D.C.

Singhal Introduction to Intl Mgt

Introduction to
International Management

D.C.Singhal

IIFT, New Delhi

July 1, 2015
D.C.Singhal Introduction to Intl Mgt
Session Overview
1. Concept of Management and International Management
2. Reasons for going international
3. What is of foreign product?
4. Organization growth and international entry mode decision
5. Condition for effective internationalization
6. Indias attractiveness for International Business
7. Many faces of capitalism
8. Role of NRI
9. Technological Advancements
10.Characteristics of the Global Manager
Appendix 1 International vs. Domestic Management
Appendix 2 Effectiveness and Efficiency Compared 2
D.C.Singhal Introduction to Intl Mgt
1. What is Management?
Management in business and organizations is the function that
coordinates the efforts of people to accomplish goals and objectives using
available resources efficiently and effectively.
Management is necessary because:
1) A desired result must be established, and
2) Someone must be delegated, or assume the authority, to obtain,
organize, guide, and direct those resources toward the desired result.

Levels of Management
Most organizations have three management levels: first-level, middle-level,
and top-level managers. These managers are classified in a hierarchy of
authority, and perform different tasks. In many organizations, the number
of managers in every level resembles a pyramid.
(1) Top-level managers Comprises the board of directors, president, vice-
president, CEOs and other members of the top-level executives.
(2) Middle-level managers Comprises of general managers, branch
managers and department managers
(3) First-level managers Consist of supervisors, section leaders, 3
foremen, etc.
D.C.Singhal Introduction to Intl Mgt

Functions of Management
In 1916, a French coal mine director named Henri Fayol wrote a book
entitled Administration Industrielle et Generale - Prevoyance,
Organisation, Commandement, Controle, [General and Industrial
Administration - Planning, Organisation, Command and Control] which set forth
five distinct functions of managing applicable in any industry. In the 1950s,
management textbooks began to incorporate some of Fayols ideas. Fayol
originally set forth five management functions, but management book
authors have condensed them to four as follows:
(1) Planning How the job is to be done?
(2) Organizing Classifying and assigning responsibilities to staff
(3) Directing/Leading Guiding the staff in the right direction
(4) Controlling Comparing desired performance against actual and taking
corrective action (or modifying the plan, if necessary).

(The fifth function was staffing i.e. selecting the right man for the right job.
It could be included under organizing)

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D.C.Singhal Introduction to Intl Mgt

1. Planning 2. Organizing

4. Controlling 3. Directing

Fig. The Four Functions Of Management

(Some experts include Staffing as a Fifth Function)

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D.C.Singhal Introduction to Intl Mgt
Concept of International Management
International Management (IM) is the management of business operations
for an organization that conducts business in more than one country.
International management requires knowledge and skills above and
beyond normal business expertise, such as familiarity with:
(1) The business regulations of the nations in which the organization
operates,
(2) The understanding of local customs and laws, and
(3) The capability to conduct transactions that may involve multiple
currencies.
Managers must be trained in facets of international business that are not
normally the concern of domestic managers. On a broad scale, these
issues include:
(1) A knowledge of other countries' infrastructures,
(2) Business practices (including accounting practices), and
(3) Foreign trade dynamic (i.e. changes in supply and demand and prices)
In addition, international managers must be knowledgeable about:
(1) International exchange rates and
(2) The legal-political and socio-cultural traits of other countries, as well as
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(3) International competition.
D.C.Singhal Introduction to Intl Mgt
Further, International managers must be:
(1) Multilingual,
(2) Sensitive to cultural differences, and
(3) Have knowledge about global management theory, philosophy,
psychology, and their practical applications.
Acquiring the skills to be a successful international manager is
demanding, especially since the global market will continue to expand in
future.

