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efficiency and effectiveness

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Always remember that costs can be cut in two ways: by concentrating on efficiency or effectiveness. We often spend too much time on the former, and sometimes even reduce the latter.

Efficiency is about maximising the proportion of investment that is contributing to results: reducing waste, cutting overheads, eliminating redundancy, less errors.

Effectiveness is about maximising the results from a given investment: better fit to requirements, higher output, higher quality, more usefulness, greater power, more competitive.

It is easier to cut dead wood than to increase the effectiveness of what is left. So the quick wins are to eliminate obvious waste or uselessness, but it is all to easy to go on cutting even after we are down to green wood. The result then will be to start negatively impacting effectiveness. The immediate savings will disguise the reduced returns until it is too late.

So make the obvious cuts, but then concentrate on getting more out of what is left.

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