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Efficiency

October 30th, 2020 by

One definition of efficiency is that it “comprises the capability of a specific application of effort to produce a specific outcome with a minimum amount or quantity of waste, expense, or unnecessary effort”, while productivity describes “various measures of the efficiency of production” and is usually expressed as inputs in relation to outputs (Wikipedia, retrieved October 2020).

Does efficiency, when excessive, pose challenges in terms of larger, more complex systems? Business academic Roger Martin (2020) observes that since the mid nineteen-seventies when things reached an inflection point, it has exhibited negative effects. The “excessive obsessive pursuit of economic efficiency” has broadly placed undue stress on economic systems in the interest of maximizing short term benefits such as higher profits, stock valuation, or lower wage costs, these being only proxies for actual value or efficiency, over the longer term viability of the operation and its marketspace. Optimizing systems solely for efficiency and productivity exposes them to a wider array of risk, not the least of which is the often unforeseen impact of negative externalities, evident in many complex contexts.

In economics, an externality is “the cost or benefit that affects a third party who did not choose to incur that cost or benefit” (Wikipedia, retrieved October 2020). Unless a manufacturer is appropriately taxed or discouraged, the air pollution its operation creates places the resulting health and clean up costs on the whole of society. Similarly, when certain technologies wind up affecting us on a broad scale, such impacts can often be seen as sitting external to the core interactions and the intention of the technology itself. Is there something in the design, in the efficacy or efficiency of these tools which lends them to creating such unforeseeable results? Even if we elect not to participate in them, do we not all bear the effects of their resulting externalities, whether positive or negative?

Modern supply chains whose just-in-time warehousing and logistics can similarly create risk exposure when sudden increased demand reveals their fragility. No stockpiles or idle inventories make for a very efficient, cost-effective system so long as everything is operating nominally. According to Martin (2020), increasingly optimized supply chains and logistics which have grown substantially since the mid seventies, can lack what is regarded in economic terms as the opposite attribute, the resilience necessary to respond appropriately and effectively when disruption occurs, often external and unforeseen, such as the shortages of personal protective equipment at the start of the Covid pandemic. Does relegating logistical tasks to just several large monopolistic firms also place these systems at risk?

Martin states that systems which optimize for efficiency and have a short term profit-oriented outlook can be prone to increased risk and lack the foundational characteristics enabling sustainability.


Martin, R., & Young, N. (2020, October 9). Efficiency. Spark @ CBC Radio retrieved from https://www.cbc.ca/radio/spark/we-need-to-stop-our-obsession-with-efficiency-to-address-wealth-disparity-says-management-expert-1.5755820

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