Conducting international business requires the proactive management of

diverse and uncertain variables, such as:
(1) Risks associated with the political and legal climate, the business
environment, the economy, and the social culture are an ever present
reality.
(2) Other risks stem from limitations in legal jurisdiction, since
international customers may not be subject to the same laws and
enforcement mechanisms as their foreign suppliers. Knowing how to
manage risk in international business can help to keep the company
profitable around the world.
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D.C.Singhal Introduction to Intl Mgt

The issues involved in international management span the whole gamut

of those concerning management in general, but there are several areas
of special interest, including:
International finance and currency matters
Cross-cultural communication and understanding
Foreign legal requirements and accounting practices
International competition

To ignore such issues can lead to risks like ineffective marketing

approaches, poor labor-management relations, adverse currency
fluctuation effects, and other problems. Conversely, companies that
successfully manage these issues have greater potential to extend their
marketing reach, increase market share, improve efficiency and
profitability, decrease costs, and enjoy other competitive advantages.

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D.C.Singhal Introduction to Intl Mgt

2. Reasons for going international

The many reasons for going international include:
Pursue opportunities abroad. If an opportunity to go international
exists, and if you dont avail it someone else will.

Extend the market reach. While a domestic company may have a

great deal of market share already from a domestic standpoint,
expansion overseas offers the ability to take that to the next level.

Improve profitability. This is a basic reason why companies go

international.

Reduce cost. Access to low cost resources, inputs like raw material,
power, labour enable cost reduction

Market Diversification. This reduces dependence on existing

markets. If the economy is going bad in one country or region of the
world, it may be doing better in another region. Those businesses that
are located in more than one location may find they are better able to
weather the storm of adverse fluctuations in the economy. 9
D.C.Singhal Introduction to Intl Mgt
Improve Brand Value. Building brand value may seem like it goes
along with market share, they are two different things. Brand value
incorporates not only financial success but also more intangible terms
such as respect in the industry. Those who conduct business overseas
may be seen as more serious about their products and business. This
can lead to greater opportunities both at home and in the foreign
market.

Avail Tax Incentives. Tax incentives by host country are another

reason some businesses may choose to expand to overseas. It could
also lead to a greater financial gain to the company, and possibly lower
price for the customers.

Overcome Trade Barriers. Restrictive trade barriers like tariff, quotas,

political reasons and other trade practices can make export to foreign
country expensive. Hence other measures to go global are adopted,
such as setting-up manufacturing facilities abroad instead of exporting.

Avail Incentives (offered by host Government) . Aside from tax

exemptions and tax holidays, incentives such as subsidy, loans at
cheaper rates, access to properties etc. can be incentives to go global.
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D.C.Singhal Introduction to Intl Mgt

Warning Increased Cost of Doing Business. While these benefits of

going International are attractive to business owners who have a product
or service they believe will work overseas, there are some drawbacks that
also must be taken into account. The cost of doing business between
multiple overseas locations is often substantially higher. Those who do
not know the business laws of a certain country may need to hire
business consultants or business lawyers specific to the country in
question. This will add to expenses and could possibly make any move
overseas financially unfeasible.

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D.C.Singhal Introduction to Intl Mgt
3. What is of foreign product?
A foreign product is one that is made in country other than ones own.
The perception of a foreign product and its country of origin affects their
purchasing behaviour. Much research relating to consumer attitudes
toward foreign products has been conducted in large industrialized
countries. Consumer ethnocentrism and feelings of animosity result in
reluctance to purchase products from particular country. Product
evaluation is, however, mediated by perceived lower availability of
domestic alternatives and travel and exposure to other countries.
[ethnocentrism = Conviction of own cultural superiority, a belief in or assumption
of the superiority of the social or cultural group that a person belongs to]
Yet, while some consumers prefer global or foreign products and view
them as symbols of status, others exhibit strong preferences for domestic-
made products and have negative attitudes towards foreign or imported
products. For example, Toyota had a relatively poor performance in selling
its products in continental Europe including France. Aside from
chauvinistic (prejudiced) concern for domestic manufacture, there were
also genuine concerns that Toyotas models were out of touch with French
and general continental European preferences. In the end, Toyota felt that
the new small car, which was to be made at Valenciennes stood better
chance of succeeding in France if it is made in France. 12
D.C.Singhal Introduction to Intl Mgt

Where there are no perceived domestic alternatives, consumers appear

more likely to evaluate foreign products favorably. Equally, if they are
internationally oriented as manifested in interest in foreign travel, they
are less likely to be ethnocentric and to evaluate foreign products
negatively.

