The Efficiency Fallacy

Tom Breur

10 September 2017

The notion of “efficiency” is deeply rooted in the industrial age paradigm, and there are few things that destroy value as quickly and effectively as the belief that higher efficiency is good. If this sounds odd to you, bear with me for a few minutes because this is a somewhat counter intuitive idea. But once you ‘see’ it, it becomes immediately clear why efficiency is such a dysfunctional proxy measure to pursue.

High efficiency goes hand in hand with high levels of capacity utilization. People or resources (machinery, expensive equipment, etc.) sitting idle flies in the face of an efficient process. Underutilized equipment, people who have “nothing” to do, they seem like obvious waste that needs to be avoided. So why is it that this pursuit of efficiency is so costly?

What is much less visible, is that high utilization comes with long queues. Have you ever sat around in the waiting room in the hospital? The doctor gets near 100% utilization. However, this goes at the expense of lots of people waiting, sometimes for a very long time. There are no two ways around it: either you accept that a queue drops to zero, occasionally, and the doctor sits idle (less than 100% utilization), or, variability in the process like when occasional patients require longer than expected treatment times causes (sometimes very long) waiting times.

In the hospital, the cost of waiting is largely ignored. As if patients’ time is free. In business settings, however, waiting time equates to long cycle times, as governed by Littles Law. Long(er) cycle times, linearly cause later delivery of products. But this late delivery is (almost) invisible, because the process is running “efficiently”! The ‘cost’ of deferred revenue, and the risk that prospects have been serviced by competitors in the meantime, rarely get quantified. How would you do this, anyway?!? That is all but obvious (albeit doable). There is a pernicious dynamic behind this fallacy:

fal·la·cy

ˈfaləsē/

noun

noun: fallacy; plural noun: fallacies

1.    a mistaken belief, especially one based on unsound argument.

"the notion that the camera never lies is a fallacy"

synonyms:

misconception, misbelief, delusion, mistaken impression, error, misapprehension, misinterpretation, misconstruction, mistake; More

o   LOGIC

a failure in reasoning that renders an argument invalid.

o   faulty reasoning; misleading or unsound argument.

Somewhat counter to intuition, efficient processes need slack. Queueing theory and Little’s Law have been around for decades, yet the “old-school” mindset in pursuit of “efficiency” seems to persist. By quantifying the cost of queues, and their corresponding effect on cycle time, you can calculate how efficiency gain or loss affects delays in delivery. Unless you habitually measure (the cost of) all your queues, the price you pay for so-called efficiency may never be known…