Over the past few years, efficiency has become a bit of a buzzword for business leaders
Meta CEO Mark Zuckerberg declared 2023 the “year of efficiency,” leading a trend that saw many big corporations, including tech giants like Google, Microsoft, and Amazon rein in their operations and cull unnecessary spending. That trend has continued in the years since, leading businesses across industries to take the same approach.
So what does “efficiency” mean—and how does it relate to productivity? Just as importantly, how does efficiency fit into the equation of seeking exponential growth and profits? In other words, when it comes to productivity vs. efficiency, what should a business’s primary focus be? Let’s nail down what productivity and efficiency are and how they compare.
What is efficiency?
Efficiency refers to the ability to achieve a desired outcome with minimal inputs. Simply put, it’s doing more with less. You can think of efficiency in a couple of ways. It can mean reducing overhead costs in hopes of increasing profitability. It can also mean using fewer resources to make a product while still maintaining the same quality.
For example, let’s say you’re operating a small retail shop where you resell vintage clothing. You start using a new inventory management software that reduces data entry and conserves time, allowing you to catalog new items over the course of a few hours rather than a full day. In this example, the input is your labor time, and the output is the number of error-free listings.
What is productivity?
Productivity refers to the ability to increase your output in the same amount of time—even if doing so requires more inputs. A company prioritizing productivity cares first and foremost about the end product and how much it can produce.
If you go back to the example of the vintage clothing shop, the new inventory management software means you’re able to catalogue and then sell more vintage items; this efficiency gain leads to increased productivity. If you decided to work through your lunch break to catalogue even more items, you’d become even more productive on a daily basis (though potentially at the cost of burnout).
Efficiency vs. productivity: What’s the difference?
The concepts of efficiency and productivity are intimately interrelated. While productivity focuses solely on increasing the amount of goods produced (or tasks completed) in an allotted time, efficiency focuses on minimizing the inputs required to achieve that productivity. Productivity is more focused on output; efficiency is more focused on process.
Why does this difference matter? Well, there’s a common misconception that being more efficient automatically means you’re more productive and vice versa—that if you’re more productive, then you’re likely operating efficiently. But this isn’t necessarily the case: An employee who shows a sudden surge of high productivity may be wearing themselves down by working harder, not smarter. On the flip side, efficiency gains may allow you to sustain your current productivity unchanged—but at a lower cost.
Examples of efficiency and productivity
To better understand how efficiency and productivity are related, consider the following scenarios:
An example of improved efficiency
Let’s say, for example, that you’re in charge of running the customer service team for an ecommerce store, and you’re tasked with figuring out a way to improve margins. You decide you have too many customer service representatives getting through too few calls.
Let’s say you have five teams of five customer service agents, with each team handling 150 calls per day (an average of 30 calls per agent per day). To improve your margins, you cut the teams down to three customer service agents each, and you shorten the call script and streamline the process so that now each agent handles 50 calls per day. This allows you to achieve the same 150-call volume with fewer resources.
This is more efficient. You’ve now decreased the number of agents, but your output is the same.
An example of improved productivity
Now, let’s say instead you’ve been charged with improving productivity across the call center. You have five teams of five customer service agents. Four of the teams average 150 calls per day, but the other team is far more productive, consistently getting through 250 calls per day—an average of 50 per agent. You decide to break that team up, redistribute its agents, and make each one a leader across the five teams.
The new team leaders help improve the other employees’ productivity so that each of the five teams handles 200 calls a day. Your operation is now more productive: You’ve increased the amount of output—the number of calls—without any real consideration for the call script or process itself.
An example of both improved efficiency and productivity
If you wanted to improve both efficiency and productivity based on this example, you could cut down each team to four agents and promote the top-performing agents to be team leaders. You streamline the script, allowing each agent to get through more calls, and the leadership input of your top-performing agents also allows you to grow your output beyond its prior level. In the end, you’ve reduced input (fewer labor hours) and increased output, which means you’ve allocated resources efficiently, achieving both efficiency and productivity.
How to improve productivity and efficiency
If you want to improve your company’s productivity and efficiency, it’s important to approach it strategically. Here are some places to start to improve your operations:
Identify your most important tasks
Follow the 80/20 rule, also known as the Pareto principle. This rule asserts that 80% of your production, or output, comes from 20% of your energy, or input. Once you identify that 20%, you can direct your focus and energy to those tasks. Now that you know the most urgent and essential tasks, you can create tiers of “non-urgent but essential,” “non-urgent and not essential,” etc. and delegate as needed.
Embrace technology
Automation can be a huge boon to you and your business’s productivity and efficiency. You can root out mundane and tedious tasks that take up time while also eliminating human error.
Avoid automating just for automation’s sake, however. Be strategic, identify areas in your business processes where automation can help. You can use automation to assist in customer support, inventory, and order fulfillment if you’re running an ecommerce business.
Eliminate distractions
Once you’ve identified your essential tasks, block out designated time to do them. Avoid social media and silence notifications to allow yourself heads-down time to work. Make time for breaks to recharge. Consider utilizing the Pomodoro technique, where you work in 25-minute chunks and take a five-minute break at the end of each set of time. Psychologists emphasize relying on these and other tricks to help you enter your flow state, a unique state of focused concentration.
Focus on one thing at a time
You might think that if you work on a few different tasks at the same time, you’re using your time efficiently. However, multitasking is often not a successful time-management strategy. In reality, it can clog up your workflow, increase stress levels, and impact your long- and short-term memory. Instead, set clear goals and use your time well by dedicating your focus to achieving one thing at a time.
Efficiency vs. productivity FAQ
What is an example of productivity and efficiency?
Rewind the clock and imagine you’re a kid with a lemonade stand. Initially, you bring a couple of friends on board who help squeeze all the lemons so you can make the lemonade. But having three people do that by hand is incredibly time-consuming. That’s when the lightbulb goes on: Why don’t you get a juicer? Now you don’t need the two other people and the process takes less time—so you’re far more efficient—and you’re also able to make and sell more lemonade, improving your productivity.
Can you be efficient but not productive?
If you’re efficient, you’re likely productive. However, that doesn’t mean you’re more productive than someone who isn’t operating efficiently. Worker A might use their time horribly but still produce more in a day than Worker B, even if Worker B takes less time to produce the same amount of output. That said, the crux of true efficiency is tied to the idea that you maintain or increase overall productivity.
Is it true that productivity measures efficiency?
People tend to think of productivity and efficiency as interchangeable, but no, productivity is not a measure of efficiency. Productivity is simply a measure of how much someone is producing in a given timeframe. On the other hand, efficiency measures how much of a product someone produces with the least amount of input possible.
How do you calculate productivity and efficiency?
If you look up either the productivity formula or the efficiency formula, you’ll likely get the same result: typically productivity or efficiency = output ÷ input. This is because the concepts are extremely similar, and the difference between the two comes down to emphasis. You can generally measure productivity as output divided by time, ignoring other inputs. Efficiency tends to focus on all inputs combined.