In the recent years, competition among brands has become more

complicated as the number of foreign brands have increased. As a result,
many foreign brands compete with older local brands, and this is more
prevalent in developing markets such as Turkey. Consumers in
developing markets possess various intentions for purchasing foreign
products.

Research into the underlying psychological reasons that drive their

purchase decisions is of significant importance, as this can help
marketers understand why consumers in developing countries choose to
purchase foreign products. Additional insight into consumers
purchasing intentions can help support and enhance the strategic
positioning of the foreign products.

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D.C.Singhal Introduction to Intl Mgt

An increasing number of consumer markets are characterized by global

competition. A growing number of companies in many industries
including U.S., European and Asian firms now operate on a global level.
The trend towards the globalization of markets is fueled by changes in
consumer knowledge and behavior. Satellite television and international
travel have made consumers more aware of other cultures' life-styles and
products, and increased the power of global brands such as Sony, Coca-
Cola and Nike.

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D.C.Singhal Introduction to Intl Mgt
4. Organization growth and international entry mode decision
Growth is something for which most companies strive, regardless of their
size. Small firms want to get big, big firms want to get bigger. Organizational
growth has the potential to provide businesses with many benefits,
including greater efficiencies from economies of scale, increased power,
greater ability to withstand market fluctuations, increased survival rate,
greater profits, and increased prestige for organizational members. Since
the ultimate goal of most companies is profitability, most companies will
measure their growth in terms of net profit, revenue, and other financial
data.

Organizations achieve growth through:

Joint Venture/Alliance Forming joint ventures or alliances
Licensing Llicensing its advanced technology
Sell Off Old Winners to Focus on New Lines Divesting mature "cash cow"
operations to focus on new and innovative lines of products or services.
New Markets Tapping into new markets
New Product Development Creation of new products or services

Organizational growth may require as much planning, effort, and work as

starting a company.
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D.C.Singhal Introduction to Intl Mgt

Having decided to enter a foreign market, a organization has to

decide on the mode of entering the foreign business. Among the various
alternatives the organization can choose between
A non-equity contractual mode (e.g. licensing),
An equity-based cooperative venture (joint venture), or
A wholly owned subsidiary.
Each of these modes of entry has different implications for
The degree of control that can be exercised over the foreign operation,
The resources it must commit to the foreign operation, and
The risks that it must bear to expand into the foreign country.

Thus, identifying the appropriate entry mode in a given context is

necessarily a difficult and complex task. The choice, however, is a critical
determinant of the likely success of the foreign operation.

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D.C.Singhal Introduction to Intl Mgt

Unfortunately, much of the existing literature on the choice of entry

mode focuses in a piecemeal fashion on many seemingly unrelated
factors including country risk, country familiarity, the stage of country
development, technology, and transaction costs. There is a clear need
for a unified framework within which different factors can be placed and
the relationships between them analyzed. Such a framework could go a
long way towards clarifying and perhaps resolving the debate in the
literature on the appropriate choice of entry mode. Moreover, for
managers, the advantage of such a framework is that it allows them
to combine a set of insightful but often partial analyses to better
address the totality of the multidimensional and complex entry
mode decision.

