I think many would think the meaning of efficiency and effectiveness are similar terms for describing the performance of a business process.
If so, think again, since whatever the type of process 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 why the difference is important in this article where I'll give a brief definition of each and show examples of efficiency and effectiveness measures applied to digital marketing KPIs.
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 digital marketing activities of the RACE framework are:
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:
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.
See this article for more examples of digital marketing KPIs to track effectiveness of digital marketing.
I created 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)? |
|
|
| Customer value |
|
|
| Operational processes |
|
|
| Operational processes |
|
|
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.
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By Dave Chaffey
Digital strategist Dr Dave Chaffey is co-founder and Content Director of online marketing training platform and publisher Smart Insights. 'Dr Dave' is known for his strategic, but practical, data-driven advice. He has trained and consulted with many business of all sizes in most sectors. These include large international B2B and B2C brands including 3M, BP, Barclaycard, Dell, Confused.com, HSBC, Mercedes-Benz, Microsoft, M&G Investment, Rentokil Initial, O2, Royal Canin (Mars Group) plus many smaller businesses. Dave is editor of the templates, guides and courses in our digital marketing resource library used by our Business members to plan, manage and optimize their marketing. Free members can access our free sample templates here. Dave is also keynote speaker, trainer and consultant who is author of 5 bestselling books on digital marketing including Digital Marketing Excellence and Digital Marketing: Strategy, Implementation and Practice. In 2004 he was recognised by the Chartered Institute of Marketing as one of 50 marketing ‘gurus’ worldwide who have helped shape the future of marketing. My personal site, DaveChaffey.com, lists my latest Digital marketing and E-commerce books and support materials including a digital marketing glossary. Please connect on LinkedIn to receive updates or ask me a question.
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