Friday July 3, 2020

Comment: Our relentless pursuit of efficiency has exacerbated the Covid-19 crisis

The mantra that faster and cheaper is always better for business needs to be re-evaluated in the wake of the pandemic

27th May, 2020
Covid-19 has brought the cogs and wheels of business to a halt as economic activity across the globe has been hit

The world of business has long subscribed to the theory that efficiency counts above all. But perhaps in the Covid-19 era, and as we plan ahead for its aftermath, it’s time for a rethink.

In modern society, the destination we have sought to reach for decades is where business develops in a sustainable manner while contributing to a world that is socially, economically and environmentally balanced.

And yet we find ourselves at a destination that none of us chose – a global pandemic with over 275,000 deaths worldwide, more than a quarter of a billion people at the brink of starvation, a handful of corporations that own much of our data and therefore our world, and human-induced climate threat of insurmountable proportions largely attributed to corporate activity.

We are witnessing a sharp and unprecedented decrease in economic activity all over the world, with an incalculable impact on companies and households globally. In a way, Covid-19 has managed to unravel the dangerous impact of our cumulative decisions in conducting business as usual.

The question that reverberates is “how did we get here?” And, more importantly, “how do we get back on track?”

The concepts of efficiency and efficacy provide a lens to reflect upon the state of our world. Efficiency can be simply described as doing more with less, or achieving more outputs with the same – or fewer – inputs.

Efficacy, on the other hand, is more strategic. It’s about arriving at one’s destination – let’s say the state of sustainable development – while efficiency is about reaching that state of sustainable development earlier, or at a lower cost.

During the last few decades, we have directed our collective efforts towards achieving a rising GDP at a national level, with a consistent emphasis on increasing revenues and profitability at the firm level, while putting together a set of global and national institutions that work more or less in coordination to make this possible.

As a society, we assumed that a relentless focus on growth across all quarters would increase per capita disposable incomes and solve our societal problems. All we needed to do was get there as efficiently as possible.

This meant a concerted effort to reduce slack, create leaner structures, outsource and expand our global supply chains, standardise, automatise and replicate. Embedded within this approach of efficiency, there has been an overoptimistic lack of consideration for alternative scenarios.

We naively took for granted that, notwithstanding financial crises and epidemics, the scenario of a general growth pattern worldwide was the holy grail. As such, there was no point in thinking about other possibilities, and worse indeed, to invest resources in preparedness.

Indeed, the popularity of total quality management systems was based on the idea of waste elimination. Simply keeping assets aside for an unlikely eventuality would be against the very idea of efficiency.

The problem is this: glorifying efficiency has greatly contributed to the health crisis that we are facing today. We are witnessing some of the most advanced countries in the world struggling to produce low-technology products such as masks, because it was cheaper to have them imported.

In their determination to be efficient, nations disregarded the immense expected value of having essential capacities available when needed or, conversely, the terrible cost of their absence.

Countries with the best medical schools did not prepare enough doctors, and even fewer doctors trained in public health and health policies, sometimes with the rationale that limiting the number of physicians would reduce healthcare costs. When the surge of outpatient care left available capacity in hospitals, this capacity was rarely kept in reserve.

In an understandable effort to contain the increasing costs of healthcare, most countries chose not to have slack resources. In other words, we increased efficiency by making redundancies redundant, and we forgot efficacy in the meantime. Now we realise that we arrived faster and cheaper at a wrong destination.

With the benefit of hindsight, we propose that business systems could be made more resilient to exogenous shocks with proper redundancy planning.

Interestingly, the original sense of the word redundancy, as per the 1995 Longman dictionary, was understood as “the quality of containing additional parts that will make a system work if other parts fail”. In a curious linguistic twist, we now think of redundancy as an unwelcome excess, an excrescence to get rid of, as in a “redundancy plan”.

As we have witnessed, that lack of redundancy has exposed several firms to disrupted production lines due to shortages in essential raw materials. The result is an extremely precarious healthcare crisis with hospitals lacking basic life-saving resources, both human and physical.

We are not suggesting that one forgets efficiency altogether. There is indeed a moral case for using resources as efficiently as possible. We all want trains to arrive on time, the cash collection cycle to shorten, and performance parameters to improve.

But the path to our fabled destination of sustainable development is not linear. It cannot be attained without maintaining some redundancy.

Tanusree Jain is an assistant professor in ethical business at Trinity College Dublin, while Adrian Zicari is professor of management control at the ESSEC Business School in Paris

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