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D.C.Singhal Introduction to Intl Mgt

5. Condition for effective internationalization

The conditions for selecting a country for internationalization are:

Existence of market in the selected country

Effective cost-benefits of the investment
Repatriation of profits
Availability of infrastructure
Availability of raw materials
Availability of required manpower
Suitable business laws.
Incentives offered by the host country
Political and financial stability

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D.C.Singhal Introduction to Intl Mgt

For example, among the European countries, the UK has had the most
inward investment from Japanese companies. Japanese investments
were influenced by the UK governments financial support and tax
concessions. Also, a relatively cheap but well educated workforce in UK
and English language familiarity of Japanese business people. Also
drawings of products, instruction sheets, computer programmes were
available in English without the need for further translation for the UK.
This meant lower risks of misunderstandings and mistranslations,
smoothing communication between the new UK location and Japanese
head office.

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D.C.Singhal Introduction to Intl Mgt

6. Indias attractiveness for International Business

There are compelling reasons why India is an attractive destination for
investment. These include:

A large market (with a population of more than 1.2 billion)

A well trained workforce
Good knowledge of English
Well established judicial system
Well endowed mineral and agricultural assets
Low cost manpower

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D.C.Singhal Introduction to Intl Mgt
To make India more attractive for International business, steps require to
be taken to improve infrastructural facilities and enhancing labour market
flexibility.
Any trip outside urban areas highlights the problem of bad infrastructure
in India. Roads are shoddy and are strewn with potholes. Even in urban
areas, the infrastructure needs to be improved. The other problem is
availability of power. It is very common for towns and villages to face daily
blackouts averaging more than 8 hours a day. The other infrastructure
issues are the ports and airports, both which are either too small or bad
when compared to world-class ports and airports.

The rigidities in Indian labour markets makes it practically impossible to

shed excess labour or get rid of nonperformers.

Looking beyond these two constraints, a number of studies and reports

have highlighted other weaknesses that hinder Indias attractiveness for
international business. These indicators are: (1) starting a business, (2)
dealing with licenses, (3) employing workers, (4) registering property, (5)
getting credit, (6) protecting investors, (7) paying taxes, (8) trading across
borders, (9) enforcing contracts and (10) closing a business.
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D.C.Singhal Introduction to Intl Mgt
The World Bank conducts an annual study on Doing Business in India.
In the Report on Doing Business 2014, India is ranked a rather inglorious
134 out of 189 economies. The report considers 10 indicators and they
are fairly self-explanatory. These are presented in table below.
Table 1: Doing Business in India
Rank (out of 189)
Ease of Doing Business (Overall Rank) 134
1 Starting a Business 179
2 Dealing with Licenses 182
3 Getting Electricity 111
4 Registering Property 92
5 Getting Credit 28
6 Protecting Investors 34
7 Paying Taxes 158
8 Trading Across Borders 132
9 Enforcing Contracts 186
10 Resolving Insolvency 121
Source: Doing Business 2014: World Bank
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D.C.Singhal Introduction to Intl Mgt
Unctads Annual World Investment Report 2014 shows that India has
slipped to the fourth place from third in the list of preferred investment
destinations for transnational corporations due to concerns over tax and
regulatory environment in the country. China remained the top draw
followed by the US. But, Indonesia has overtaken India as third most
preferred destination for 2014-16. In the last report, India was placed third
but a series of recent policy flip-flops and tax notices, which many in the
government refer to as tax terrorism, have dented Indias image.
Table 2 The Top 5 Investment Destinations
CHANGING ORDER
Top 5 Investment Destinations According To TNCs
RANKINGS
2014-16 2013
China 1
US 2
Indonesia 3
India 4
Brazil 5
Source: Unctads Annual World Investment Report 2014 23
(UNTAD = United Nations Conference on Trade and Development)
D.C.Singhal Introduction to Intl Mgt
Table 3 Number of clearances required in India for setting-up
Power Plant (90) and Captive Coal Mines (53)
Good for justifying vast pool of government officials but of little relevance today!
BUMPY ROAD
Approvals During During
Required Construction Commissioning
90 53
No. of Compliance Reportings For Power Plant For Captive Coal Mines
Without imprisonment clause 777 1205
With imprisonment clause 559 551
Routine/daily reporting with 270 230
imprisonment clause
Non-routine with 289 320
imprisonment clause
No. of Legislations 46
Governing integrated power
projects
That have not been 10
reviewed/amended in 50 years
From: The Times of India, New Delhi, June 27, 2014, p22 24
D.C.Singhal Introduction to Intl Mgt

