Efficiency: Enemy of Innovation?

Efficiency: Enemy of Innovation?

The science of management in the industrial age was all about efficiency. It had to be. The whole concept of capitalism is based on efficiency. An entrepreneur acquires capital at a cost, and that capital must be made to produce profit at a rate higher than the cost of capital. If you borrowed money at 10% to start your business, you had to make it earn 11% at least. That meant controlling costs ruthlessly and milking every bit of productivity from every penny’s worth of capital.

But talk to a systems administrator about efficiency. She’ll tell you that, in terms of percentage of server utilization, there are two numbers you never want to approach, numbers that will cause midnight pages and pale-faced panic. The first number, of course, is 0%. Everything is down! The second, more surprising but equally frightening number is: 100%! At 100% utilization, everything breaks, because you have no more capacity for work.

Now a capitalist might look at a well-run data center, and his first instinct is, “Look at all this waste! Half these servers are sitting idle most of the day.” But the clever sysadmin will tell him that spare capacity is what keeps the data center running. If your capacity is 100 requests per second, a 101st request can bring the whole system to a screeching halt. 100% and 0% are equally disastrous. If you want your Internet business to operate, you must have spare capacity.

Now, I’m not arguing that efficiency is somehow evil. If you are in a capital intensive business today, you still need to use that capital efficiently. Of course the capitalist theory goes that capital + labor = profit, but what often gets lost in the quest for efficiency is the fact that people are not labor. That’s a false assumption, and that formula was never correct (which should not surprise anyone given its source). It’s not labor that turns idle capital into profit; it’s creativity and its more productive sister, innovation.

In order to innovate, in order to create, you need some very special ingredients. First, you need people. Smart people, with a desire to solve problems, the ambition to tackle big ones, and the hubris to believe that they can do something better than everyone who has come before them. These people then need time to analyze the problem and devise or improvise solutions, and they need resources (read: money) to test those solutions.

So no, efficiency is not necessarily the enemy of innovation. Saving time and money on existing processes creates spare capacity that can be allocated to innovation. The extra people, time, and money that are not being used to operate the existing business, instead can be applied to solve the next big problem and give birth to new lines of business. But too many business leaders still see people as labor which, if not making capital productive, they label as “waste”. Spare capacity is inefficiency in their eyes. They see the tools of innovation as inefficiency, and so they attempt to eliminate it. With the result that they eventually become irrelevant because the industry has passed them by.

Don’t fall into this trap at your company. In established processes like manufacturing, efficiency creates value. In exploratory processes like innovation, efficiency destroys value. Use efficiency to generate spare capacity from your established processes. Then, use that capacity to tackle big problems. To stay relevant and keep growing, accept that creativity is inefficient, and pay the cost to gain the future rewards.

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