Eliminating waste is the holy grail of management science—but overemphasizing it leads to a host of problems. Companies should pay just as much attention to resilience. In his landmark work The Wealth of Nations, Adam Smith showed that a clever division of labor could make a commercial enterprise vastly more productive than if each worker took personal charge of constructing a finished product.
Four decades later, in On the Principles of Political Economy and Taxation, David Ricardo took the argument further with his theory of comparative advantage, asserting that because it is more efficient for Portuguese workers to make wine and English workers to make cloth, each group would be better off focusing on its area of advantage and trading with the other.
Competitive strategy. The High Price of Efficiency. From the Magazine January—February The Voorhes. The managerial belief in the unalloyed virtue of efficiency is as strong as ever. It is embodied in multilateral organizations aimed at making trade more efficient; ensconced in foreign direct-investment liberalization, deregulation, privatization, and waste-fighting governments; and promoted in the classrooms of every business school on the planet.
But, argues Roger Martin, director of the Martin Prosperity Institute, an excessive focus on efficiency produces startlingly negative effects and creates the potential for social disorder, as rewards go to an increasingly limited number of efficient competitors.
The remedy, he says, is a stronger focus on a less immediate source of competitive advantage: resilience. To this end, organizations can limit scale, introduce productive friction, promote patient capital, create good jobs, and change the way we teach. Read more on Competitive strategy or related topics Business models , Business and society and Business education.