Table 4. Corruption Perception Index (CPI)

of Selected countries by Transparency International
Country CPI 2012 out of 100 Rank out of 178
0= Most Corrupt
100 = Least Corrupt
Denmark 90 1
Japan 74 17
USA 73 19
China 39 80
India 36 94
Pakistan 27 139
Somalia 8 174

http://www.transparency.org/cpi2012/results/
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D.C.Singhal Introduction to Intl Mgt

7. Many faces of Capitalism

Capitalism is an economic system in which capital assets are privately
owned and goods and services are produced for profit in a market
economy. In a capitalist economy, the parties to a transaction normally
determine the prices at which assets, goods, and services are
exchanged. Central elements of capitalism include the process of capital
accumulation, competitive markets and wage labor.
Capitalism has existed under many forms of government, in many
different times, places, and cultures. Following the demise of feudalism,
capitalism became the dominant economic system in the western world.
Later, in the 20th century, capitalism overcame a challenge by
communism and is now the dominant system worldwide, with the mixed
economy (comprising of privately owned as well as state owned
enterprises) being a dominant form in the industrialized western world.
Economists, have taken different perspectives in their analysis of
capitalism and recognized various forms of it in practice, all
characterizing varying levels of state activity and public capital control.
In the 20th century defenders of the capitalist system often replaced the
term capitalism with phrases such as free enterprise and private
enterprise. 26
D.C.Singhal Introduction to Intl Mgt

Different forms of Economic Systems

(1) Capitalism Individualism and competition are fundamental to

capitalism. In a purely capitalistic society, individuals are responsible for
protecting their own interests in the marketplace and within their own
communities. The potential success of each individual is also valued.
People are encouraged to direct their talents in a way that benefits
themselves, such as by starting a business or entering a highly profitable
profession.

(2) Socialism Socialism relies on governmental planning, rather than the

marketplace, to distribute resources. While it is usually possible for
individuals living in a socialist country to own businesses or offer
professional services directly to consumers, they are taxed heavily on their
profits. Public services are typically numerous and funded by taxpayer
money. Citizens are expected to work, but the government provides
services such as education, healthcare and public transportation for free or
at very low cost. Socialist countries also often have extensive social welfare
systems to aid the unemployed, disabled, and elderly.

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D.C.Singhal Introduction to Intl Mgt
In addition to paying higher taxes, business owners in socialist countries
are often expected to comply with very strict labour laws designed to
protect workers against exploitation. These laws include restriction on
work hours and mandate regular vacations, sick time, and leave for
numerous reasons, such as birth or adoption of a baby. Employers are
typically not expected to provide health insurance coverage since medical
care is usually provided as national health care systems.

(3) Communism While it is a different economic system, many people

confuse socialism with communism. Under communism everything is
owned communally, or by everyone. Ideally there is no government or
class division, and no money; each person contributes to society as best
as he or she is able, and takes from society what he or she needs. The
decisions made by that society are supposed to benefit the people as a
whole, not any individual.
Historically, countries that have been called communist actually
practiced some form of socialism, usually run by one political party. The
state typically owned all forms of production and practiced very strict
central planning meaning that government decided how all resources
were to be used. Many critics argue that most governments that are called
communist are really very different forms of the words true meaning.
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D.C.Singhal Introduction to Intl Mgt

(4) Mixed Economies Very few societies are purely capitalistic or purely
socialistic, although most are strongly one than the other. The United
States is considered to be a capitalist, but the Social Security system
which provides support for people who are unable to work, is socialistic.
Sweden is considered by some people to be a socialist country because
of its high tax rate and large welfare system, but the majority of the
industry in the nation is in private hands, which is capitalistic.

