Efficiency and effectiveness definition & explanation
I think many would think efficiency and effectiveness are similar terms for measures. If so, think again, since you really need both types of measures when identifying the most suitable goals and measures to assess your marketing or business effectiveness. It’s fine to say the difference doesn’t matter especially, but I think that understanding the difference helps you create a better set of measures!
I hope to show you that here where I’ll give a brief definition of each and show examples of efficiency and effectiveness measures applied to digital marketing.
Definition of efficiency
The simple, often used, definition of efficiency is (“doing the thing right“).
We need this measure for marketing activities and business processes since it helps us see when we are minimising resources or time needed to complete a process, i.e. we are keeping our costs low. In digital marketing, for example, efficiency involves increasing conversion rates and reducing costs of acquisition.
Within digital marketing, common efficiency measures across the areas of the the digital marketing activities of the RACE framework are:
- Cost of acquisition (CPA)
- Clickthrough rates on Ads or Adwords
- Bounce rate
- Pages per visit
- Conversion rate to lead or sale
- Checkout conversion rate
- Repeat conversion rate
- Activity of customers on email lists or followers on social sites
Definition of Effectiveness
The simple definition of effectiveness is (“doing the right thing“).
In digital marketing, effectiveness involves supporting broader marketing objectives and often indicates the contribution of the online channel.
Across the digital marketing activities of the RACE framework, examples of effectiveness measures are:
- Revenue or goal value per visit
- Audience share compared to competitors
- gap analysis of total search demand
- Average order value
- Number of items per order
- Customer satisfaction with site experience
- Hurdle rate of percentage active online customers, subscribers or followers
- Customer lifetime value
- Customer satisfaction experience across whole site
You can see that sometimes it’s not possible to definitively state which is which, but for the main thing is to review that you have a good coverage of each.
An example of efficiency and effectiveness measures
I’ve create this example based on the balanced scorecard, popularised in a Harvard Business Review article by Kaplan and Norton (1993).
It is still used in many large organisations and can still be used to today to help translate vision and strategy into objectives and then, through measurement, assessing whether the strategy and its implementation are successful.
|Balanced scorecard sector||Efficiency||Effectiveness|
|Financial results (Business value)?||
The balanced scorecard combines efficiency and effectiveness measures and was a response to over-reliance on financial metrics such as turnover and profitability and the tendency for these measures to be retrospective rather than looking at future potential, as indicated by innovation, customer satisfaction and employee development.
In addition to financial data, the balanced scorecard uses operational measures such as customer satisfaction, efficiency of internal processes and also the organisation"€™s innovation and improvement activities including staff development.
It is useful to identify efficiency and effectiveness measures separately, since online marketing and web analytics often tend to focus on efficiency. Hasan and Tibbits (2000) note that the internal process measures in particular are concerned with the efficiency and the customer and business value perspectives are indicated with effectiveness, but these measures can be applied across all four areas as we have shown.
Hasan, H. and Tibbits, H. (2000) Strategic management of electronic commerce: an adaptation of the balanced scorecard, Internet Research, 10(5), 439"€“50.
Kaplan, R.S. and Norton, D.P. (1993) Putting the balanced scorecard to work, Harvard Business Review, September"€“October, 134"€“42.