processes that can be repeated over and over with little or no variation. A manufacturing economy is well suited to efficiency improvement efforts.

Effectiveness improvement efforts are psychological in nature. The business results they address are not as easy to define as the logical processes addressed by efficiency. When I talk to leaders about effectiveness a broad range of concerns appear that do not yield to the logic of efficiency. Terms like loyalty, trust, customer satisfaction and employee engagement come into the conversation. Effectiveness improvement efforts have their greatest value in environments that are less predictable and where human interactions drive success. A relationship economy is well suited to effectiveness improvement efforts. We transitioned from a manufacturing economy to a relationship economy in the last twenty years or so.

Efforts to establish resilience are cultural in nature. They have their greatest value in times of upheaval and rapid change, where the need to adapt to new circumstances occurs on a regular basis. A relationship economy subject to frequent disruption and ongoing change is well suited to resilience efforts. The rate of disruption and change has been accelerating for decades. That acceleration will continue for the foreseeable future. We have been in an economy that demands resilience for the last twenty years.

Mental Models and Business Needs

The capabilities of efficiency, effectiveness and resilience each addresses a different business need, and each is supported by a distinct mental model. The term “mental model” refers to the internal model you have of the world. It is a set of beliefs and filters that allow some information in and keeps some information out. It also determines how you interpret the information that gets in. Your mental model has a significant influence on what problems you are able to see and how you design solutions to them. If you view the world as mechanical in nature, best managed through the application of logic, you will not be effective dealing with human relationships and matters of the heart.

The Mental Model of Efficiency

The business need that efficiency addresses is the need do more with less—less time, space, energy, materials, labor and anything else that costs money. Efficiency focuses on minimizing resource utilization by optimizing logical processes. Efficiency was an extraordinary growth engine and drove business success for much of the 1900s. But by the late 20th century efficiency was no longer a path to winning the game of business; it had become the price to get into the game. It had become a commodity; the tools and methods to achieve it were available to everyone, and numerous companies sold those tools and methods to anyone willing to pay the price. You wouldn’t survive if you didn’t match the efficiencies of your competitors, but you also wouldn’t get a competitive edge if you did.

The mental model of efficiency is logical process. Everything in the world is seen as a set of interacting parts whose interactions are dictated by the laws of logic and physics. It emphasizes the mechanical and is best suited to complicated problems. Mechanical models are ill suited to complex problems and filter out the human element. When we had a manufacturing economy this was an effective model for the business world. But two fundamental conditions must be met for this model to drive success: the world must be stable for long periods of time, and business must be run by highly repetitive processes. Efficiency as a growth engine declined in the last quarter of the 20th century as the world changed and those conditions were no longer met.

The Mental Model of Effectiveness

The business need that effectiveness addresses is the need to produce business results. This brings into focus numerous human concerns: How do we cultivate superb performance in all of our employees? How do we consistently satisfy our customers as their needs and desires evolve? How do we build trust internally with our employees and externally in the marketplace? How do we adopt and exhibit values to which our customers and employees are drawn? How do we establish loyalty in our customers and employees? These are questions of effectiveness and they are not easy to answer. They do not yield to mechanical thinking; they cannot be addressed by process design.

The mental model of effectiveness is psychological. It emphasizes the inner experience that shapes people’s perception and behavior, and the relationships they form with others. It filters out the inanimate aspects of the world. The mental model of effectiveness recognizes that every human being is unique and human behavior is determined by one’s inner state. Emotions and relationships matter. In this model, business success hinges on how well these are managed. The logic of efficiency will not suffice. Efficiency addresses those aspects of the world that are simple, predictable and mechanical; effectiveness addresses those aspects that are complex, unpredictable and human.

Apple stores are a perfect example of designing for effectiveness rather than efficiency. Some might view them as a model of inefficiency. They use an enormous amount of space for the amount of product on display and they have a high ratio of employees to customers. They are designed for effectiveness—to give the customer a great experience and leave feeling good, with problems solved and new possibilities discovered. The result is that they are, by at least one measure, among the most efficient stores in the world. According to Forbes, they have the highest ratio of sales to square footage of any US-based retailer. They didn’t achieve that through the logic of efficiency measures; they achieved it through the respect for human experience and a desire to build strong relationships with customers.

Business Need Resilience Addresses

Efficiency is about optimizing time, space, energy, materials and labor. Effectiveness is about optimizing human experience. Resilience is the ability to survive any challenges, anywhere, any time, and to learn from experience and thrive. It is about ensuring that the whole enterprise is optimized for the long term, that it can adapt to changing circumstances and will always be efficient and effective. The challenges and opportunities of resilience are on a different scale, both temporally and geographically, than those of efficiency and effectiveness. Various parts of a business can be efficient and effective locally, but resilience is about the ability of the whole enterprise to survive and thrive. There are times when the efficiency and effectiveness of some parts must be compromised for the resilience of the whole to be realized.

The business needs that resilience addresses are the need to adapt rapidly and continuously, and to forge strong and sustainable relationships that span considerable time and distance. Failing to meet those needs means you are always at risk of being blindsided. You might be effective today, but get knocked off your feet tomorrow. Resilience enables you to adapt quickly. You might be surprised by something that happens in the marketplace, but you won’t be stunned.

As we paid more attention to effectiveness, and the human dynamics that drive it, the issue of silos came to the surface. As we addressed human relationships on the local level we began to recognize that cross functional relationships are also important. This was an important factor in bringing the need for enterprise resilience into focus.

The dynamics of resilience must pervade your entire organization. It requires not just effective individuals and teams, but effective cultures, connected by shared passion, shared language, and shared practices that keep the community strong.

Effectiveness was a huge leap forward from efficiency, but it does not address the potential of understanding and managing the large scale emergent behavior of entire enterprises.

The Mental Model of Resilience

The mental model of resilience is the model of emergence. Emergence means that the behavior of an enterprise arises from the behavior of the individuals in that enterprise, but cannot be predicted by studying individuals by themselves. A flock of birds flying in formation, a colony of bees managing their hive and human beings creating the internet are all examples of emergence. Studying the parts wouldn’t give you a clue about the large scale enterprise that would emerge from them. And all of these examples exhibit resilience—they quickly adapt to changing circumstances, effortlessly modifying their behavior to ensure the overall enterprise thrives.

The mental model of emergence focuses on large-scale behavior and the rules for individuals that give rise to the large-scale behavior. It emphasizes the whole rather than the parts. The local concerns of individuals and small groups are considered in term of their contribution to the whole.

The mental model of resilience is very much a holistic model. It recognizes that the entire organization must be understood as one organism. Just as it is necessary to focus some efforts on mechanical efficiency, and some efforts on effectiveness, it is also necessary to focus efforts on the viability and performance of the entire organization. So the mental model of resilience is also a cultural model. It recognizes that what binds people together over time and distance is culture—shared values, shared language, shared practices.

Emergent behavior is inherent in the mental model of resilience. It recognizes that the behavior of the whole, while arising from the behavior of the individuals, can’t be predicted by studying individuals. Behavior of the whole arises by having shared values, language and practices that guide the behavior of the individuals to create the desired emergent behavior, while not dictating the local specifics of individuals’ behavior.

Mental Model Summary

As you go from efficiency to effectiveness to resilience, the mental models become more abstract. And as they do, their ability to deal with complexity grows. The method of efficiency is the application of pure logic and measurement to minimize resource utilization in sequential processes. The method of effectiveness is self-management and relationship management. The method of resilience is culture.