Critiques Those who criticize socialism observe that heavy taxation to

provide equal social services to all citizens can discourage business
owners from innovation and excellence, given that the owners wont
personally profit from his or her efforts. In addition, when the government
plans the economy, some critics question whether officials and their
policy advisors really understand what is best for a countrys citizens;
such socialist governments may not give their citizens a choice in
deciding what kinds of services they really want or need. In addition,
capitalist critiques of generous socialist welfare programmes note that
these programmes may discourage people from working, as people may
be able to live reasonably well on government benefits rather than having
to hold a job. As a result, families may slip into generational poverty, as
the children may grow up feeling entitled to government support. 29
D.C.Singhal Introduction to Intl Mgt

8. Role of Non-Resident Indians (NRIs)

An NRI is a person resident outside India who is either a citizen of India or a
person of Indian origin (PIO).

NRIs are capable of playing a crucial role in the countrys economy.

Investments. India is one of the most favourable destinations for foreign

investors. NRIs can invest in the country.

Remittances. Indian diaspora (i.e. scattered people of common origin) can

provide remittances. In 2012 the remittances to India touched the highest
level at $70 billion (with China as close second at $ 66 billion) in migrant
remittances. It helped in a large way to address the current account deficit.

Expertise. NRIs not only bring investments but also expertise to the
country.

The recent depreciation of the value of the Indian rupee's against the US
dollar and the subsequent hike in interest rates offered by banks on non-
residents' deposits have led to a considerable rise in the flow of NRI
deposits to India, according to bank reports. 30
D.C.Singhal Introduction to Intl Mgt

NRIs also help to project the image of India abroad. For example, NRIs in
the US played a crucial role in pressurizing the US Government to pass
the Indo-US Nuclear Deal. NRIs help to project a favourable view of India
in the countries they live.

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D.C.Singhal Introduction to Intl Mgt

9. Technological Advancements
Technological innovation is almost certainly the key driver of long-term
economic growth. Development economists around the world directed
their policy advice toward ways to raise the savings rate in an economy
and on ways to channel savings into productive investments.

While technological advancement has been the key long-term driver of

economic development, what happens when there is no technological
advancement?
Joseph Stalin (1878-1953, Soviet dictator) provided the most compelling
example of trying to use a high saving rate as the key to economic
development when he promoted forced saving, in a very brutal manner,
to promote industrialization in the Soviet Union. Yet the Soviet economy
had very little technological change in the civilian sector for decades
and, as a result, came about as close as possible to a case of a high
saving rate combined with stagnant technology. In a planned-economy
context: Capital accumulation without technological advancement
eventually leads to the end of economic growth.
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D.C.Singhal Introduction to Intl Mgt

Economic theory demonstrates that if one economy is a technological

innovator while another economy is a technology adopter. The innovator
will maintain a lead in income per capita relative to the adopter. Much of
Asia, with roughly two-thirds of the worlds population, is currently in the
transition from being a technological adopter to becoming a center of
innovation as well. Japan made that transition many decades ago.

A central finding of economics over the past fifty years has been that
technological advancement is critical to long-term economic growth.
More recent research distinguishes between the crucial roles for
technological diffusion in the catch-up phase of economic development
and innovation once economies reach a fairly high level of development.

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10. Characteristics of the Global Manager

In addition to the attributes required of a good monocultural manager,
a multicultural manager requires to have additional attributes. These
include:

Understanding of different cultures

Cultural agility and ability to adapt quickly
Knowledge of different languages
Communication skills
Ability to see opportunities as they relate to the company
Able to motivate people of different cultural backgrounds
Teambuilding with people from different cultural backgrounds
Understanding of global economies
Willingness to learn

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D.C.Singhal Introduction to Intl Mgt

These multicultural attributes are aside from the characteristics as a

monocultural manager which include:

Vision: ability to set the path others will follow

Teambuilding: ability create an environment that people want to follow
Ability to instill trust in others
Open mindedness
Confidence
Self-awareness (to know what he knows and what he does not)
Integrity
Technical competence
Social Intelligence and a capability to getting along

Even high performers with proven technical skills at home may find that
their styles and attitudes do not work well overseas.

