Home > Uncategorized > Minzberg on (mal-)measuring efficiency

Minzberg on (mal-)measuring efficiency

Henri Mintzberg on 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:

  1. 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.
  2. 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.
  3. 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!

References

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)

  1. charlie thomas
    March 16, 2015 at 5:34 pm

    in 1966 I bought a short bed chevy truck .. it got 13 mpg. I installed after-market parts got the mileage up to 15. Kept it for 38 years, lots of parts and one engine rebuild.
    people told me it was inefficient to keep on the road. (btw. exhaust gases were much cleaned up)
    On the other hand it turns out most energy goes into the building of the vehicle by far more than the gas mileage .

    So I argue that having a car one could maintain and not introducing any demand for new cars. I was much more efficent than my cohorts who bought new every 3-6 years.

  2. Herb Wiseman
  3. blocke
    March 16, 2015 at 9:47 pm

    When doing research about the founding of the field of business economics in German higher education, I followed a rather intense discussion about what the German academics called Wirtschaftlichkeit (efficiency) carried on in the field’s periodical literature in the postWWI period. It soon became obvious that questions of efficiency depended on efficiency for what. If it was maximizing profits for stockholders (Rieger’s school in Nuremberg), it was easy to measure), but if efficiency meant serving the firm entity as a sustainable business, or serving the welfare of the community the aim was different and harder to measure (e.g., Nicklisch’s school in Berlin). I learned a lot from reading this German discussion. I also learned that the British and American schools did not pay much attention to the Germans, but generally settled for Rieger’s idea of maximizing profits for shareholders. So, don’t think that you are now hitting on something new in questioning what is meant by efficiency; we are just getting around to what German academic circles discussed long ago

  4. Macrocompassion
    March 17, 2015 at 1:56 pm

    Man (Woman) seeks to satisfy his desires with the least exertion, yet Man’s (Women’s) desires are unlimited. These two axioms define economics in the most general way and it follows that the result is efficient. However it needs some care to show that from these conflicting attitudes we are not all lazy gluts! Instead a satisfactory combination of these two opposing axioms allows us to be seen as both usefully active producers and healthy half-sated consumers. Efficiency is not all we need to know about economics, but it is useful to begin with this aim in mind.

  5. March 21, 2015 at 12:22 am

    “So beware of efficiency.” Yes indeed, because it is at its roots a normative concept often masquerading as a positivist, scientific concept.
    The article reminded me of this cogent quote about efficiency by Frank Knight,

    “It is true within limits that the purpose of economic activity is to satisfy
    wants…It is hardly necessary to remark that the questions which wants
    and whose wants are to be satisfied are in fact closely bound up together.
    The system’s answer…constitutes its social economic value scale…The
    striking fact in modern life is the virtually complete separation between
    the spiritual ethics which constitutes its accepted theory of conduct and
    the unethical, uncriticized notion of efficiency which forms its substitute
    for a practical working ideal.” (Frank H. Knight, The Ethics of Competition (New York: Harper and Brothers, 1936), pp.45, 73.)

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