Cost of Efficiency: Why Sometimes we need to Stop Optimizing

Nobody says no to efficiency.

Ask any person, company, or organization if they want to be more efficient. They undoubtedly would say yes. Who wouldn’t want to be more efficient to create better outcomes? It seems blatantly obvious.

I would like to propose an alternative, that in some cases it is not better to be more efficient.

But let’s give a proper and uncontroversial definition of efficiency:

Achieving maximum productivity with minimum wasted effort or expense

Google

For a company, it might involve introducing benchmarks to measure output, new policies to follow, new processes to eliminate wastage. For an individual, it might be following a new productivity system, adding a new habit, and even a time tracker.

Efficiency Never Ends

The central idea of my argument is this, efficiency is a drug that will never be enough. You can always be more efficient regardless of your actual “state” of efficiency. As I alluded to above, nobody ever says no to efficiency. This is the sadistic truth. There will always be an infinite expectation to efficiency.

This produces an interesting dynamic. The desire to be more efficient is functionally the same as greed. In the same way you can never have enough cash, you can never equally be “truly” efficient. There’s always something to implement, new tools to discover and processes to improve on.

Because you can never to be too efficient, we pursue efficiency endlessly which leads to the more actual loss. This can be understood if you realize that efficiency is not free, it comes with a cost.

The Cost of Efficiency

A diminishing marginal utility curve
The Efficiency Curve

Consider this the Efficiency Curve (For a lack of a better term). There are two axis, the Y-axis indicates how efficient you presently are, and the X-axis indicates the resource allocated for you to become more efficient. This graph shows that at low levels of efficiency, we can make great leaps and bounds by allocating resource. But at higher levels, this tapers off.

At very low levels of efficiency, we can easily improve by investing a little resource. This is unsurprising. A person adopting a calendar will increase productivity. Similarly, an organization implementing basic processes and procedures will drastically gain increases in productivity.

However, this can only be done up until a certain point. At higher levels of efficiency, the cost to improve efficiency increases. For an individual, he might adopt many tools to maximize his personal productivity. Yet, for him using all the different tools requires a substantial cost, whether that be time or energy. For an organization, they can invent even more processes for the employees to follow. However, the adherence to the processes itself requires a cost.

The illusion is the following: The cost of efficiency is constant or is non-existent.

The cost of efficiency is constant or non-existent.

The greatest illusion

At some point or another, the cost to optimize surpasses the original waste generated. Meaning, the additional processes that are implemented actually cost more than the wastage that it originally produced.

An example about oranges

Let’s say I’m running a small business where I get my employees to peel oranges. Currently, out of 100 oranges peeled, there’s a single orange that is not peeled. A peeled orange earns me 1$. An employee can peel around 100 oranges in an hour.


Troubled by this unpeeled orange and working in the name of the almighty principle of being efficient. I get one of my employees to only check all the peeled oranges to find the unpeeled ones.

If this employee checks 1000 oranges in an hour. He would save the company 10$. Compared to if he were peeling oranges, he would have generated 99$. In this example, it would have been better to not eliminate waste and live with the loss of the 10$.

Conclusion

So, here’s the general rule that I live with:

If the cost of being more efficient exceeds the original cost of waste produced. Then it is better for you to not optimize.

Joel’s Iron Rule

The reverse is true also.

If the amount of original waste produce exceeds the cost of optimization. Then we should be more efficient.

Now this has one funny implication that I will tease here (But will explore it later in a bigger article). One must live in the knowledge that by doing more, you are wasting more. It’s funny because that’s a reversal in terms of how we do work.

But suffice to say for now. Efficiency is not the end goal. Effectiveness is.

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