Could efficiency be measured?

Efficiency is defined as the accomplishment of certain goal with economy of resources, therefore it is implicit the efficacy concept; that leave us in an interesting position since we can’t assure that we are efficient if we don’t have defined the goal in terms of means to use; efficiency degrees will a step away of your hands unless you do something.

When we talk about processes we refer to them as the chain of activities with a certain purpose that could be measured; by this definition we are ready to apply the efficiency concept as a mathematical equation as it follows:

effiency basic equation

We need to be able to establish numbers to represent results and resources that were used, therefore this mathematical operation must produce a number greater than one, because if not, the economy of resources wouldn’t be applied to the process we are measuring. Sometimes we had to set the “one” as a convention for comparison’s purposes, for instance if the result of any given process is 10 pieces that demands 20 hours, it’s obvious that 10 over 20 results in 0.5, but you can go saying that 20 hours is equal to one, so the efficiency for that moment is 10 because you adopted a particular convention.

If we can collect those numbers for certain period of time, we will be able to graphic the efficiency evolution of the process we are studying, getting something similar to the following chart:

eficiencia cuadro

This chart could be used to represent the own set of historical data, there you will see the evolution; but if you are able to get more numbers you could contrast your particular set of data with comparable processes or better with your competitors’ indicators.

Finally, there is an aspect that usually offers some inconvenient in this task, let’s talks about how we could integrate quality to the basic equation previously introduced; the answer is very simple; you only need to add a particular variable to the mathematical expression:

wide effiency equation

In the field, translating quality to numbers isn’t an easy job; especially when you say that quality is defined for customer’s perception, because of that you will need a methodological work to produce consistent results to guarantee that quality is always measured in the same way. Additionally you need to put hands on all factors that are involved in quality measurement to translate them in a single number; at the end you will have to convert those figures to a scale where the “one” must be set to the acceptable level, which is defined by the organization management.

Advertisements

Which are the questions to find your own business model?

Many years ago I started to work with business model term, my concern was to reduce the span of meanings the term used to have, in 2001 the term was and still is very popular, mainly because of internet era make it a kind of wildcard in business occasional chats.

In management, many terms are used in ordinary conversations without any precision at this point the only term that was overused were probably strategy, back to my concern I was looking for a conceptualization that differentiate the element of any business model from the skills you need to implement it successfully.

After reading the “Profit Zone” from Adrian Slywotzky and “What Management is” from Joan Magretta I went to my own research accepting that at least business model requires a two different approaches, the first one is related to entrepreneurs trying to create their own company, the second one is about a manager working in very well established company.

Following those directions my team and I interviewed both type of persons, and as result I published an academic paper titled “Business Model”, in that work I promoted the elements of what I consider a business model.

Following this taxonomy of elements I suggested a set of questions to find your own business model.

1`Why your customers are buying your products and/or services? What is the reason they find in your products and/or services to buy?

The answer to the previous questions, I mean the real answer will give you the value proposition of your business model. The business model are built over this assumption, this firs stone of your pyramid.

2. Who are your clients and who your users?

Splitting clients from users you will get an idea who decides to buy your products and/or services (clients) and who uses them (user), in some occasions both are one person, in other situations they are different persons.

You need to categorize them, finding what every category has in common and why they are your customers, answering this question you will got a clear idea what are the options you have to differentiate the way you treat them.

3.Which activities in your company are creating the value proposition that your customers consider worthy?

Every activity that your company does must be orientated to generate value that customers pay for, since that you need to identify what are the actions that create that characteristics and take care of them.

4. How are you capturing the value your company is delivering?

This question is about how your company is being rewarded for delivering value, what are the characteristics of its revenue, for instance many companies collect their money thru additional services rather than a product, other goes in the opposite way.

Many companies are innovating in how they are getting the revenue, adopting a creative approach to the eldest business dilemma.

5. What are the things you have to deal in order to get succeed?

What are the critical issues in your business, What are the things you need to keep eye on, answering will bring you the key success factors, all those similar reasoning are the real North to orientate your company to pursuit what is important.

6. How to know if your business is going well?

Anyhow you had answered the previous question, you need to identify how to measure those factors, mostly of the times you will need to create a dedicated set of indicators to make the follow up, and those are the key performance indicators.

7. What are the key environmental factors?

Sometimes a particular business depends on specific conditions, as Peter Ferdinand Drucker said many times, someone in the organization should must be looking ahead, beyond the company searching for unexplored territories and/or following those factors that we can’t handle and comes from the environment where the organization is making business. Those are the environmental factors you need to consider as a part of your business model.

8. What are the “big” numbers?

Every organization has its own scale, how bigger is a purchase, what amount involves a big sale, every senior manager and/or small entrepreneur have their numbers fresh, those figures are called big numbers those you have in mind to know the company.

—— 

 The original paper was published in Spanish for the Faculty of Economic Sciences at University of Buenos Aires.