Is Our Obsession with Efficiency Backfiring?

This article is a summary of Episode 51 of our Designing Tomorrow podcast. Each episode is a conversation between Jonathan Hicken, Executive Director of the Seymour Marine Discovery Center, and Cosmic’s Creative Director, Eric Ressler.

Let's come straight out the gate. In social impact, work efficiency is not about doing more with less. Efficiency is about doing the right thing at the right time.

In our work, impact is the game — delivering impact. And obviously there's the business side of it too, and you got to make those things work together, the double bottom line so to speak.

Nevertheless, in some of these huge intractable problems, sometimes efficiency in the traditional sense — in the sort of doing more with less — is actually counterproductive. And so it creates the wrong set of incentives to think about the work, which ultimately can be damaging.

The Efficiency-Innovation Spectrum

With all things, there's always a balance. There's this spectrum between efficiency and — sorry to use a buzzword — innovation. And those two things are impossible to do at the same time. If you're really going to be innovative in your approach to anything, but especially social impact, especially when you're spinning that up, efficiency's going to have to take a hit. Because to be innovative requires experimentation, requires doing things differently, it requires learning. And all of those things are counter to being very efficient. 

Let’s put innovation and efficiency as two ends of a spectrum. And think about efficiency as optimizing. It is optimizing something you're already doing to do that thing better. And innovation is coming up with something new that could potentially drive your impact even more strongly, even more quickly — even if it's not efficient.

Putting innovation and efficiency on the same spectrum is not the most obvious framing. You might put efficiency and effectiveness on the spectrum instead. 

But these are two mindsets that we're constantly having to balance in our own work and that we see our clients trying to balance as well. The end result that we should be looking for is effectiveness or results or impact. And there's not one way to get there.

The Cultural Zeitgeist of Optimization

We are living in a moment where optimization and efficiency are front of mind. Think about even self-optimization and all these protocol-based ways of exercising and living and health and all this stuff that's very top of mind right now in culture. And that is an efficiency and self-optimization mindset. 

And that is bleeding into the same cultural zeitgeist around hyper-optimization and efficiency. And our sector is often criticized for being inefficient or ineffective or both — wasteful — which is kind of hilarious because that leads to the common issue of trying to get one person to do three people's jobs, which is not efficient but can be mistaken for efficiency.

So when we're making decisions in how we run Cosmic and the work that we do — and even to a degree how we make investments for our clients or recommend our clients make investments — there are those two ways of thinking about it. Are we trying to do something that's about efficiency? Even something as simple as how do we reduce cost of acquisition for a new donor or how do we make this click-through rate 10% better or whatever. Those are sometimes framed in the mindset of efficiency or optimization.

Here's a quick story. We run advertisements in Stanford Social Innovation Review, SSIR, and we've been running ads consistently over the years, but especially this year we've been really trying to be very consistent in our ads there. And we recently changed copy on our ad and that led to a 400% increase in click-through rates. And we did not do that in the mindset or modality of efficiency.

We did the exact opposite and we re-messaged our ad to really speak to the current state of the space and the market. You could say that that was an efficiency play, but really it was an innovation play and that's the way we were thinking about it. We did not change that ad so that we could get a slightly better click-through rate. We wanted to do a better job at emotionally reaching people where they are right now. And it led to an efficiency boost if you want to think about it that way. This is the way we think about it in our daily work.

Are We Working on the Right Things?

For social impact leaders, the constant question is: are you working on the right things? In many ways that is the measure of efficiency. Are you putting the resources that you have to the activities that you believe are going to generate the most impact? And in that regard, not all work is created equal.

Qualifying donors or building a client pipeline — implementing efficient systems or smarter systems is an example of spending your time on the right thing. Because the result of those kinds of tools is that you're talking to the right donor at the right time. And you're getting those conversations when they need to happen, or you're talking to the right people. In that regard, that's an efficient use of time — to be talking to the right donors.

But in the same regard, not all work is created equal. If we're talking about how to do expense reporting more efficiently, or how to get our team spending less time on expense reporting and more time on mission delivery, that is an efficiency conversation worth having. Because it ultimately results in people spending more time on the right things.

A counter example is something like relationship building, especially in social impact work. There's a lot of just showing up that is required to build relationships, build trust, build partnerships, and those things take time. 

Efficiency Is a Trap

That example is a perfect way to prove that claim, because if you start to look at everything through the lens of measurable efficiency, there's a lot of ways to fall into traps that are very shortsighted. And especially — maybe this comes from our broader perspective of brand building over a more transactional performance-based marketing approach. And there's room for both. 

But if you look at things in too short of a time horizon or try to measure everything based on absolute optimization or absolute efficiency, you will find a way to be more efficient in the short term. But the long-term result is that you are actually less effective, which is not efficient at all.