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Appendix 1 International vs. Domestic Management

Any business, international or domestic, must address a host of
commercial issues such as price, product quality, delivery dates, amount
of capital contribution, etc. depending on the nature of the matter being
considered. Conflicts over these issues need to be resolved or they can
become barriers to management. Further international management is
influenced by several common factors not normally present in domestic
management. These are:

1. Culture differences International management involves cross

cultural dealing. Culture shapes how people think, behave and
communicate and affects their business style. For example, there is a
cultural difference between a Chinese public sector plant manager in
Shanghai and an American division head of a family company in
Cleveland. This can make doing business difficult.

2. Language differences This will involve translation of communication

between one language and another. It may also involve the use of
nterpreters. Both these factors can cause distortion in what was
intended to be communication
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D.C.Singhal Introduction to Intl Mgt

3. Ideology This may be different such as capitalism, socialism,

communism, Islamic fundamentalism etc. Ideologies define what is right
and wrong, direct human conduct to goals, and inspire social change.

4. Foreign bureaucracies and organizations This can cause frustration

and delays.

5. Foreign laws and governments This includes income which may be

taxed by two governments, contracts which may be governed by two or
more legal systems, disputes which may be decided by two or more
courts and so on.

6. Multiple money Different currencies involve money transfer across

monetary boundaries. Hence there is risk of changing exchange rates.

7. Instability and sudden change in circumstances This is greater in

International deals than domestic deals. Wars, revolutions, closed trade
routes (such as closure of Suez Canal), currency devaluations,
nationalization, sudden change in governments, sudden spurts in oil
prices, are just a few examples.

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These issues have a twofold impact in international management.

(i) First, these issues usually lengthen the time to make an agreement.
As a rule, international deals take longer to conclude than purely
domestic deals.
(ii) Second , they increase the risk of disagreement, an agreement that
may not last.

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D.C.Singhal Introduction to Intl Mgt
Appendix 2. EFFICIENCY vs. EFFECTIVENESS
"There is nothing quite so useless as doing with great efficiency something
that should not be done at all." - Peter Drucker
Definitions
Efficiency: Performing or functioning in the best possible manner with the
least waste of time and effort.
Effectiveness: Adequate to accomplish a purpose; producing the intended or
expected result
Efficiency
Tries to get the maximum output with minimum input
Considers the present state
Does things consistently
Focuses on process

Effectiveness
Measures if the actual output meets the desired output
Considers long term strategy
Desires innovative ways of working
Focuses on results 39
D.C.Singhal Introduction to Intl Mgt

EFFICIENCY vs. EFFECTIVENESS

Doing the right thing is more important than doing the thing right.
- Peter Drucker

EFFICIENCY

RESOURCES PROCESS OUTPUT

EFFECTIVENESS

TARGET

Effectiveness: Doing the right things

Efficiency: Doing things right
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D.C.Singhal Introduction to Intl Mgt
Efficiency vs. Effectiveness with a 22 grid below. By
referring to this chart, CEOs and sales leaders can find an
optimal balance between effectiveness and efficiency.
Pursuit of Appropriate Goals /

Effective
Doing Right Things

Pursuing right goals, but Pursuing right goals and

inefficient (costs are high) efficient (high ROI and
cost efficient)
Ineffective

Pursuing wrong goals Pursuing wrong goals

and inefficient (not but is efficient (not
producing enough and producing enough but
are expensive) low cost)

Inefficient Efficient
Use of Resources /
Doing Things Right
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D.C.Singhal Introduction to Intl Mgt

URLs of Youtube Videos on Effectiveness and Efficiency

https://www.youtube.com/watch?v=z1kb56vywQU
Effectiveness vs Efficiency [6.15 minutes]

https://www.youtube.com/watch?v=maTQCD3p78Y
Efficiency & Effectiveness, 3 Levels of Managers [3.34 minutes]

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