Wednesday 3 February 2016 5:15 am

The efficiency paradox: How to improve every part of your business

I'm deputy money editor at City A.M. I focus on personal finance and investing. I'm particularly interested in macroeconomics, pensions and politics. Contact me at

I'm deputy money editor at City A.M. I focus on personal finance and investing. I'm particularly interested in macroeconomics, pensions and politics. Contact me at

"The whole is greater than the sum of its parts.” Managers today would do well to remember Aristotle’s teaching.

In modern businesses, efficiency is often falsely equated with success, or over-emphasised as a means for achieving it. But the success of a business as a whole depends on more than beefing up, stripping down, or optimising each of its arms independently.

A firm needs to approach efficiency in a way that will facilitate more useful collaboration without sacrificing profits.


Allowing teams to operate independently, so that a variety of ideas and perspectives can enrich the business as a whole, must be balanced with coordination and collaboration if problems are to be identified and resolved at the earliest stage.

In the Silo Effect, Gillian Tett uses Sony as an example of how silos can benefit and damage a business. Having enjoyed success with products like the Walkman in the 70s and 80s, Sony grew so large that it was reorganised into 25 divisions in the 90s.

Initially a success, the reorganisation boosted innovation and profits alike. And herein lies the problem. Silos are useful in some contexts, particularly in the development of an entirely new product. Sony’s Playstation console was a success precisely because its development was siloed away from the rest of the corporation.

But competition grew between the divisions and eventually eroded collaboration. When the digital music revolution rolled around, Sony couldn’t capitalise because each of its sub-companies was concerned with launching its own product. Despite having released three digital music players, Tett argues, Sony’s projects and ambitions were so diffuse that Apple was able to fill the vacuum.


Better information–sharing between teams may be the answer. In Team of Teams, general Stanley McChrystal describes his approach to tackling Al-Qaeda in Iraq, a military force with little hierarchical structure.

Having observed that teams were optimised to achieve their own objectives, without consideration for the military’s broader outcomes, he placed intelligence analysts and commandos together, so that intelligence could be shared quicker and key decisions could be made lower down the chain of command. He began to hold 90 minute video conferences with 90,000 personnel, so that each was aware of the bigger picture. From 30 missions a month, each vetted by McChrystal, the military ended up running 300 a month without his involvement.


Moreover, efficiency must not become an end in itself. In an era when disruptive startups can topple flabbier “dinosaur” firms very quickly, “demand for change in organisations has become the norm, not the exception,” point out Stephen Schaefer and Christopher Wickert in their study on the “efficiency paradox”. It can be problematic, they argue, when companies exhibit a tendency to be hyper-sensitive to shifting consumer preferences. So while firms need to be able to pivot to stay ahead of the competition, changing a growth or brand strategy with every consumer fad will prove expensive and should not come at the expense of a long-term strategy.

Indeed, unnecessary change can be difficult for employees as well. According to management scholar Mats Alvesson, the tendency of firms to replace their slogans and core values regularly can be disruptive and a less defined focus can erode employees’ commitment and work performance.