When We Start Serving the Process

What happens, especially over a period of time, is that we begin almost naturally — the trap is we begin to serve the process. We show up at work to serve the process. And when that shift happens, that's a real bad thing for any organization — when you've moved away from showing up to serve the impact or serve the mission and you're there to serve the process.

That's one of the risks with over-optimizing.

Results Over Efficiency

Although we said efficiency is a trap. We also think that bureaucracy is real. There is a lot of unnecessary over-academic thinking that happens sometimes in this space or unnecessary barriers or processes, especially in the academic world or in larger organizations in general. So it does really come down to a balance at some level, but if we get hyper-focused on efficiency, it can be unhelpful. 

If we are results oriented, if we measure results and then backtrack — how do we get to those results and are our results trending in the right direction or not? — ultimately that's all that matters at the end of the day. 

If you look at a lot of the programs or institutions or sectors that are being scrutinized right now around efficiency, if we looked at that instead through the lens of results, there would be situations where there are ineffective organizations that should be improved. Now, is the solution to improving them to just come in with a sledgehammer and just break everything? No, that's stupid. But are there ways that we can measure results and outcomes and the trends of those and be clear-eyed about those things and not think about it as an efficiency exercise, but as a result-based exercise? That's a better way to think about it.

The Risks of Dismantling Bureaucracy

We don’t want to dunk on bureaucracies writ large, because they exist for a reason. There are good checks and balances that are necessary in this kind of work, in any kind of work, especially when we're dealing with taxpayer money or we're dealing with donor money — it's important that we're being honest in those ways. And bureaucracies can force some honesty.

But when it comes to making an organization — especially one that's big and maybe has existed a long time — the risk of dismantling bureaucracy in the name of efficiency is real human suffering in some cases, or whatever your mission or your impact is. 

Unfortunately, that's what's going on at the federal level. On paper, nobody is opposed to using taxpayer money in a more effective way, but an approach where the impact of slashing means literal lives.

Not only that, but in the name of efficiency, entire departments are being shut down and then right away rehired when we realized, oh, we actually needed those people. The least efficient process you could possibly go through — if anyone's ever gone through hiring and firing processes — that is the least efficient thing to do, to lose people that you need to do the work well. So a lot of things are happening right now. There's some kernel of truth to some of these initiatives. There's something there, and the implementation is just being done piss poorly.

We don’t do political commentary, so we don't necessarily need to deconstruct what DOGE is doing, but the lessons apply to the social impact space too.

The Pressure on Our Sector

There's some real risk to our sector right now and to some of these ideas being applied to our sector. Our sector is being scrutinized — nonprofits are being shut down, nonprofit as a tax status is being scrutinized right now. So there is going to be some pressure around effectiveness and efficiency. This is an important conversation to have. We don't need to get too political with it, but at the same time it's bleeding into our space and into the zeitgeist. 

For social impact leaders, it's good to have some responses in mind, some good arguments around the choices that you're making and how you make decisions and thinking about this — instead of being caught in a situation where you need to defend yourself and you don't have the tools to do that properly.

The Overhead Myth

We've taken on the overhead myth many a time in our writing and publishing. We do so because it matters. And those of us who are overhead myth crusaders, now's the time to speak up and stand strong. The overhead myth — for people who aren't familiar — is this idea that when organizations are held accountable to a certain percentage of overhead, rather than being held accountable to delivering results, that can damage our ability to actually do our work well.

We need overhead to be a business, to hire people and to have the ability to have resources and invest in our people, invest in research, et cetera, et cetera. And the real fallacy is thinking that if all we know about an organization is their overhead percentage, we know how effective they are as an organization, which is just obviously not true.

Right now with this air of efficiency in our culture in the country, not just federal funders, but institutional funders or private funders, you name it — when asked about overhead right now, it's our responsibility to stand up against this overhead dynamic, arguably more strongly than we've ever had to.

Do organizations get asked about overhead? Yes, from time to time. Sometimes about the overall overhead number, sometimes about the percentage of overhead versus program work. Some organizations get rejected from grant opportunities because of an overhead number that is too high. So yes, it happens.

For leaders who get asked this question frequently and find it to be an obstacle, just change the conversation to results. More often than not, it's successful — that approach works.

Executive Pay and Double Standards

We should definitely measure our overhead. But it's just been this kind of shortcut in the space for funders and for the general public to assess whether or not an organization is credible or reputable based on this one number — which is not the best number to use because it says nothing about the impact.

And this bleeds into, to some degree, to questions about how much an executive director should be paid. There was a post the other day on LinkedIn about an executive director — can't remember the organization — that was paid $700,000 a year, which is a very high salary for an executive director. 

Is that too high? Maybe. Maybe not. There's so many factors that go into that. Is there an argument to be made that maybe that salary is a bit high and some of that money should be going to other staff members on the team versus "program work"? But these are not the conversations that are being had about the business world in the same way. And there's obvious reasons for that. And like most things, there’s a natural balance here. But if anything, clearly the balance is skewed towards the nonprofit space and the social impact space being extra scrutinized compared to our profit-driven counterparts in a way that is unhelpful to results and impact.

