The downside of efficiency

The downside of efficiency

You can add thousands of grains of sand one by one without triggering a collapse; each grain has virtually no effect. But then one additional grain starts a chain reaction in which the entire pile collapses; suddenly a single grain is having a considerable impact. It falls as gravity pulls that last grain down, jarring the other grains out of position.

In business outcomes, gravity's equivalent is efficiency, i.e., eliminating waste, which sounds like a reasonable goal. Why would we not want to strive for an ever-more-efficient use of resources? However, an excessive focus on efficiency can produce adverse effects, to the extent that super-efficient businesses create the potential for social disorder.

This happens because the rewards arising from efficiency get more and more unequal as that efficiency improves, creating a high degree of specialization and ever-growing market power on the most-efficient competitors.

The resulting business environment can be risky, with high returns going to a limited number of companies and people; an outcome that is unsustainable. The remedy may be to focus more strongly on a less immediate source of competitive advantage: Resilience.

Inspired by: Harvard Business Review - The High Price of Efficiency, by Roger L. Martin