Effectiveness

A component of Productivity. This component measures the Effectiveness of an Intermediate Cost Driver (ICD/O), the number of ICDs required for an Output. This component is the ratio of the units of an ICD to the units of Output (e.g., sub-assemblies completed per customer order). Effectiveness times Efficiency equals Productivity. (see also
Efficiency, Intermediate Cost Driver,
Productivity

)

Example 1:

Milacron moved to single sourcing, offering suppliers years of business in return for improving such things as quality control and delivery schedules. (Year 1990 – SIC 3559)

Explanation: The reduction of suppliers enabled the Company to take some of its ICDs and spread them over more units of Output. The work the Company does to manage a supplier produces ICDs. The Company reduces the number of these ICDs by reducing the number of suppliers. This improves the Effectiveness of the ICDs.

Example 2:

Wheelabrator acquired its third "on-site" co-generation facility. (Year 1996 – SIC 4911)

Explanation: The acquisition of this facility enabled the Company to use its co-generation management ICDs over more Output.

Example 3:

Embrex licensed another company to manufacture and market one of its vaccines for chickens. (Year 1993 – SIC 2836)

Explanation: This licensing deal enabled Embrex to spread the fixed cost development ICDs over more units of Output.

Example 4:

A machine tool builder standardized the form elements, such as hole diameter, that designers can use for new parts. This enables the manufacturing process to use the same machines, tools and jigs. (Year 1991 – SIC 3541)

Explanation: This Company used parts and materials that standardized tools could handle. This enabled the company to use the set-up ICDs with more Output.

Example 5:

About 800 dealers were dropped by Case or have gone out of busines as a result of the company's merger with International Harvester. (Year 1986 – SIC 3523)

Explanation: The Company eliminated low-volume dealers so that the ICDs associated with dealer relations would spread over more units of Output.

Example 6:

The Unisys plant has reduced the number of suppliers to 107 from 750 five years ago. This enables the Company to work more closely with each supplier on quality. (Year 1987 – SIC 3571)

Explanation: This reduction in number of suppliers enabled the Company to spread its quality control ICDs over more units of Output.