by Morgan Stutrud

What is the difference between efficiency and effectiveness, and which one is more important? By definition, effectiveness is the degree to which something is successful in producing a desired result, while efficiency is the ratio of the useful work performed in a process to the total energy expended.

In other words, effectiveness is about understanding the purpose and the vision you have for your farm or ranch, and efficiency is about having the right plan to achieve that vision. Both are crucial in achieving business success. But when should you focus on which? And how do you achieve both?

According to Peter Drucker, widely known management consultant, educator and author: “Efficiency is doing things right; effectiveness is doing the right thing.”

Put differently, efficiency makes the most of your resources, and effectiveness is how to drive value for your operation. Typically, businesses gravitate toward either efficiency or effectiveness in terms of their management style. The goal is to be able to hit both within your operation.

To boost efficiency, an operation must properly utilize its efforts, time and resources. By operating efficiently, you can achieve similar or better results with fewer inputs, reducing costs and maximizing your return on investment.

Operate effectively to boost efficiency

Identify all the items that go into producing the product or service your business offers, and where you can streamline them to improve profits. Is there miscommunication between you and your business partner? Are certain enterprises taking away more time than they are worth? Is your equipment or technology out of date? Are you recording your financial data on paper, or utilizing an accounting software?

If your operation is using unnecessary resources to achieve output, you’re losing revenue before it can turn into a profit. Efficiency allows you to utilize these resources to produce maximum results with minimum investment.

The effectiveness of a business is a measure of the quality of results you get from spending resources in functional departments. It isn’t enough to do more with less; less also must generate more revenue through improved output.

Being effective means that the thought, planning, process, tools and people you put into producing your product or service are hitting the quality key performance indicators (KPIs) you’ve put in place. It also means that operators are working toward the right goals that ultimately drive the farm or ranch forward in its growth strategy.

They are generating revenue by offering high-quality products or services with marketing and sales effectiveness. Instead of doing things fast, they’re focused on achieving KPIs that will help the organization increase revenue as an alternative to just decreasing costs.

More money doesn’t mean more revenue

In agriculture, more is not more. Meaning that spending more time and more money on your operation does not guarantee that you will receive more revenue. Stretching your time and resources across multiple enterprises versus focusing your attention on efficiently and effectively managing one or two enterprises can harm your bottom line more than it will benefit it.

It takes meticulous planning to form your operations business plan a year in advance. The process does not get easier year after year. As we hone our skills, the details will become more complex as the system mimics the diversity of nature.

Focusing your attention and resources on improving your most profitable enterprises, instead of searching for the breakeven point across multiple enterprises, is the first step in running an efficient and effective operation.

To learn more about goal setting and other financial questions about farms and ranches, visit with an instructor at the North Dakota Farm Management Education Program. Go to ndfarmmanagement.com, or contact Craig Kleven, state supervisor for agricultural education, at [email protected] or 701-328-3162 for more information.

Stutrud is a North Dakota Farm Management instructor at Dakota College at Bottineau, N.D.