Efficiency and Effectiveness

The closed-system focus of the classical theorists emphasized the internal efficiency of the organization; that is,
these perspectives addressed only improvements to the transformation process. Efficiency is the ratio of outputs
to inputs. Systems theory highlights another important dimension for managers: effectiveness. Effectiveness is
the degree to which the organization's outputs correspond to the needs and wants of the external environment.
The external environment includes groups such as customers, suppliers, competitors, and regulatory agencies.
Even a firm that has mastered Taylor's scientific management techniques and become extremely efficient is
vulnerable if, it does not consider the effectiveness of its output.