The People Problem

We think about how staff and people fit into this equation. When our incentives — especially from funders — are to reduce overhead, the result is that we end up asking some individuals to do three jobs, for example. A lot of organizations in the space operate with $5M or less. These are not huge organizations. And so we're already thinking about how to do a lot of work with a limited staff. So if we're incentivized to drive that even harder, drive the team even harder — now we're starting to get worried about the people on our team and the loss of efficiency when staff turn over.

It hurts effectiveness and efficiency when staff turns over, or when staff are asked to do more than is a reasonable amount of work. We know that task switching is inefficient and ineffective. We know that burnout is the likely result of that at some point, which means turnover, which is certainly inefficient.

A Fundraising Staff Example

Let's put a real world example on what we're talking about here. If you needed to keep your overhead below 10%, and so that meant you had to pay your fundraising staff below a certain number in order to remain under your 10% figure, well now you're paying someone too little and asking them to do a lot and they turn over. 

If your incentive is to keep your number under 10%, then what you should be doing is just refusing to pay somebody more. You could make more money and that would be another way to make the percentage drop. 

That's a perfect example of the trap of efficiency. Because if instead the incentive were how could we possibly raise more and more money for this organization in a way that's going to translate to more and more impact. Then all of a sudden you have much more leeway to play with things like the overhead percentage and staff salaries and all of those kind of things. 

Now, it's not a magic bullet fix. You can't necessarily do that until you do raise more money. So there's so many Catch-22s in this space, especially when it comes to fundraising and investing and those kind of things.

But it changes the mindset within the leadership team and potentially that extends into the board and the board chair and whoever else might be making big decisions — maybe even major donors who are part of this. And when we’ve seen organizations hyperfocus on results and effectiveness over efficiency, they end up becoming more efficient as a result of that.

Systemic Efficiency: The Ecosystem Problem

Now, there is one kind of efficiency that is worth scrutinizing for any organization, and we would call that ‘systemic efficiency.’ In Santa Cruz, California, where our HQ is, the local area is likely oversaturated in environmental organizations. There are too many of us doing the same kind of work. And then it does make you think about efficiency for the collective impact of our work. 

If we're all paying for rent and we're all paying for HR, we're all paying accounting, all of these sort of duplicated roles — is that ultimately for the collective good of this particular county, is that the best use of resources available collectively in our space?

You could look at this from an efficiency framework and lens or an effectiveness framework or lens and come to the same conclusion. Yes in Santa Cruz, but probably globally speaking, there's probably too much redundancy in the social impact space — meaning multiple organizations are working on the same issue with no meaningful difference or unique approach that makes it logical to have those two organizations exist.

Good Intentions, Redundant Work

We believe that this is done in good faith. People aren't acting in bad faith. What often happens is some leader is really passionate about an issue and decides that the best possible way for them to make an impact on that issue is to start an organization — sometimes a nonprofit and sometimes a B corp. And either because they didn't do enough research or because in their research they didn't find someone already working on that issue, they end up spinning up an org where possibly the more effective thing to do would've been to contribute to an org that was already doing this work that had past knowledge.

We work with a lot of environmental organizations and climate justice organizations who are working globally and locally. And we hear all the time that there's a lot of new people coming into the space because they care a lot about the issue, which is good. But they don't understand how much work has been done, how many experiments have been done, how many lessons have been learned. Which is one of the reasons we're so passionate about communications in general in this space being better — because there's a lot of really good work happening that stays hidden on a Google Drive somewhere. It doesn't get shared out to the industry or in a way that cuts through enough that people in this space hear about it or learn about it.

There is an issue with efficiency and/or effectiveness in the ecosystem. That's a bigger problem than how we can hyper-optimize every process within our organizations at the risk of not actually being impactful in the end.

How Do We Build Strong Businesses Without Over-Optimizing?

Efficiency in the traditional definition has its place, but should not be the singular compass point where we're orienting our work in order to drive impact.

So how do we as leaders create strong businesses when we're saying, Don't worry about efficiency so much?

We do need to worry about efficiency to a degree. There's diminishing returns on efficiencies. If we look at our internal processes and our internal team and we're just spinning our wheels, we're not really making a big impact, we're wasting time, we're wasting money — that's obviously not good. It's also not effective. 

That's why we prefer to think of effectiveness over efficiency. Effectiveness encompasses efficiency and more than just efficiency. It's a more holistic way of looking at it. If you are going to measure based on effectiveness, by the nature of doing that, you are also measuring efficiency in a more healthy way.

Efficiency is healthy to a degree. And then once you get past that degree there's diminishing returns on hyper-optimizing for efficiency.

The turning point — instinctually the one that comes to mind — is: Culturally, has your organization started to serve the process? And if you can notice that that is happening, you've probably gone too far. It's probably time to start breaking stuff.