KUALA LUMPUR: In business, success depends not only on how efficiently an organisation operates but also on whether it is pursuing the right objectives. This distinction is captured in a well-known management principle: effectiveness is doing the right things, while efficiency is doing things right. Although the two concepts are closely related, they represent different dimensions of organisational performance. A business may execute its activities with exceptional efficiency yet fail because it is pursuing the wrong objectives. Conversely, an organisation may identify the right opportunities but waste resources through poor execution.
Understanding this distinction is essential for boards of directors, senior management, operational leaders and internal auditors because it influences strategic decisions, resource allocation, risk management and long-term sustainability.
Doing the Right Things: The Importance of Effectiveness
Doing the right things means selecting objectives, priorities and activities that contribute meaningfully to the organisation's purpose and long-term success. It concerns what the organisation should do and whether its decisions will achieve the desired outcomes.
For example, a company may decide to enter a new market because of attractive growth prospects. Before committing substantial resources, its board and management must assess whether the market aligns with the company's strategy, whether sufficient capabilities exist, whether the expected returns justify the risks and whether the investment supports sustainable growth.
If the decision is fundamentally wrong, even excellent execution may not save the investment.
Similarly, a retailer may operate its stores efficiently, maintain tight cost controls and process transactions quickly. However, if consumer preferences shift towards online shopping and management fails to develop a suitable digital strategy, the business may gradually lose market share. Its operational efficiency cannot indefinitely compensate for a failure to recognise changing market conditions.
Doing the right things therefore requires sound judgement, strategic thinking, reliable information and the courage to challenge conventional assumptions.
For boards of directors, such a situation means asking whether management is pursuing the right strategy, investing in the right opportunities and managing the risks that could undermine the organisation's objectives.
Doing Things Right: The Importance of Efficiency
Doing things right means performing activities correctly, consistently and efficiently. It focuses on execution, productivity, quality, cost management and compliance with established procedures.
For example, a manufacturing company may improve production scheduling, reduce material wastage, automate repetitive tasks and introduce quality controls. These improvements enable the company to produce goods at a lower cost while maintaining acceptable quality standards.
Likewise, a finance department may streamline its reporting processes, reduce processing errors and shorten the time required to prepare financial statements.
Doing things right is important because poor execution wastes resources, increases operational risks and undermines customer confidence. Even a sound strategy can fail if employees lack the necessary skills, processes are unreliable or management cannot implement decisions effectively.
Internal controls, standard operating procedures, performance indicators and staff training all contribute to doing things right.
Nevertheless, efficiency must be evaluated in the context of the intended outcome. Producing more goods is not necessarily an achievement if demand is declining, just as reducing expenditure is not beneficial if it compromises product quality, cybersecurity or regulatory compliance.
When Efficiency Becomes a Problem
One of the greatest dangers in business is becoming so focused on efficiency that management loses sight of effectiveness.
Consider a bank that reduces operating costs by closing branches and directing customers towards digital services. The strategy may improve efficiency. However, if the bank fails to consider customer needs, digital accessibility, cybersecurity and service quality, the cost savings may be offset by customer dissatisfaction, fraud losses and reputational damage.
Another example is a company that achieves its annual profit target by postponing equipment maintenance, reducing employee training or cutting essential quality inspections. In the short term, expenses decline and reported profitability may improve. In the longer term, equipment failures, workplace accidents, product defects and operational disruptions may increase.
These examples illustrate a crucial lesson: doing things right does not necessarily mean doing the right things. Efficiency can make a flawed decision more damaging by enabling the organisation to pursue the wrong course of action faster and at a greater scale.
Implications for Boards and Management
Boards should ensure that management does not confuse operational performance with strategic success. Achieving budgets, meeting production targets and reducing costs are important, but these measures alone do not establish whether the organisation is moving in the right direction.
Directors should ask questions such as:
*Are our strategic priorities aligned with changing market conditions?
*Are we investing sufficient resources in future growth and emerging risks?
*Are our performance indicators measuring meaningful outcomes or merely activities?
*Are short-term savings creating long-term risks?
*Should we stop, modify or reconsider activities that no longer create value?
Management, in turn, must translate strategic objectives into practical plans, establish appropriate controls, allocate resources effectively and monitor results.
Internal auditors can contribute by examining both dimensions. They should assess not only whether processes operate efficiently and controls function as intended, but also whether activities support organisational objectives and whether the risks associated with those objectives are appropriately managed.
This does not mean internal audits should make strategic decisions on management's behalf. Rather, it should provide independent assurance and insights that help the board and management evaluate whether resources are being used appropriately and objectives are being pursued effectively.
Achieving the Right Balance
The most successful organisations combine effectiveness with efficiency. They first establish what needs to be achieved and why, then determine how to achieve it with the best use of available resources.
Effectiveness should generally guide strategic direction, while efficiency should improve execution. Both require regular review because business conditions, customer expectations, technology and regulatory requirements change over time.
Organisations should also recognise that doing the right things sometimes requires difficult decisions: abandoning an unprofitable business, investing in preventive controls, improving employee capabilities or accepting short-term costs to protect long-term value.
Such decisions may reduce immediate efficiency but improve overall effectiveness and resilience.
Conclusion
The distinction between doing the right things and doing things right is more than a management slogan. It is a fundamental principle of sound business decision-making.
Doing the right things ensures that an organisation pursues appropriate objectives, while doing things right ensures that those objectives are achieved efficiently and competently.
Ultimately, effectiveness determines whether an organisation is heading in the right direction; efficiency determines how well it travels that path. A business needs both. Without effectiveness, efficiency may simply accelerate failure. Without efficiency, even the right strategy may be undermined by waste and poor execution.
The real test of good management is not merely whether the organisation performs its activities well, but whether those activities create sustainable value for shareholders, customers, employees and other stakeholders.
© New Straits Times Press (M) Bhd