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| Business Coaching | Small Business Economics |
By: Santi Chacon
Business Coach
Profitability: Efficiency and Effectiveness
As company’s owners expect its managers to behave entrepreneurially, that is, to search for opportunities to develop better, more profitable goods and services. At a managerial level profitability is often viewed from two related perspectives—in terms of efficiency and effectiveness.
Efficiency is a measure of how well or how productively a company’s resources are being used to produce goods and services.
What are you doing to work on efficiencies?
It is of great importance to create processes or systems that carry production.
What is your plan to make better use of your resources?
Businesses grow out of necessity, not necessarily out of design. The goal is to go back to the begining and re-design for profitability.
Efficiency is directed at the cost side of the profit equation. By becoming more efficient and increasing productivity, a company can become more profitable over time. By contrast, effectiveness is attention directed at the revenue side of the profit equation. Effectiveness is a measure of the competitiveness of the firm’s business model and its ability to meet its sales goals. By becoming more effective, a company can also
increase its profitability.
When was the last time you re-evaluated your business model, sales model, or technological infrastructure?
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