Minzberg on (mal-)measuring efficiency
Mintzberg, a writer of management books, is one of the most influential post war economists. His work easily passes the heterodoxy test – as he looks at the real world. An example:
What could possibly be wrong with “efficiency”? Plenty.
10 October 2014
Efficiency is like motherhood. It gets us the greatest bang for the buck, to use an old military expression. Herbert Simon, winner of one of those non-Nobel prizes in economics (more on that in a later TWOG), called efficiency a value-free, completely neutral concept. You decide what benefits you want; efficiency gets you them at the least possible cost. Who could possibly argue with that?
Me, for one.
I list below a couple of things that are efficient. Ask yourself what am I referring to—the first words that pop into your head.
A restaurant is efficient.
Did you think about speed of service? Most people do. Few think about the quality of the food. Is that the way you chose your restaurants?
My house is efficient.
Energy consumption always comes out way ahead. Tell me: who ever bought a house for its energy consumption, compared with, say, its design, or its location?
What’s going on here? It’s quite obvious as soon as we realize it. When we hear the word efficiency we zero in―subconsciously―on the most measurable criteria, like speed of service or consumption of energy. Efficiency means measurable efficiency. That’s not neutral at all, since it favors what can best be measured. And herein lies the problem, in three respects:
- Because costs are usually easier to measure than benefits, efficiency often reduces to economy: cutting measurable costs at the expense of less measurable benefits. Think of all those governments that have cut the costs of health care or education while the quality of those services have deteriorated. (I defy anyone to come up with an adequate measure of what a child really learns in a classroom.) How about those CEOs who cut budgets for research so that they can earn bigger bonuses right away, or the student in last week’s TWOG who found all sorts of ways to make an orchestra more efficient. This week, on the news in Canada, we are hearing about railroads that are determined to be more efficient, while overworked engineers are reporting that they have been falling asleep at the switch. Very efficient this.
- Because economic costs are typically easier to measure than social costs, efficiency can actually result in an escalation of social costs. Making a factory or a school more efficient is easy, so long as you don’t care about the air polluted or the minds turned off learning. I’ll bet the factory that collapsed in Bangladesh was very efficient.
- Because economic benefits are typically easier to measure than social benefits, efficiency drives us toward an economic mindset that can result in social degradation. In a nutshell, we are efficient when we eat fast food instead of good food.
So beware of efficiency, and of efficiency experts, as well as efficient education, heath care, and music, even efficient factories. Be careful too of balanced scorecards, because while including all kinds of criteria may be well intentioned, the dice are loaded in favor of those that can most easily be measured.
By the way, twitter is efficient. Only 140 characters!
Herbert A. Simon Administrative Behavior: Second Edition (Macmillan, 1957, page 14).
This TWOG derives from my article “A Note on the Dirty Word Efficiency”, Interfaces (October, 1982: 101-105)